TaxTMI 
TaxTMI 
2014 (4) TMI 117
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....ership firm engaged in the business of running a guest house. The assessment year in issue is 2008-09. The petitioner-assessee filed its return of income tax on 25.09.2008, which was processed under Section 143(1) of the Act. Subsequently assessment was framed under Section 143(3) on 29.10.2010 on taxable income of Rs.18,75,616/-. 3. By the assessment order expenses of Rs.12,26,508/- were disallowed. The said expenses comprised of Rs.11,63,391/- paid as conversion charges and Rs.63,117/- as annual property tax with respect to the portion of the building used as guest house. 4. The petitioner-assessee filed an application under Section 264 of the Act, seeking revision of the assessment order and claimed allowance of the expenditure of Rs.1....
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....e owners became entitled to the conversion of the land use. The petitioner firm, paid a sum of Rs.11,63,391/-towards conversion charges and Rs.63,117/- as property tax in the year 2007-08. The petitioner claimed this sum of Rs.12,26,508/- (Rs.11,63,391/- + Rs.63,117/-) as revenue expenditure and debited the same in the profit and loss account. 11. This claim of the petitioner was rejected by the Assessing Officer, while framing the assessment for the year 2008-09. 12. Aggrieved by the disallowance of the said expenditure, the petitioner filed the application under section 264 of the Act, seeking revision of the assessment order and setting aside of the disallowance of the said sum of Rs.12,26,508/-. 13. The Commissioner of Income Tax par....
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....ty. There being an enduring benefit from the said conversion. 17. The conversion charge paid for conversion of the property from residential to commercial was a one time charge and not a recurring expenditure incurred from year to year. The one time conversion charge for conversion of the property from residential to commercial use is distinct and different from annual house tax paid at commercial rates. Annual house tax paid on commercial rate is paid for the use during the financial year. It is an annual and reoccurring payment which the land lord, tenant or the occupant must make under the applicable statute. The one time conversion charge permanently converts the use of the property from residential to commercial/mixed land use. Once t....
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....e cannot be treated as running business expenditure and cannot be claimed as a deduction under Section 37 of the Act by the petitioner/assessee. At best it would be payment on behalf of and at the behest of the owners, who were also partners of the petitioner. 19. Individual owners and the partnership firm are two distinct tax entities for the purpose of the Act and are liable to pay income tax on their income after reducing revenue expenditure. But in the facts of the present case while deciding the question of enduring benefit, we cannot be oblivious and ignore the practical reality that unless the partners of the petitioner want the partnership firm i.e. the petitioner cannot continue to operate and run the guest house. Therefore, while....