TaxTMI 
TaxTMI 
2017 (8) TMI 334
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....commercial premises is one of the major business activity of the company. 2) On the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in confirming by not allowing C/f of Long Term Capital Loss arising on sale of preference shares by wrongly treating the same as equity shares and thus applying provisions of sec 10(38) of the Income Tax Act, 1961" 3. In so far the Ground of appeal No.1 is concerned, the relevant facts are that are that the assessee company is the owner of an office premises at 106- 107, Bajaj Bhavan, Nariman Point, Mumbai, which was given on lease to one of its group concern, M/s. Bajaj Hindustan Ltd for a period of 60 months from April 2009 to March 2014. During the year under consideration, assessee earned rental income of Rs. 71,89,200/- from the lease of office premises. It transpires from the record that in the return of income originally filed on 30/09/2011, such rental income was offered to tax under the head 'income from house property' while in the revised return of income filed on 28/03/2013, assessee claimed the assessability of such rental income under the head 'profits and gains from busin....
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....tive for the assessee pointed out that leasing of property was one of the objectives of the assessee company and in this regard drew our attention to clause (9) of the objects incidental or ancillary to the attainment of main objects contained in the Memorandum of association of the assessee company. The Ld. Representative for the assessee also referred to the Balance sheet and P&L account for the year under consideration to point out that the rental income of Rs. 71,89,200/- was almost one third of the total income with the balance incomes being by way of dividend, interest on loan and fixed deposits, etc. It has also been pointed out that the funds deployed for the loan portfolio were comparable to the cost of the premises, which have been leased out in order to justify that leasing of property was a major activity. At the time of hearing, Ld. Representative for the assessee relied upon the judgments of the Hon'ble Supreme Court in the case of Rayala Corporation Private Ltd. vs. ACIT, 386 ITR 500 and in the case of Chennai Properties & Investments Ltd., 373 ITR 673 in support of the plea that the rental incomes is assessable as business income. 3.3 On the other hand, the L....
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....dgment of the Hon'ble Supreme Court in the case of Chennai Properties Investments Ltd.(supra). 3.6 We have also carefully examined the plea set-up by the assessee based on the judgment of the Hon'ble Supreme Court in the case of Chennai Properties & Investment Ltd.(supra). Before we proceed further, we may refer to the following discussion in the judgment, which sums up the features of the case before the Hon'ble Supreme Court:- " The Memorandum of Association of the appellant-company which is placed on record mentions main objects as well as incidental or ancillary objections in clause III,(A) and (B) respectively. The main object of the appellant company is to acquire and hold the properties known as "Chennai House" and "Firhavin Estate" both in Chennai and to let out those properties as well as make advances upon the security of lands and building or other properties or any interest therein. What we emphasize is that holding the aforesaid properties and earning income by letting out those properties is the main objective of the company. It may further be recorded that in the return that was filed, entire income which accrued and was assessed in the said retur....
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....essee. The fact-situation in the case of Rayala Corporation Private Limited(supra) was that the assessee therein had only one business and that was of leasing its property and earning rent therefrom. This is not the situation in the case before us. No doubt, Hon'ble Supreme Court noted that letting out of shops and properties was not the main business of the assessee as per the Memorandum of Association, but significantly it noted that it was the only business and, therefore, it proceeded to apply the law laid down in the case of Chennai Properties Investments Ltd.(supra), and upheld assessment of rental income as 'business income'. The fact-situation in the present case is quite different inasmuch as it is nobody's case that leasing of property is the only business of the assessee-company or that it is the only activity undertaken by the assessee-company. At the time of hearing, it was a common point between the parties that assessee had earned interest income from lending activities, which has been declared as business income by the assessee-company as also accepted by the Tribunal in the past. Thus, the fact-situation in the instant case is qualitatively distinct and, theref....
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.... the long term capital loss on sale of Preference shares. 4.2 The Ld. Departmental Representative has not opposed the plea of the assessee to set-aside the issue back to the file of Assessing Officer. 4.3 In the above background, we restore the issue back to the file of the Assessing Officer who shall revisit the issue on the basis of the submissions of the assessee and decide afresh in accordance with law. Needless to say, the Assessing Officer shall allow the assessee a reasonable opportunity of being heard and thereafter, pass an order, on the said limited aspect, in accordance with law. 4.3 Thus, appeal of the assessee is partly allowed as above. 5. Now, we may take up the appeal of the Revenue in ITA No.789/Mum/2015. The Revenue has raised the following Grounds of appeal:- 1."Whether on the facts and in the circumstances of the case and in law, the Id.CIT(A) was justified in deleting the disallowance of Rs. 78,99,196/- made under section 14A read with Rule 8D(2)(i) of I.T.Rules-1962 without appreciating the fact that assessee had neither proved the nexus that the investments have been made out of interest free funds available with it nor furnished the util....
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....wable under section. 14A of the Act. Alternatively, the Assessing Officer worked out the disallowance out of interest expenditure in terms of rule 8D(2)(ii) of the Rules of Rs. 34,45,372/-. The disallowance with respect to the expenses incurred for earning exempt income was made at Rs. 25,45,561/- by applying rule 8D(2)(iii) of the Rules. Accordingly, in the final assessment the Assessing Officer restricted the disallowance to Rs. 91,38,871/- under section 14A of the Act instead of the amount of Rs. 1,04,44,942/- computed in terms of rule 8D of the Rules because the total expenditure debited in P&L account was only Rs. 91,38,871/-. 6.2 The CIT(A) did not agree with the Assessing Officer with regard to the disallowance out of interest expenditure, as according to him, the interest expenditure on borrowed funds could not be allocated towards equity shares and, therefore, he deleted the disallowance of interest made by the Assessing Officer. With regard to the disallowance out of expenses, the CIT(A) observed that disallowance worked out by the Assessing Officer under rules 8D(2)(iii) of the Rules at Rs. 24,45,561/- could not exceed the expenses debited in the P&L account and accor....
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.... also noteworthy that over-all interest income from loans & advances so made to its subsidiaries and other corporate bodies amounted to Rs. 2,48,56,400/- whereas the interest expense has been relatively lesser [Rs 78,99,196/-] and therefore from that point of view [i.e. concept of netting of interest] also disallowance u/s 36(1)(iii) was not called for. Accordingly, the disallowance, if any, u/s 36(1)(iii) also cannot be upheld." 7.1 In this context, the relevant facts are as follows. In para - 5 of his order, the Assessing Officer has noted that assessee had raised unsecured loan on which interest was paid @10% per annum, whereas assessee had advanced monies to Bajaj International Realty Pvt. Ltd. and Bajaj Infrastructure Development Co. Ltd., which were its subsidiary and stepdown subsidiary respectively at a lower interest rate of 7.50%. On being asked to justify, the assessee contended that the advancing of monies to its subsidiaries was on grounds of commercial expediency and that the funds were advanced for utilization by the subsidiaries in their business of construction activity. The assessee company relied on the judgment of the Hon'ble Supreme Court in the case of ....