TaxTMI 
TaxTMI 
2017 (10) TMI 314
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....e the issues involved in all the appeals are common arising out of identical set of facts, therefore, same were heard together and are being disposed of by way of this consolidated order. 3. In order to understand the facts and the issues involved in the impugned appeals and the implication thereof on the grounds raised by the respective parties, we are taking up the cross-appeals for the assessment year 2008-09, the finding on major issue would apply mutatis mutandis in all the succeeding appeals, as similar facts are permeating through in all the years. In the assessee appeal following grounds of appeal have raised:- "1. That the Commissioner of Income-Tax (Appeals) erred on facts and in law in upholding the action of the assessing officer in treating rental income of Rs. 27,37,99,940 received by the appellant from letting out of retail space in mall, as "business income", as opposed to "income from house property" declared by the appellant in the return of income. 1.1 That the Commissioner of Income-Tax (Appeals) erred on facts and in law in holding that where house property constitutes commercial asset, rental income earned from letting out thereof, would a....
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.... City Walk" at Saket, New Delhi, which became operational from 29th September, 2007. The commercial area of the said complex was divided into following categories by the assessee:- * Shopping mall / Retail space *Service apartments * Office space * Multiplex * Parking * Surplus business space for general/common use. 5. Out of the aforesaid categories of constructed /developed space, the assessee; firstly, had given retail space on lease to various lessees, on which it has charged rent /license fee aggregating to Rs. 27,37,99,940/- during the year. This amount of license fee received from lease of retail space has been offered to tax under the head "income from house property" in accordance with the provisions of section 22. Secondly, so far as other spaces such as office space, multiplex and service apartments, etc. which were constructed/ developed for outright sale, were shown as "stock-in-trade" in the books of account. The incomes earned from sale of such stock-in-trade have been offered to tax under the head "business income". Lastly, the income arising from the balance space, which were retained by the assessee and used....
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....24(a) of Rs. 8,11,43,540/-. He also disallowed 1/5th interest for pre-construction period amounting to Rs. 1,32,43,886/- and also deduction of interest on loan of borrowed funds for Rs. 8,75,83,776/-. Accordingly, total disallowance worked out by the Assessing Officer on this score aggregated to Rs. 18,19,71,202/-. 7. Before the ld. CIT (A), the assessee, after explaining the entire facts and background of the case, submitted that the assessee was granted perpetual lease in respect of commercial plot in District Centre, Saket, New Delhi, vide lease deed dated 14/10/2004 for the purpose of construction and development of retail space, service apartments, multiplex, etc. It was submitted that in order to retain the ownership in the shopping mall and to ensure better control and continued management interest, the assessee right from the construction of the project had decided to adopt a model whereby the ownership in retail space was to be retained by the assessee with a view and intention to let out the same on lease and sell other spaces, viz., multiplex, service apartments and office space on completion of construction. This intention is also gathered from the Director's report ....
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....and material, the assessee pointed out that rental income earned by the assessee from letting out retail space has rightly been offered under the head income from house property. In support, the assessee had also relied upon catena of decisions, which have been dealt and incorporated by the ld. CIT (A) from pages 8 to 16 of the appellate order. 9. The ld. CIT (A) after analysing the entire facts and material placed on record held that the income from 'license fee' from retail space has rightly been taxed as business income by the Assessing Officer. His relevant conclusion on this issue is as under:- "The issue to be considered is whether the appellant is intrinsically using the asset owned by it for the purpose of business or exploiting the property for earning rent. The appellant is the owner of a mall, which is the only commercial asset it owns. The appellant is also using portions of the mall for its business. The appellant has given on rent retail shops situated in the mall. The appellant provides services to the tenants for which it charges amounts which are offered to tax under the head profits and gains of business and profession. The mall is being used ....
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....s, he pointed out that the same was done only in the first year when the complex was ready, i.e., relevant to the previous year of the assessment year 2008-09. Thereafter, there has been no sale and assessee has been constantly showing license fee from retail as income from house property and the balance receipts from other spaces have been shown as business income. Mr. Vohra submitted that now this issue stands squarely covered by the judgment of the Hon'ble Supreme Court in the case of Raj Dadarkar & Associates vs. ACIT, reported in [2017] 248 Taxman 1 (SC). In the said judgment, the Hon'ble Apex Court has analysed this issue threadbare and has also discussed and distinguished its earlier judgments in the case of Chennai Properties and Investments Ltd. vs. CIT, reported in [2015] 231 Taxman 336 (SC) and also the judgment in the case of Rayala Corporation (P.) Ltd. vs. ACIT, reported in [2016] 243 Taxman 360 (SC). In this also the substantial question of law for consideration before their Lordships was, whether the Tribunal was right in holding that the income earned by the appellant from shopping centre was required to be taxed under the head income from house property in....
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....shop as he got the license/lease for managing the market for 12 years which he had constructed and sub-licensed to various shopkeepers. He also strongly relied upon the judgment of the Hon'ble Delhi High Court in the case of Jay Metal Industries Pvt. Ltd. Vs. CIT reported in [2017] TIOL 1338 and also the judgment of the Hon'ble Delhi High Court in the case of CIT vs. Ansal Housing and Construction reported in [2016] 389 ITR 373. 13. We have heard the rival submissions, perused the relevant finding given in the impugned order as well as the material referred to before us. The core issue before us for adjudication is, whether the income shown by the assessee as 'license fee' from lease of retail space is to be taxed under the head 'income from house property' or 'business income'? Briefly recapitulating the relevant facts which have a very vital bearing on the issue involved are that, during the relevant financial year 2007-08, the assessee completed the construction of complex known as "Select City Walk" in Saket, New Delhi which became operational from 29th September 2007. The commercial area of the aforesaid complex has been bifurcated by the assessee into following cat....
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....ncome under various heads, which is reproduced as under:- Description A/Y 2012-13 A/Y 2011 12 A/Y 2010-11 A/Y 2009-10 A/Y 2008-09 Amount Rs Amount Rs. Amount Rs. Amount Rs. Amount Rs. Licence Fee 1,064,732,734 944,402,018 815,868,034 753,245,472 273,799,940 Sale of Constructed space - - - - 1,547,164,866 Electricity, AirConditioning& Water Ch. 112,332,735 98,947,355 104,378,313 121,076,611 33,529,374 Common Area Maintenance Charges 173,905,187 148,353,011 134,022,750 138,413,554 54,794,000 Parking Charges Received 42,012,165 38,845,204 37,654,420 35,805,060 10,781,330 Misc. Event and Signage Income 142,638,087 123,224,960 99,381,380 67,237,517 11,137,973 Sale of Trading Goods* 156,055,617 11,015,208 - - - Other Income Dividend Income on Investment - - 491,079 6,617,876 763,867 Security Deposit forfeited - - 4....
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....e Assessing Officer and the ld. CIT (A) is completely divorced from the facts and material placed on record before them. On these facts and background, it would be very relevant to refer to the ratio and principle laid down by the Hon'ble Supreme Court in the case of Raj Dadarkar & Associates vs. ACIT (supra). One of the main substantial question of law for consideration before the Apex Court was as under:- "Whether in the facts and circumstances of the case, and in law, the Tribunal was right in holding that the income earned by the appellant from the shopping centre was required to be taxed under the head "income from House Property" instead of the head "Profits and Gains from the Business or profession" as claimed b the Appellant?" 15. The relevant facts as noted by the Hon'ble Apex Court can be summarized in the following manner:- * The Maharashtra Housing and Developing Authority (MHADA) had constructed a building. However, there was a reservation for Municipal retail market on the plot on which MGADA had put up the construction. Therefore, MHADA handed over the ground floor [stilt portion] of the aforesaid buildings to Market Department of Municip....
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....ls so as to constitute the receipts from them as business income. The assessee received income by letting out shops/stalls, and therefore, the same had to be held as income from house property. 16. On these facts, the Hon'ble Apex Court, after analyzing various provisions contained in sections 22 to 27 and also various judgments of its own Court including that of Sultan Bros. (P.) Ltd. Vs. CIT reported in [1964] 51 ITR 353 (SC) and the judgment in the case of Chennai Properties and Investments Ltd. Vs. CIT (supra) and Rayala Corporation (P.) Ltd. vs. ACIT, held that the income earned by the assessee is to be treated as income from house property. The relevant finding and observation of the Hon'ble Apex Court are as under:- "14. There may be instances where a particular income may appear to fall in more than one head. These kind of cases of overlapping have frequently arisen under the two heads with which we are concerned in the instant case as well, namely, income from the house property on the one hand and profits and gains from business on the other hand. On the facts of a particular case, income has to be either treated as income from the house property or as....
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....h practically all things. Therefore, it is not possible to say that a particular activity is business because it is concerned with an asset with which trade is commonly carried on. We find nothing in the cases referred, to support the proposition that certain assets are commercial assets in their very nature." Finally, the Apex Court, after analyzing various judgments, concluded that where assessee has obtained a property on lease, constructed various shops and stalls and gave the same to various persons on sub-license basis, then the income from sub-license was to be taxed as income from house property and not as business income. 17. Here in this case also, qua the retail space, the assessee was not carrying on any systematic or organized activity of providing service to the occupiers of the shops, albeit other service charges pertaining to the common maintenance, event and advertising, parking fees, etc., has been offered separately for tax under the head profits and gains of business of profession. So far as retail space is concerned, it is lease rent simplicitor, which is evident from the copy of sample lease deed which has been placed by the assessee in its paper book fr....
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....ders of the Assessing Officer as well as the Ld. CIT (A). 21. Since the assessee's only grievance before us is that, the disallowance under section 14A should be restricted to the extent of exempt income of Rs. 7,63,867/-, therefore, following the ratio and principle laid down by the Hon'ble Delhi High Court in the case of Cheminvest Ltd. Vs. CIT (supra), we restrict the disallowance at Rs. 7,63,867/- as disallowance of expenses cannot exceed the income earned. Thus, ground No.2 of the assessee is partly allowed. 22. In the result, appeal of the assessee is partly allowed. 23. Now we shall take up the Revenue's appeal for assessment year 2008-09, vide which following grounds have been raised:- 1. The ld. CIT(A) has erred in deleting the addition of Rs. 2,63,55,191/- made by the Assessing Officer on account of interest on optionally fully convertible debentures after applying the provisions of section 2(22)(e) of Income Tax Act, 1961. 2. The ld. CIT( A) has erred in deleting the addition of Rs. 8,16,38,515/- made by the Assessing Officer on account of disallowance of depreciation on plant and machinery after noting down discrepancies regarding purchase....
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....om which has been assessed and brought to tax in the assessment order. Inflow and utilization of borrowed fund by the holding company is not in dispute and the payments on account of interest cannot be held to be bogus or mere diversion of funds simply because OFCDs have been subscribed by the holding company. In any case, the holding company is a separate entity from the assessee in the eyes of law and therefore, presumption of diversion of fund does not arise. 26. So far as taxing of deemed dividend under section 2(22)(e) is concerned, it was submitted that provision of deemed dividend cannot be held to be applicable at all, because it is payment on account of interest in lieu of funds borrowed from the holding company by way of OFCD which is not in the nature of distribution of any accumulated profit to the shareholder. Lastly, heavy reliance was placed on the judgment of the Hon'ble Delhi High Court in the case of CIT vs. Aniket Limited. 27. The ld. CIT (A), held that AO has made the addition u/s 2(22)(e) only and the provisions of deemed dividend cannot be applied in this case, as there is no loan or advance given, it is just payment of interest on loan. Therefore, s....
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.... to sister concern for non-business purposes. Thus, the ground raised by the Revenue has no merits and the addition has rightly been deleted by Ld. CIT (A). Accordingly, ground raised by the revenue is dismissed. 31. So far as second ground is concerned, i.e., addition of Rs. 8,16,38,515/- on account of disallowance of depreciation on plant and machinery is concerned, the ld. CIT D.R. submitted that assessee has made a claim of depreciation on second set of plant and machinery, which has been disallowed by the Assessing Officer on the ground that evidence of purchase of assets has not been filed nor original purchase bill with proof of payments by account payee cheque have been produced for verification. Out of the details furnished of various plant and machineries, the assessee could not furnish the details with regard to purchase of plant and machinery amounting to Rs. 54,42,56,769/-, on which assessee-company has claimed depreciation @15%. Secondly assessee could not prove that these plants and machinery have been put to use during the year for the purpose of business. Accordingly, AO has rightly disallowed the entire claim of Rs. 8,19,38,515/- and Ld. CIT(A) has erred in law....
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.... of plant and machinery which were installed and put to use on 29/9/2007 itself, which was the date of commencement of operation of the complex. Before the ld. CIT (A), assessee had filed various evidences to substantiate and corroborate the claim of depreciation on plants and machinery installed as on 29th September, 2007. The assessee made another attempt before the Ld. CIT (A) to show that the entire complex along with plant and machinery was put to use on 29/9/2007 itself along with details of purchase of plant and machinery. All these details were sent to the Assessing Officer to verify and submit a remand report, but instead of examining the same, he objected for such an admission of evidence. Whence, assessee has duly shown that the plant and machinery for sums aggregating to Rs. 54,42,56,799/- were not only installed but also put to use on 29/9/2007, when the complex started its operation and huge business income has been shown and assessed by the AO, then depreciation on such plant and machinery has to be allowed. Journal entry for capitalization of plant and machinery from capital work-inprogress passed on 31/3/2008 does not in any manner can lead to an inference that ass....