TaxTMI 
TaxTMI 
2017 (12) TMI 521
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.... real estate company with its principal business being collection of rent from the properties let out. The return of income for the year under consideration i.e. A.Y. 2009-10 was filed by it on 29.09.2009 declaring a total income of Rs. 13,39,22,690/-. During the year under consideration, service charges of Rs. 32,61,829/- were earned by the assessee from the tenants and after claiming expenses against the same, net loss of Rs. 72,66,056/- was claimed by the assessee as business loss. According to the A.O., service charges received by the assessee were an integral part of rental income and it, therefore, could not be said that the assessee was carrying on the business of rendering services. In this regard, he placed reliance on the decision of Hon'ble Kolkata High Court in the case of CIT vs Shambhu Investment Pvt. Ltd. 249 ITR 47 and held that the service charges received by the assessee were chargeable to tax in its hand under the head "income from house property". Accordingly, the claim of the assessee for business loss was disallowed by him and after allowing standard deduction of 30%, net income of Rs. 22,83,278/- on account of service charges was brought to tax by him in the ....
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.... Court in the case of Karnani Properties Ltd. vs CIT (82 ITR 547) held that the rental income simplicitor is assessable under the head "House Property" but service charges received from rendering services in a continuous and organized manner was assessable as "Business Income". The appellant submitted that the said appellate order of the IAC was accepted to the Department and in all the subsequent assessments which were framed u/s 143(3), the services charges were assessed as business income. The appellant particularly referred to the assessment order for AY 2007-08 wherein the AO had specifically observed that service charges were assessed as "business income". I therefore find force in the submissions of the appellant that this particular issue had already been settled by the Ld. IAC in its own case which had been accepted by the Department in the earlier years. The AO in his order had however relied upon the decision of the Calcutta High Court in the case of CIT vs Shambhu Investment (P) Ltd (249 ITR 47) to support his conclusion that service charges were assessable under the head "House Property". I however find that the facts of the said decision are distinguishable from th....
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....ied upon by the A.O. is squarely in favour of the revenue. He contended that the Ld. CIT(A) however has ignored the said decision of the Hon'ble Jurisdictional High Court while giving relief to the assessee on this issue. 6. The learned counsel for the assessee, on the other hand, strongly supported the impugned order of the Ld. CIT(A) giving relief to the assessee on this issue and submitted that the reasons given by the Ld. CIT(A) on page 10 and 11 of his impugned order while deciding this issue in favour of the assessee may be taken into consideration. He also contended that the decision of Hon'ble Kolkata High Court in the case of Shambhu Investment Pvt. Ltd. (supra) relied upon by the revenue is not applicable to the facts of the present case as rightly held by the Ld. CIT(A) while the decision of Hon'ble Supreme Court in the case of Karnani Properties Ltd. (supra) and that of Kerala High Court in the case of Attukal Shopping Complex (P) Ltd. (supra) has direct application. 7. We have considered the rival submissions and also perused the relevant material available on record. It is observed that the assessee company, in addition to letting out the properties owned by it, was....
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....rmity in the impugned order of the Ld. CIT(A) holding that the service charges received by the company from the tenants is assessable under the head business income by relying on the said decision. The same is therefore upheld dismissing ground no 1 of revenue's appeal. 8. In ground no 2, the revenue has challenged the action of the Ld. CIT(A) in holding that interest on fixed deposit is to be assessed in the hands of the assessee under the head "business income" instead of "income from other sources". 9. During the year under consideration the assessee company had received interest income of Rs. 1,89,55,918/- on bank deposits etc. and the same was offered to tax as business income. According to the A.O., the only activity of the assessee company being letting out of property on rent, the interest received on bank deposits etc. was chargeable to tax under the head income from house property and not business income. He accordingly brought the entire interest income received by the assessee company during the year under consideration to tax in its hand under the head "income from other sources". 10. The action of the A.O. in treating the interest income as "income from other sourc....
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....services & amenities to the tenants. The interest earned by investing the interest free security deposits and the service charges received from the tenants taken together formed the revenues earned by the appellant in the business of rendering of services & providing amenities. According to AO the appellant had claimed expenses were 178% of the service charges received from the tenants. I however note that the finding of the AO was misplaced. As stated in the above paragraph, the service charges were not the only income earned by the appellant in the business of rendering of services & providing amenities. Instead the bank interest which was earned on fixed deposits made out of refundable security deposits obtained from the appellant also formed an integral receipt of the said business. Both taken together were sufficiently more than the expenses claimed by the appellant. I therefore note that the allegation of the AO that the appellant had claimed higher expenses so as to avoid taxes was incorrect and contrary to the facts of the appellant's case. The AO had further observed that the appellant had claimed a fictitious loss of Rs. 72,66,056/-. I however find that even this obser....
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....e earned by the assessee company. Having regard to all these facts of the case, we are of the view that the interest income earned by the assessee company is chargeable to tax as business income as rightly held by the Ld. CIT(A). and not as "income from other sources". In that view of the matter, we uphold the impugned order of the Ld. CIT(A) and dismiss ground no 2 of the revenue's appeal. 13. In ground no 3, the revenue has challenged the action of the Ld. CIT(A) in holding that rental income received by the assessee company from its subsidiary company be assessed on actual basis instead of considering the fair rent as provided under section 23 of the Income Tax Act, 1961. 14. The assessee company had given a number of properties on rent in Kolkata, Mumbai and other places to M/s. KCT & Bros. Ltd., its sister concern. As noted by the A.O. during the course of assessment proceedings, the rent charged by the assessee company to KCT for all the properties was abysmally low. He also noted that the rent so charged was very low in comparison to the rent charged by the assessee company to other licensees of the same building. Applying the rate of rent charged by the assessee company t....
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....al Sales) Limited which was protected under the Rent Control Laws was justified and could not be tinkered with. After going through the facts of the case and the submissions, I find merit in the submissions of the appellant. Undeniably the properties were let out to KCT & Bros (Coal Sales) Limited more than 3 to 4 decade ago and the tenancies have been held to be genuine by the Department. I am in agreement with the appellant that these properties were subject to tenancy laws and rent control laws and therefore the rent charged from KCT & Bros (Coal Sales) Limited could not have been increased by it unilaterally by it. I find that this particular issue had been dealt with by the Calcutta High Court in the case of CIT vs Bhaskar Mitter (73 Taxman 437) wherein it was held as follows: "The ratio of the several decisions of the Supreme Court as well as this Court is that there is unity of the Municipal Act and the Income tax Act on the question of annual value and that such annual value cannot exceed the standard or fair rent under the Rent Control Act and may in a given case even be lower than the standard or fair rent. The principles for determining the annual municipal value a....
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....stated above, when the bonafide of the tenancies had been accepted and found to be genuine then merely because the tenancies which are otherwise protected under the Rent Control Acts are with sister concern, it could not be disregarded or treated as null or void. In fact the Income-tax Act endorses the proposition that transactions inter se amongst related concerns should be on arm's length basis. The appellant and KCT & Bros (Coal Sales) Limited are separate persons and therefore the tenancy could not be disregarded. I find that exactly same issue was considered by ITAT, Kolkata in ITO vs Wellworth Suppliers Pvt. Ltd. (ITA No. 1754 of 2005) relied upon by the appellant. In the case before the Tribunal, in 1967, the assessee had let out its flat to a partnership concern in which one of the directors of the appellant was a partner. In turn the partnership firm had sub-let the premises to a Trust. The AO in his order observed that although the rent charged was protected under the Rent Control Laws but since all the three persons were related the prevailing market value should be considered for the purposes of Section 23 of the Act. On appeal the Tribunal found that the tenant was in ....
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....-09. He also contended that the tenancy was found to be bonafide and there was no case of tax evasion by the assessee company as found by the Ld. CIT(A). Relying on the decision of Hon'ble Kolkata High Court in the case of CIT vs Bhaskar Mitter 73 Taxman 437 and that of Coordinate Bench of this Tribunal in the case of ITO vs Wellworth Suppliers Pvt. Ltd. (ITA No. 1754/K/2005 dated 25.12.2005), he contended that the addition made by the A.O. to the total income of the assessee under the head income from house property merely on the basis of market rate of rent is not sustainable. 18. We have considered the rival submissions and also perused the relevant material available on record. It is observed that M/s. KCT & Bros. Ltd. had occupied the properties of the assessee company as tenants for more than 3 to 4 decades and thus being protected under the respective State Tenancy Act as well as under the rent control laws, the assessee company was not in a position to unilaterally increase the rent charged from the said tenant. As contended on behalf of the assessee before the Ld. CIT(A) as well as before us, the bonafide of the said tenancy was never disputed or doubted by the A.O. As fo....
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....ken by the assessee company interest free to avoid showing rental income and paying tax thereon. He, therefore, treated the notional interest on such deposits calculated @ 10% p.a. as the rental income of the assessee and after allowing deduction of 30%, an addition of Rs. 1,13,93,565/- was made by the A.O. to the total income of the assessee under the head income from house property. 21. The addition made by the A.O. on account of notional interest on security deposits by treating the same as rental income was challenged by the assessee in the appeal filed before the Ld. CIT(A) and after considering the submissions made by the assessee as well as material available on record, the Ld. CIT(A) deleted the said addition for the following reasons given in his impugned order: "I have gone through the submissions of the appellant and the observations of the AO and the details placed on record. I have also considered the decisions referred to by the appellant on this issue. According to AO the appellant has obtained security deposits from tenants to avoid showing rental income and has therefore assessed notional interest computed @ 10% of the security deposits. I note that no evidence ....
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....nt material available on record. It is observed that the revenue in the ground raised in its appeal on this issue as well as at the time of hearing before us has relied on the decision of Hon'ble Kolkata High Court in the case of CIT vs Satya & Co. 75 taxman 193 in support of its case. It is however observed that Hon'ble Jurisdictional High Court in the said case has held that notional interest on interest free security deposit cannot be added to arrive at the annual value of the property while determining the income under the head income from house property. As rightly contended by the learned counsel for the assessee, the said decision thus supports the case of the assessee on the issue under consideration and not that of the revenue. It is also observed that a similar issue had come up for consideration before the full bench of Hon'ble Delhi High Court in the case of CIT vs Moni Kumar Subba 333 ITR 38 and while rejecting revenue's contention on this issue, Hon'ble Delhi High Court held that in arriving at the fair rent, there is no provision in law for inclusion of any notional interest on interest free deposit received from tenant. Moreover, as noted by the Ld. CIT(A) in his im....
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.... 249 ITR 47, Kol. 2. Whether on the facts and circumstances of the case, Ld. CIT(A) erred in law holding that rental income received from its subsidiary company be assessed on actual basis instead of considering the "fair rent" as expressly provided u/s 23 of the IT Act, 1961? 3 Whether on the facts and circumstances of the case, Ld. CIT(A) erred in law in deleting the protective assessment of Rs. 1.33 crores as deemed dividend on the hands of the assessee? 4. Whether on the facts and circumstances of the case, Ld. CIT(A) erred in law in deleting the notional interest earned on refundable security deposits ignoring decision of the Jurisdictional High Court in CIT vs Satya & Co. wherein the benefit and advantage derived out of the deposits have been held to be computed as income." 27. We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. As regards the issue involved in ground no 1 of the revenue's appeal for A.Y. 2010-11, it is observed that the same is similar to the one involved in ground no 1 of the revenue's appeal for A.Y. 2009-10 which has already been decided by us in the foregoing portion of this o....
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.... assessed under the head "Business Income" instead of "Income from Houses Property" ignoring the decision of the Jurisdictional High Court in CIT vs Shambhu Investment in 249 ITR 47, Kol. 2. Whether on the facts and circumstances of the case, Ld. CIT(A) erred in law holding that interest on Fixed Deposits are to be assessed under the head "business income" instead of "income from other sources"? 3 Whether on the facts and circumstances of the case, Ld. CIT(A) erred in law in holding that rental income received from its subsidiary company be assessed on actual basis instead of considering the "fair rent" as expressly provided u/s 23 of the IT Act, 1961? 4. Whether on the facts and circumstances of the case, Ld. CIT(A) erred in law in deleting the notional interest earned on refundable security deposits ignoring decision of the Jurisdictional High Court in CIT vs Satya & Co. wherein the benefit and advantage derived out of the deposits have been held to be computed as income." 32. As regards the issue involved in ground No. 1 for A.Y. 2011-12, it is observed that the same is similar to the one involved in ground no 1 of the revenue's appeal for A.Y. 2009-10 which has alrea....