TaxTMI 
TaxTMI 
2023 (12) TMI 1450
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.... Investments Pvt. Ltd. v. CIT (Kolkata HC 116 Taxman 795) which was later affirmed by the Hon'ble Supreme Court. (ii) On the facts and in the circumstances of the case and in law, Ld.CIT (A) erred in holding that the Assessee does not fulfil all the three tests laid down by Shambhu Investments Pvt. Ltd. v. CIT (Kolkata HC 116 Taxman 795) and accordingly the decision cannot be applied to facts of the case for treating the service centre income as income from house property. (iii) The Ld. CIT (A) further erred in holding that where the assessee has entered into two separate agreements for letting of premises and for providing services and that income from providing services are to be taxed as business income. (iv) On the facts and in the circumstances of the case and in law, Ld. CIT (A) erred in treating interest income as business income despite the fact that no business exists during the year. The Ld. CIT (A) erred in treating the interest income as income from other sources. (v) On the facts and in the circumstances of the case and in law, Ld.CIT(A) erred in allowing the claim for interest expense u/s. 24(b) disregarding the fact that intere....
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....al Pvt. Ltd. and service centre and leasing business was carried out by the PHL up-to 31-12-2004 and w.e.f. 01.01.2005 by the assessee. Name of the Assessee Company was changed from its earlier title M/s. Alpex International Pvt. Ltd. to M/s. Piramal Estates Pvt. Ltd. on 28.01.2014. 4. Brief Synopsis The base year considered for this synopsis is A.Y. 2010-11. A detailed chart is submitted as Annexure A to depict common grounds of A.Y. 2010-11 in other Assessment Years. During the course of Appeal, for A.Y. 2010-11, the Assessee has filed Factual Paper Book (Page 1 to 175), Factual Paper Book - II (Page 176 to 219) and Legal Paper Book (Page 1 to 287). For AY 2011-12, the Assessee has filed Factual Paper Book (Page 1 to 215). 5. As regards, Ground No. I, II and III - Treating Income from Service Centre as Income from House Property instead of Income from Business. I. Facts: 1. The Assessee is engaged in the Service Center Business and is also in the business of Leasing of Premises. It is owning a building named Piramal Tower which comprises of 10 floors having total area of Rs. 2, 83,579/- sq. ft. Out of the 10 floors in Piramal Tower, 9 floors have been rented out to....
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....e has been consistently providing Service Centre facility to Piramal Healthcare Ltd since January 01, 2005 when the leasing business was acquired under the scheme of arrangement from Piramal Holdings Ltd. Prior to its acquisition, the service centre business was carried on by Piramal Holdings Ltd and they continued to provide the same service and facilities alongwith premises to Nicholas Piramal India Ltd. In all the earlier assessment years, the scrutiny assessment was carried out and the AO, after examining the relevant details called for, has passed the order accepting the service centre as business income. Thus, the Ld. CIT (A) has held that the assumption of the AO that no business exists during the year was not acceptable. Moreover, there was no change in facts with regard to the nature of service and facility provided by the Assessee. Also, the AO has not came to any finding which shows that the services rendered /facilities provided in this year are different from those in the earlier assessment years. The Ld. CIT (A) has also observed that the AO has not given any reasons as to why is he differing with the findings of the earlier assessment orders. Thus, the Ld. CIT (A) co....
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.... attention to the following paras/clauses/schedules of service centre agreement (Page 49 to 73 of FPB): * As per introductory para (Page 49 of FPB) of the agreement both the parties are to be referred as 'Service Office Provider' and 'Service User' respectively. Further the agreement is termed as 'service centre agreement'. The Assessee would like to state that it is a settled legal position that the intention of the party entering into the agreement is to be seen and the agreement is to be read as agreed between the parties. For this the Assessee places reliance on the decision of the Hon'ble Calcutta High Court in case of Arun Dua [1989] 186 ITR 494 (Page 92 to 93 of LPB). * Para A (Page 49-50 of FPB): As per this para, Service Office Provider to provide 120 Car Parking Spaces in the Basement and the exclusive right to use three Elevators having a capacity of 16 persons each as well as the Entrance located on the eastern side of the said building. Further, it is mentioned that once the balance construction is completed the complex would comprise of four ultramodern buildings with all facilities like ample car parking in the spacious b....
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....re is no tenant/lessee relationship in so far as the 10th floor is concerned. * Clause 8 (Page 63 of FPB): Various obligations of the Serviced Office Provider are mentioned under this clause. * Clause 9.1 (Page 64 of FPB): If the Service user at any time puts up, a false or adverse claim of tenancy / sub-tenancy / lease / sub-lease / under-lease / leave and license or any other interest in or to the said Premises and/or in or to any other component of the said Service Centre, (other than the right of the Service user to conduct such business in accordance with the provisions of this Agreement) then and in such event the Serviced Office Provider will be entitled to terminate this Agreement and cancel, revoke and withdraw the permission granted hereunder to the Service User to conduct the said business activity. * Schedule B: Services and facilities (Page 70-72 of FPB): Part 1 - Services and Facilities 1. Installation and Maintenance of an adequate and reliable Central Air conditioning system. The Electricity Charges for the Air-conditioning shall be borne by the Service User. 2. Installation and Maintenance of the three Elevators havin....
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....dent draws attention to the following paras/clauses/schedules of Lease and License agreement (Page 74 to 96 of FPB): * As per introductory para (Page 74 and 75 of FPB) of the agreement both the parties are to be referred as 'The Licensor' and 'The Licensee' respectively. Thus, the Assessee submits that the intention of the parties was to give the said premises on lease and license basis. * Point II (Page 75 of FPB): it has been agreed between Piramal Holdings Limited and the Licensee that the Licensee will have the option to renew the term of the license for a further period of 33 (Thirty three) months on the same terms and conditions as contained in the said Lease and License Agreement except that the licensee fee payable for the Renewal Term and the quantified damages payable under clause 15 (b) of the said Leave and License Agreement will increase by 12%: * Point III (Page 76 of FPB): In this point it has been mentioned that pursuant to the Scheme of Arrangement between Piramal Holdings Limited and the Licensor the rights and obligations of Piramal Holdings Limited in the said Peninsula Tower 27 Piramal Tower stood vested in the Licenso....
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....esaid amenities for any reason whatsoever, Legrand shall still be liable to pay the same monthly compensation to the Company as payable under Clause (3) above without any deduction thereof. 7. Thus, to summarize: * The intention in case of first 9 floors was to rent out space and earn rentals. In fact, in such cases the Assessee only provides basic necessities i.e. for effective rentals like toilets, use of common elevators, space for central air conditioner (and not the air conditioner itself), car parking (no valet parking facility), infrastructural work for telephone (and not dedicated subscriber number), common area facilities, common security service (and not exclusive security). Further, the licensee has to pay both license fees and amenities fees irrespective of whether the amenities were used by the Licensee or not. Also, entry to the said premises was allowed from western side only. Thus, from above it is clear that what is let out by way of Lease and License Agreement is commercial space with basic amenities. * However, in case of the 10th floor i.e. for Business Service Centre the intention was to provide basic amenities like exclusive right to use t....
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....tivities then the income arising from it should be treated as business income. 11. Further, reliance is also placed on the following decisions which states that if the main intention is to exploit the immovable property by way of complex commercial activities then in that even the same should be treated as business income: * ACIT v. Saptarshi Services Ltd [2004] 264 ITR (St.) 379 (SC) (Page No. 11 of LPB) * CIT v. G.V. Foundations (P.) Ltd. [2022] 138 taxmann.com 168 (Mad. HC) (Page No. 16 to 19 of LPB) * ITO v. Surya Incubation clusters [2014] 65 SOT 70 (Pune Trib.) (Page No. 20 to 25 of LPB) * Harvindarpal Mehta (HUF) v. DCIT [2010] 122 ITD 93 (Mum Trib.) (Page No. 26 to 33 of LPB) * Gesco Corporation Ltd. v. ACIT [2009] 31 SOT 132 (Mum Trib.) (Page No. 34 to 45 of LPB) * ITO v. Shanaya Enterprises (ITA No.3648/MUM/2010) (Mum Trib.) (Page No. 46 to 55 of LPB) 12. Also, the AO has stated that the Assessee has recovered the entire cost of the property by way of interest free security deposit. Piramal Healthcare Ltd. occupies an area of 29,780 sq. ft. which is approximately 10.50% of the total area. Further, total cost of P....
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....ntion is invited to para 1.4 (Page No 182 of FPB-II) of the said scheme: "Demerged Undertaking" means and includes Service Center and Leasing Business carried on by PHL in respect of Nicholas Piramal Tower, being Tower II at Peninsula Corporate Park, Ganpatrao Kadam Marg, Lower Parel, Mumbai 400 013 and factory building with land at Balkum, Thane including all assets (whether movable or immovable, real or personal; corporeal or incorporeal, present, future or contingent) and all the liabilities pertaining thereto, not exceeding the amount specified in Clause 1.4.1 (Hi). " 2. Thus, the Assessee submitted that the demerger by Piramal Holdings limited involved two separate businesses i.e Service Centre Business and Leasing business which was noted by the Hon'ble Bombay High Court. C. The Assessee has been consistently offering service centre income as business income 1. The Assessee submitted that the same type of income was earned by the Assessee during all the preceding Assessment Years and the same has duly been accepted as business income by the AO after detailed examination. 2. The Assessee has prepared a chart (Page 199 of the FPB-II) to depict as to whe....
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....inality in all litigations, including litigation arising out of fiscal statutes, earlier decisions on the same questions should not be reopened unless some fresh facts are found in the sub sequent year. " * Similar view has been taken by Hon'ble Delhi High Court in the case of CIT v. Neo Poly Pack (P) Ltd [2000] 245 ITR 492. 4. Thus, where the Assessee has been carrying on the activity of service centre on year to year basis and the income there from has been offered to tax as business income and also accepted by the Department after detailed scrutiny, the department is bound by the principles of consistency and ought to accept the same as business income in absence of any change in facts. Considering the factual matrix of the case and even the position of the assessee prior to demerger the holding company i.e. primal holdings Ltd. (PHL) was also showing the income under the head business and the same was accepted by the revenue consistently. In addition to this fact, PHL was the owner of the property under consideration whereas in this case, the assessee was owner up to 9th floor only and under the scheme of demerger, assessee got ownership up to 9th floor only ....
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....A.Y. 2010-11 to A.Y. 2013-14. 1. The Respondent has during the course of the Proceedings submitted an exhaustive chart of interest earned (i.e interest income) by it from A.Y. 2007-08 to A.Y. 2012-13 (Page No. 197 of FPB-II). Also, the Assessee has produced an exhaustive chart of interest expenses (i.e interest paid) incurred by the Assessee from A.Y. 2006-07 to A.Y. 2012-13 (Page No. 198 of FPB-II). 2. From the aforementioned charts it is abundantly clear that the Assessee has borrowed loans from various parties and later on advanced them to other parties in the course of ordinary business. Thus, the Assessee, by conduct, is into the business of financing. 3. Further, as per Clause 32 of MOA (Page No. 34 of FPB) it can be inferred that the Assessee is into the Financing business. The Relevant clause is reproduced hereunder: "32. To borrow or raise moneys or loans for the purposes of the Company, by promissory notes, bills of exchange, hundies and other negotiable or transferrable instruments, or by mortgage, or by debentures, or by debenture-stock, perpetual or otherwise, charged upon all or any of the Company's property (both present and future) including it....
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....see is into the business of financing, the interest income earned thereon should be treated as business income. 8. Further, the Assessee submitted that for A.Y. 2014-15, similar grounds of appeal have not been raised by the department before the Tribunal; however the aforesaid question was never in dispute before the Ld. CIT (A). Thus, the Assessee requests that the aforesaid grounds of the department appeal should be dismissed as infructuous. B. The Assessee has been consistently offering interest income as business income 1. The Assessee is consistent in earning the same type of income during all the preceding Assessment Years and the same has duly been accepted as business income by the AO after detailed examination. 2. The Assessee has presented a chart (Page No. 199 of the FPB-II) to depict as to when the Assessee has produced details relating to the financing business before the AO in the past Assessment Years. The AO in all the earlier Assessment Years, after applying mind accepted the Assessee's stand. 3. Reliance in this regard is placed on the following judicial precedents: * Hon'ble Supreme Court in the case of Radhasoami Satsang v. CIT (s....
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....rea utilization and also relying on the assessment orders of other previous years. The AO merely relied on the Assessment order of AY 2009-10 for making the aforesaid disallowance. III. Action of the Ld. CIT (A): The Ld. CIT (A) after perusing all the submissions and documents observed that as a part of arrangement, the Assessee had acquired the tower from Piramal Holdings Limited along with corresponding loans borrowed from various parties and used for the construction of tower. The Ld. CIT (A) further observed that the area leased out for rental purpose depends on the occupancy of the property for commercial purpose and therefore the area let out changes from time to time. Thus, the Ld. CIT (A) relying on the order of erstwhile Ld. CIT (A) and Tribunal's order in Assessee's own case for A.Y. 2009-10 and on the basis of consistency allowed the Assessee's appeal. IV. Assessee's submission before the Tribunal: A. Interest expense u/s. 24(b) to be allowed as deduction 1. The Assessee has calculated the area of the building leased out by it and the interest is apportioned on the basis of the ratio of this leased out property to the total area of Piramal ....
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....ng the interest on loan on the basis of area let out and the aforesaid basis of allocation of interest commensurate with the area let out was accepted by the Department from the assessment year 2004-05 onwards, except, the impugned assessment year. As could be seen, the Assessing Officer has disallowed the deduction claimed under section 24(b) of the Act, basically for two reasons viz. (i) the assessee has not proved utilization of fund for construction of property; and (ii) the deduction under section 24(b) of the Act cannot be allowed on the basis of area let out. In our view, the reasons on the basis of which the Assessing Officer disallowed deduction under section 24(b) of the Act are unacceptable. Undisputedly, the loan was sanctioned for construction of the entire building. When a part of the building is used for commercial purpose and the rest of it is let out, the interest expenditure on the loan availed for construction of building has to be apportioned between the area let out and area used for commercial purpose, as this is the most scientific basis on which the interest can be allocated. It is also very much clear that the Assessing Officer has not pointed out any major....
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....asis of the same submissions made by the Assessee. Thus, the AO cannot take a different view now which is already taken by him in the earlier years. 2. The Assessee has prepared a chart (Page 199 of the FPB-II) to depict as to when the Assessee has produced and explained in brief the computation of interest u/s. 24(b) of the Act to the AO in the past Assessment Years. The AO in all the earlier Assessment Years, after applying mind accepted the Assessee's stand. 3. Reliance is placed on the following judicial precedents wherein it is held that AO cannot take a different view from the view which is already taken by him in the earlier years and held that principle of consistency must be followed: * Hon'ble Supreme Court in the case of Radhasoami Satsang v. CIT (supra) * Hon'ble Jurisdictional High Court in the case of Quest Investment Advisors Pvt. Ltd. v. PCIT (supra) * Hon'ble Jurisdictional Tribunal in Assessee's own case in A.Y. 2009-10 (Supra) * Hon'ble Delhi High Court in the case of CIT v. ARJ Securities Prints (Supra) * Hon'ble Delhi High Court in the case of CIT V. Neo Poly Pack (P) Ltd (Supra). ....
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...., even suo-moto disallowance needs to be deleted 1. It is a trite law that no disallowance can be made u/s. 14A of the Act, if no exempt income is earned during the year by the Assessee. 2. For this contention, the Assessee places reliance on the following judicial precedents: * The Hon'ble Madras High Court in case of Redington (India) Ltd v. ACIT (392 ITR 633) held as under: "10. The provision thus is clearly relatable to the earning of actual income and not notional or anticipated income. The submission of the Department to the effect that S.14A would be attracted even to exempt income 'includable' in total income would entail the assessment of notional income, assumed to be exempt in the future, in the present assessment year. The computation of total income in terms of s. 5 of the Act is on real income and there is no sanction in law for the assessment of admittedly notional income, particularly in the context of affecting a disallowance in connection therewith. "(Emphasis Supplied) * Following the decision of Division Bench in case of Redington (India) Ltd. v. Addl. CIT, the Hon'ble Madras High Court in case of CIT v. Chettinad....
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....nadvertently made by the Assessee also needs to be deleted. 4. The Respondent humbly submits that this issue is squarely covered by the decision of Hon'ble Tribunal in Assessee's own case for A.Y. 2009-10 in M.A. 252/Mum/2020 arising out of ITA 779/Mum/2014 (Page No 152-160 of LPB) wherein an additional ground was raised before Hon'ble ITAT for deleting the suo moto disallowance made by the Assessee in absence of any exempt income earned. Hon'ble Tribunal accepted the Respondent's contention and allowed the issue in favour of the assessee by holding as under: "6. On applying the ratio of the decision of the Co-ordinate Bench of the Tribunal, we find that the Assessing Officer has made disallowance in respect of the expenditure incurred on exempt income but it has been proved and demonstrated by the learned Authorized Representative for the assessee that the assessee has not received any exempt income, therefore, no addition under section 14A of the Act will be sustainable. Accordingly, we considering the facts, circumstances and the decisions of the Hon'ble High Court and the Hon'ble Tribunal direct the Assessing Officer to delete the suo mot....
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....l position even by the Apex Court that disallowance cannot exceed exempt income. For this, the Respondent places reliance on the following judicial pronouncements: * Hon'ble Supreme Court in the case of PCIT v. State Bank of Patiala (99 taxmann.com 286) dismissed the SLP filed against the decision of Hon'ble Haryana High Court in case of PCIT v. State Bank of Patiala (99 taxmann.com 295) (Refer Page no. 157 to 161 of LPB) wherein it was held that amount of disallowance u/s. 14A could be restricted to amount of exempt income only and not a higher figure. * The Hon'ble Supreme Court has dismissed the SLP (112 taxmann.com 322 (SC) against the Hon'ble Delhi High Court ruling in the case of PCIT v. Saraf Builders & Constructions (P) Ltd (101 taxmann.com 167) (Refer Page No. 183 to 195 of LPB), where it was held after considering various judicial pronouncements in this regard and the decision of Hon'ble Supreme Court in case of Maxopp, that disallowance u/s. 14A cannot exceed exempt income of the relevant year. * Hon'ble Supreme Court in the case of PCIT vs. State Bank of Patiala [2018] 99 taxmann.com 286 dismissed the SLP filed against ....
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....d during the year under consideration. Further, the amendment inserted in Section 14A of the Act vide Finance Act 2022 has a prospective application. The same is reproduced hereunder for ready reference: "8. Consequently this Court is of the view that the amendment of section 14A which is "for removal of doubts" cannot be presumed to be retrospective even where such language is used, if it alters or changes the law as it earlier stood." * K Raheja Corporate Services Pvt Ltd (ITA 2521 to 2527/Mum/2021) (Mum Trib.) * Maxivision Eye Hospital (ITA No. 139/CHNY/2020) (Chen Trib.) * Further, the Mumbai Tribunal in case of M/s. Vodafone Idea Ltd. (ITA No. 2273 and 2285/Mum/2014) (Page No 202 to 272 of LPB) relying on the decision of the Hon'ble Delhi High Court in case of Era Infrastructure (Supra) and after considering the decision of Guwahati Tribunal in case of Williamson Financial Services Ltd (ITA No.l54-156,159/Gau/2019) held that no disallowance is called for under Section 14A of the Act, since the Assessee has not earned any exempt income during the year under consideration. Further, the Tribunal held that the amendment inserted in Section 1....
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....e Finance Act 2022 will have a prospective effect. The same is reproduced hereunder for Your Honor's ready reference: "6. We have considered the rival submissions and perused the material on record. It is admitted position that the Hon 'ble Bombay High Court and the Hon'ble Supreme Court have clearly held that disallowance under Section 14A of the Act cannot exceed the amount of exempt income earned by the Assessee during the relevant previous year. The stand of the Revenue is that amendments to Section 14A introduced by the Finance Act 2022 apply retrospectively and therefore, the aforesaid judgments no longer hold good. Whereas the contention of the Assessee is that the said amendments to Section 14A of the Act are prospective in nature and therefore, the order of CIT (A), passed by following the binding judgments of the Hon'ble Jurisdictional High Court, cannot be set aside by the applying the amended provisions of Section 14A of the Act. 7. We note that the Mumbai Bench of the Tribunal has, in the case of Assistant Commissioner of Income Tax- Circle 3(1)(1) v Bajaj Capital Ventures (P.) Ltd.: [2022] 140 taxmann.com 1 (Mumbai - Trib.) [29-06-2022] a....
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....quire land, buildings, houses, sheds and other fixtures, to build, construct improve, manage, develop, maintain, enlarge, hire workshops, offices, shopping centers, business centers and to let them out to various groups such as but not limited to landlords, co-operative societies, owners associations, condominiums, corporate parks, companies, commercial complexes, mall, either the entire premises or limited area of the same by way of lease or any form of contract or by any other arrangement. 1c. to sell, let, mortgage or otherwise dispose of all assets not limited to land, building and other property of the Company." 2. Thus, the Assessee submits that it is quite evident from the main object clause of the MOA that it is in the business of purchasing and selling of flats. 3. Further, the Assessee submits that it is not an isolated transaction that has been undertaken by the Assessee. The Assessee has sold in total five flats during the year under consideration. 4. Thus, admittedly it is a clear position that profit from sale of flats cannot be treated as Income from Other Sources and the same should be treated as business income. However, in case the same was not a....
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.... of the fact that such a claim is not made by revised return of income. Relying on various judicial precedents the Ld. CIT (A) allowed the Assessee's Appeal of claiming long term capital loss. IV. Assessee's submission before the Tribunal: 1. During A.Y 2011-12, the Assessee transferred equity shares of Piramal Sunteck Realty Pvt. Ltd. and Topzone Mercantile Company Pvt. Ltd. which resulted into zero profit/loss as per books of account and as per Income Tax it has incurred capital loss amounting to Rs. 116,94,91,417-. 2. On perusal of the Schedule 4 - Investment of Financial Statements for year ending March 31, 2009 (Page no. 208-215 of FPB for A.Y 2011-12) it can be seen that these shares are held for more than 12 months and thus on transfer of such shares, the Assessee has incurred a long-term capital loss. 3. The Assessee could not inadvertently claim this long-term capital loss while filing ROI thus, it had claimed this long-term capital loss during the course of assessment proceedings vide letter dated January 23, 2014. (Page No 204 to 205 of FPB for AY 2011-12) 4. At this stage, it is pertinent to note that it is not a case where the long-term capital l....
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....) (Page No 176 to 183 of LPB) * Choksi Metal Refinery v. CIT (107 ITR 63) (Guj HC) * Chicago Pneumatic India Ltd v. DCIT (15 SOT 252) (Page no 184 to 196 of LPB) 7. Based on the above-stated decisions of the Apex Court and Jurisdictional High Court, the Assessee requests to kindly consider the claim of long term capital asset. The only question before us is whether the appellate authorities can entertain a claim of assessee which was not there at the time of filing the revised return, although the same was claimed through filing of letter as mentioned (supra). In this regard relevant judicial pronouncement in favor of revenue is [2006] 157 Taxman 1(SC) Goetze (India) Ltd. v. Commissioner of Income-tax, wherein it was held that before the assessing authority, other than by filing of revised return, assessee can't make any fresh claim, as in this case instead of filing the revised return, assessee simply filed a letter to claim long term capital loss on sale of shares as mentioned (supra). AO rightly denied the same, but the ratio Goetze (India) Ltd. (supra) is not applicable first appellate authority and Tribunal. In view of this without commenting on the mer....