TaxTMI 
TaxTMI 
2023 (12) TMI 1450
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....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 interest expenses depends on the actual utilization of finds and not on mere....
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....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 various parties and rental income is received from the same which is offered to tax as Income from House....
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....ing 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) concluded that the income from service income is to be taxed under the head Business income and consequential deduction be....
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....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 basement, state of the art elevators, well-maintained garden etc. A well-equipped Club House is also planned within "Peninsula Corporate Park" and the nearby....
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.... 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 having a capacity of Sixteen persons each, which are exclusively dedicated for access to and fro in the said premises; 3. Installation and Maintenance of Furniture, fittings and other paraphernalia owned by the Service Office Provider an....
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....een 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 Licensor w. e. f. 1st January, 2005; * Point IV (Page 76 of FPB): The rights, title and interest in the Piramal Tower, stood vested in the Licensor subject to all the rights of the Licensee remaining the same under the said Lease and License Agreement, the obligations of the Licensor remaining the same. The Licensee herein recognized the Licensor to be its Licensor for the purpose of the said Lease and License Agreement and have been paying the License fee to the Licens....
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....d 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 three elevators, installation and maintenance of central air conditioning system (and not mere providing of space for air conditioner chiller plants), janitorial service (are a type of commercial cleaning that handles various tasks in professional corporate settings), exclusive use of spacious atrium on the ground floor, valet service for car parking, installation and maintenance of furniture and fittings, providing direct external telephone lines having a dedicated subscriber number (and not only infrastructural work for telephone), manual and electronic security systems alongwith provision o....
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....darpal 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 Piramal Tower is Rs. 166,00,00,00/- and 10.50% of the aforementioned cost amounts to Rs. 17,43,00,000/-. Out of which, the Respondent has received an interest free security deposit amounting to Rs. 6,04,54,495/- from Piramal Health Care Ltd. which is 34.68% of the Rs. 17,43,00,000/-. Thus, it can be seen that the Assessee has not recovered entire cost in the form of interest free security deposit and these observations of the AO are incorrect and irrelevant. The Ld. CIT (A) has also acknowledged the same and has held that deposit received from Piramal Healthcare Ltd. does not cover the entire cost of premises from which service centre facility is being prov....
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....arate 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 when the Assessee has produced details relating to the Income from service centre and Income from License feed 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. The Assessee places reliance on the following judicial precedents: * Hon'ble Supreme Court in the case of Radhasoami Satsang v. CIT [1992] 93 ITR 321 (Page No. 94 to 101 of LPB) observed that where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and the parties have allowed that position to be sustained by not challenging the order, it would not be at all ap....
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....atrix 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 and 10th floor and annexe of Piramal Tower was not owned by the assessee. Despite the fact, that in substance transaction of the assessee falls under the head income from house property still as assessee is not the owner of 9th floor and annexe, same cannot be taxed under the head house property. In view of this, we confirmed the decision of Ld. CIT (A) treating the same as income from business. In these terms, ground no. I, II & III raised by the revenue are dismissed. 6. As regards, Ground No. IV- Treating Interest Income as Income from other sources instead of Income from Business for A.Y. 2010-11 to A.Y. 2013-14. I. Facts: The Assessee is in the business of financing wherein it advances loans to various parties and earns in....
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....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 its uncalled capital, upon such terms as the Directors may deem expedient, or to take moneys on deposit at interest or otherwise, and to lend money to customers and others having dealings with the company and to guarantee the performance of contracts by any such persons. " 4. Thus, to summarize, both as per the MOA and as per conduct (i.e considering the chart referred to above at page no. 197 and 198 of FPB, which shows systematic activity of borrowing and lending), the Assessee is into the financing business and hence the interest income should be treated as business income. 5. Reliance in this regard is placed on the decision of the Hon'ble Ahmadabad Tribunal in case of Soham Securities Ltd., (ITA No. 2208/Ahd/2015) (Page no. 112 to 128 of LPB) wher....
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....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 (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 AY 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). Thus, where the Assessee has been carrying on the activity of service centre and financing 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. We do not find any inconsistency in the order of ....
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....ncy 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 Tower. 2. This method of apportionment of interest is based on the ratio of leased out property to the total area of Piramal Tower is followed by the Assessee from the year in which the building was constructed i.e. from F.Y. 2004-05. Further, the utilization of funds has to be seen in the year of construction of the building and it can also be seen that no new funds have been deployed for the construction of Piramal Tower. Thus, utilization has to be considered in first year only. The A.O. has not disputed the utilization of the funds by the Assessee in F.Y. 2004-05 (i.e. A.Y. 2005-06). 3. Also, the lender reviews the utilization of funds and has a right to withdraw the loan anytime when the funds are not being utilized for the desired purpose. The lender has not taken any action of withdrawal of offer which suggests that the fund has been util....
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....t 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 deficiency in allocation of interest expenditure between the area used for commercial purpose and area let out. The allegation of the Assessing Officer that the assesses at its own will changes the area let out is on a mere presumption. We do not find any material on record to indicate that the Assessing Officer had carried out any specific enquiry to disprove assessee's claim regarding the area let out. Moreover, when the allocation of interest expenditure in identical manner has been accepted by the Assessing Officer in past assessment years, there is no valid reason for not accepting it in the impugned assessment year when the facts are identical. In any case of the matter, the expenditure incurred by the assessee would be allowable either under section 24(b) or under section 36(l)(iii) of the Act. That being the case, it will make no difference to the Reven....
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.... 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). As the issue has already been allowed by the revenue for the A.Y.'s 2005-06 to 2008-09 and next A.Y. i.e. A.Y. 2009-10 allowed by the coordinate bench as discussed (supra). In addition to this revenue has failed to demonstrate/differentiate the earlier decision of coordinate bench before us. In view of this we find that action of AO is untenable and there is no contradiction of law in the order of Ld. CIT (A). Resultantly, ground no. V raised by the revenue is dismissed. 8. As regards, Ground No. VI, VII and VIII - Deleting the suo-moto disallowance u/s. 14A of the Act. I. Facts: The details of exempt income earned and suo-moto disallowance made by the respondent for various years under consideration is as under: A.Y. Exempt income earned Suo-moto disallowance u/s. 14A 2010-11 Nil Rs. 26,66,03,003/- 2011-12 12,97,766/- Rs. 42,53,94,873/- 2012-13 Nil Rs. 1,00,63,30,972/- 2013-14 Nil Rs. ....
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....owance 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 Logistics (P.) Ltd. [2017] 80 taxmann.com 221 (Page No. 147 to 151 of LPB) has held that no disallowance u/s. 14A of the Act can be made in absence of any exempt income earned during the year. * Also, the Hon'ble Supreme Court has dismissed the SLP against the said order in CIT v. Chettinad Logistics (P.) Ltd. [2018] 257 Taxman 2 (Page No. 146 of LPB) and thus it is a settled law that no disallowance u/s. 14A of the Act can be made in absence of any exempt income earned. * The Hon'ble Jurisdictional High Court in case of CIT v. Delite Enterprises [ITA No. 110 of 2009] observed that during the year no profit was earned by the appellant from the partnership firm and therefore, no question of disallowance. * Cheminvest Ltd. v. CIT [2015] 378 ITR 33 (Del HC) * PCIT v. IL & FS Energy Development Company Ltd. [2017] (84 taxmann.com 186 (Del HC) * The Hon'ble Mumbai Tribunal in Assessee's own case for A.Y. 2009-10 (ITA 779/Mum/2014) (Page No 129 to 145 of LP....
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....ing 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 moto disallowance made by the assessee because there is no exempt income earned by the assessee. Since there is no exempt income and no disallowance related to the exempted income u/s. 14A of the Act is applicable and we allow this ground of appeal of the assessee." (Emphasis Supplied) 5. Further, the Respondent places reliance on the following judicial precedents wherein it was held that suo-moto disallowance inadvertently made by the assessee under Section 14A of the Act needs to be deleted: * TATA Industries Ltd. v. ITO (ITA No. 4894/Mum/2008) (Mum. Trib.) * HDFC Bank Ltd. v. ACIT (ITA No. 5480 & 5481/Mum/2014) (Mum. Trib.) * Sajjan India Ltd. v. ADIT [2018] 89 taxmann.com 21 (Mum. Trib.) * Rupee Finance and Management (P.) Ltd. v. Dy. CIT [2017] 81 taxmann.com 249 (Mum Trib.) 6. At this stage, since the Assessee is making a plea to delete the suo-moto disallowance made on its own motion (out of abundant caution), it will be relevant to point out the settled legal position that it is the duty of the assessing officer ....
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....of Patiala [2018] 99 taxmann.com 286 dismissed the SLP filed against the decision of Hon'ble Haryana High Court in case of PCIT vs. State Bank of Patiala [2018] 99 taxmann.com 295 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. * Further, reliance is also placed on the following judicial precedents: * PCIT vs. HSBC Invest Direct (India) Ltd. [ITA No. 1672 of 2016 (Bom HC) * Nirved Traders Pvt. Ltd. vs. DCIT [ITA No. 149 of 2017 (Bom HC)] * PCIT vs. Empire Package (P.) Ltd [2017] 286 CTR 457 (P&H HC) * Pinnacle Brocom Pvt. Ltd. v. ACIT (ITA No. 6247/Mum/2012) (Mum Trib.) 3. Thus, in view of foregoing facts and legal position, it is held that the disallowance u/s. 14A of the Act ought to be restricted to Rs. 12,97,766/- i.e. the actual exempt income earned by the Assessee and hence the suo moto disallowance inadvertently made by the Assessee should be restricted to the tune of exempt income earned. C. Amendment inserted vide Finance Act 2022 is prospective in nature 1. In this regard, it is pertinent to note that a non obstante clause and explanation was inserted under Section 14A ....
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....Finance Act 2022 would have a prospective application. The same is reproduced hereunder for ready reference: "5.2 We hold that in the absence of any exempt income there cannot be any disallowance u/s. 14A of the Act. The Id. DR vehemently argued and also filed written submissions on the ground that as per the amendment made in Finance Act 2022 on the provisions of Section 14A of the Act, disallowance u/s. 14A of the Act would apply even when there is no exempt income derived by the assessee. He also argued that the said amendment needs to be construed as retrospective in operation. Reliance in this regard was placed on the decision of Guwahati Tribunal in the case of Williamson Financial Services Ltd in ITA No.l54-156/Gau/2019 for A.Y. 2012-13 to 2014-15 and ITA No.l59/Gau/2019 for A.Y. 2009-10 dated 06/07/2022 in support of his contentions. But we find that the Co-ordinate Bench of this Tribunal in a very elaborate order rendered in the case of K. Raheja Corporate Services Pvt. Ltd. in ITA Nos. 2521-2527/Mum/2021 for A.Y.'s. 2012-13 to 2017-18 respectively dated 17/06/2022 had elaborately considered the meaning of expression "for the removal of doubts" incorporated in the explan....
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.... Of Income Tax V. K Raheja Corporate Services Private Limited [ITA No. 2521 to 2527], held that the amendments to Section 14A introduced by the Finance Act 2022 shall apply from Assessment Year 2022-23 and onwards. Further, Hon'ble Delhi High Court in the case of Principal Commissioner of Income-Tax (Central) -2 v. M/s Era Infrastructure India Ltd: [ITA No. 204 of 2022, decided on 20.07.2022J has rejected the contention of the Revenue that amendments to Section 14A introduced by the Finance Act 2022 shall have retrospective effect. Accordingly, Ground No. 1 raised by the Revenue is dismissed. "(Emphasis Supplied) Thus, in view of the foregoing decisions, it is abundantly clear that the explanation and Non-Obstante clause inserted under Section 14A of the Act, vide Finance Act 2022, and would not apply retrospectively and thus the disallowance made under Section 14A of the Act liable to be deleted and order of Ld. CIT (A) is sustained on this count. Resultantly, ground nos. VI, VII and VII raised by the revenue is dismissed. 9. As regards, Ground No. IX (A.Y 2010-11) - Profit from sale of flats to be treated as business income I. Facts of the Case: During A.Y 2010-....
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....ains. We find that MOA of the assessee company and the overall business model confirms the activities of the assessee. Transaction entered into by the assessee in no way can be treated as income from other sources, as an alternative plea assessee offered the same under the head "Capital Gains", which is ultimately not in benefit of revenue. Hence transaction declared by the assessee under the head "Business" as analyzed and accepted by Ld. CIT (A) also is confirmed. In view of the above facts, Ground No. IX raised by the revenue is dismissed. 10. As regards, Ground No. IX (specific to A.Y. 2011-12) - Claim of long term capital loss on sale of shares I. Facts; 1. During A.Y. 2011-12, the Assessee sold the investments of Piramal Sunteck Realty Pvt. Ltd. and Topzone Mercantile Company Pvt. Ltd. at book value which resulted into zero profit/loss as per books of account. Thus, the same was not being reflected separately in the Statement of Profit and Loss account. 2. Further, since the starting point for computation of income for purpose of tax is profit and loss account and the adjustments are thereafter made with respect to items debited/ credited therein, this item having no ....
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....oduced hereunder for ready reference: "(ix) On the facts and in the circumstances of the case and in law, Ld. CIT (A) erred in allowing the claim for long term capital loss on sale of shares made in assessment proceedings despite the fact that the assessee has not claimed the said long term capital loss by filing a revised return of income. " Thus, the only question raised by the Department is that whether the Ld. CIT (A) was justified in allowing the claim of Assessee which was not claimed by filing a revised return of Income. 5. In this regard, the Assessee submits that as per the settled legal position, the Appellate Authorities have powers to admit additional ground if raised in the course of the appellate proceedings. Reliance is placed on the decision of: * National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 (SC), wherein it was held that: "If, as a result of a judicial decision given while the appeal is pending before the tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, there is no reason why the assessee should be prevented from raising that question before the tribunal for the first time, so long as the relevant fa....