Dannich Syscom Ltd, Mumbai vs Assessee

ी संजय अरोड़ा, लेखा सद य एवं ी वजय पाल राव, या यक सद य के सम ।

BEFORE SHRI SANJAY ARORA, AM AND SHRI VIJAY PAL RAO, JM

आयकर अपील सं./I.T.A. No. 5050/Mum/2011 ( नधा रण वष / Assessment Year: 2007-08)

Daanish Syscom Ltd. Income Tax Officer, 5/10, Delite Apts., 2nd Carter Road, बनाम/ Ward-9(1)(3), Bandra (W), Mumbai-400 050 Vs. Aaykar Bhavan, Churchgate, Mumbai-400 020 थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. AABCD 8773 D (अपीलाथ! /Appellant) : ("#यथ! / Respondent)

अपीलाथ! क$ ओर से / Appellant by : Shri K. Gopal

"#यथ! क$ ओर से/Respondent by : Shri Jeetendra Kumar

सनु वाई क$ तार*ख / : 28.01.2015 Date of Hearing घोषणा क$ तार*ख / : 11.02.2015 Date of Pronouncement

आदे श / O R D E R Per Sanjay Arora, A. M.:

This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-19, Mumbai ('CIT(A)' for short) dated 24.03.2011, partly allowing the Assessee's appeal contesting its assessment u/s.143(3) of the Income Tax Act, 1961 ('the Act' hereinafter) for the assessment year (A.Y.) 2007-08 vide order dated 29.12.2009.

2. The dispute in the instant case relates to the validity in law of the disallowance of the claim in respect of electricity expenses (Rs.6,11,294/-) and security expenses (64,584/-), claimed by the assessee against rental income, received at a gross of 2 ITA No. 5050/Mum/2011 (A.Y. 2007-08) Daanish Syscom Ltd. vs. ITO

Rs.13,29,220/- for the relevant year, in computing its taxable, i.e., the total, income under the Act. The basis of the assessee's claim; it not disputing that the rental income is from the premises let to the day traders for a hire, was liable to be assessed u/s.22 of the Act. So, however, the electricity expenses are only towards providing electric power for air conditioning the premises, so that the electricity cost is included in the gross receipt. The payment has an intimate and direct nexus with the receipt and, accordingly, ought to be allowed in the facts and circumstances of the case, even if that would mean assessing the said income, being toward provision of an air conditioned hall, in the form of various counters to enable the traders-hirers to exhibit and sell their wares to customers, as either business income, assessable u/s.28, or as 'income from other sources' u/s.56 of the Act. Reliance stands placed before us on the decision in the case of J. B. Patel & Co. vs. Dy. CIT (Asst.) [2009] 118 ITD 556 (Ahd.) The Revenue's case, on the other hand, is that it is only a case of letting a building, and not that of a combined letting of plant, machinery or furniture along with, in which case only, where inseparable with that of building, is the rental income liable to be assessed u/s.56(2)(iii) of the Act, placing reliance on Dr. P. A. Varghese vs. CIT [1971] 80 ITR 180 (Ker). No rent agreement/s was furnished to buttress the claim that the rent received is a composite charge. It is also not a case therefore of letting or provision of services, i.e., toward electricity and security, separately, or of letting/hiring of air conditioning units and the security staff.

3. We have heard the parties, and perused the material on record.

As regards the law in the matter, the same is trite. The total income under the Act has to be necessarily computed under the different, mutually exclusive, heads of income, in terms of and by applying the computational provisions, which are substantive in nature, falling under the relevant heads of income. Reference in this regard may be made by the constitution bench decision of the apex court in Escorts India Ltd. vs. Union of India [1993] 199 ITR 43 (SC).

3 ITA No. 5050/Mum/2011 (A.Y. 2007-08) Daanish Syscom Ltd. vs. ITO

So, however, in our clear view, looked at in any manner, the assessee's claim merits acceptance. The assessee is hiring space (as stated, in the form of sales counters or otherwise) in its' air conditioned hall at Bandra, Mumbai, to day-traders, to facilitate or enable them to sell their goods (known in the commercial language as 'bakda sales') or otherwise transact business. The apex court in Sultan Brothers (P.) Ltd. vs. CIT [1964] 51 ITR 353 (SC) clarified that the inseparability of letting is to be ascertained on the basis of the intention of the parties for entering into the arrangement. It framed three questions for being answered in the matter. Was it the intention of the parties that the two, i.e., the building and plant, machinery or furniture be enjoyed together? Again, was it the intention to make it one letting? Would one have been let alone or accepted, i.e., without the other? Air conditioning, as it appears, is integral to the letting of its hall by the assessee. If not a case of an inseparable letting, i.e., of plant, machinery (in the form of the air conditioning units) and building (in the form of hall), what we wonder then it is?

Where, therefore, pursued as a regular, systematic activity, the same would qualify for being assessed as business income u/s.28, or else as 'income from other sources' u/s.56(2)(iii). In either case, the expenditure on electricity and security, being a direct and incidental expenditure, would warrant deduction u/s. 37(1) or, as the case may be, section 57(iii). The decision in the case of Dr. P. A. Varghese vs. CIT [1971] 80 ITR 180 (Ker) is, following Sultan Brothers (P.) Ltd. (supra), based on a finding of letting of building with certain amenities necessary for the enjoyment of the property, so that it was a case of one letting. Even considering the arrangement to be essentially one of letting the premises, with air-conditioning as an amenity, and which cannot be regarded, at least prima facie, as not valid, so that the rent is assessable as 'income from house property', it needs to be appreciated that what is envisaged u/s.22 is the income from house property per se. There has been no attempt on the part of the Revenue to ascertain or assign the rent which the assessee's said house property, stated to be in the form of a hall, could fetch on being let on a year to year basis, i.e., as a whole.

In fact, it adopts the figure of rent/hire as credited by the assessee in its accounts, which is from regular parties, and in any case received by cheque, and only marginally from others, received in cash. How 4 ITA No. 5050/Mum/2011 (A.Y. 2007-08) Daanish Syscom Ltd. vs. ITO

could then it deny the assessee's claim of the rent received as being for the provision of space in an air conditioned hall along with the security services? Rather, the very fact that separate receipts have not been issued for or toward air conditioning and security charges, itself implies and supports the assessee's claim that what is received from the customers is a composite hiring fee. Would not, for instance, the electricity cost, where the premises is let along with the electricity connection for lighting, etc., require being deducted in determining the rental or the letting value of the house property? Even if, therefore, the income is to be assessed u/s.22, the annual letting value of the house property would stand to be computed after reducing the cost of electricity and security staff; assuming, at best, that no income arises to the assessee on incurring the said expenses, which would, therefore, need to be deducted at cost. It is only the balance amount that represents the letting value of the house property, assessable u/s.22 r/w s. 23 of the Act. The only caveat would be that the assessee shall have to establish that the expenditure claimed on account of electricity and security is qua its air conditioned hall only. Subject to verification of this aspect, for which the Assessing Officer shall make the necessary verification, we allow the assessee's claim, so that it is only the rent income, i.e., net of electricity and security services cost, as claimed, that would stand to be assessed u/s.22 of the Act. The assessee's case is also in agreement with the decision in the case of J. B. Patel & Co. (supra). We decide accordingly.

We are conscious that we have hereinbefore observed the arrangement to be a case of inseparable letting, so that the hire income is liable to be assessed u/s.28 or u/s. 56. Again, without doubt, it is the correct legal position that is relevant, and not the view that the parties may take of their rights in the matter [CIT v. C. Parakh & Co. (India ) Ltd. (1956) 29 ITR 661 (SC); Kedarnath Jute Mfg. Co. Ltd. v. CIT (1971) 82 ITR 363 (SC)]. So, however, in view of the limited arguments, i.e., qua the deductibility of the impugned costs, we are disinclined to issue any finding or direction on that aspect of the matter. We, by stating so, only wish to emphasize that we are deciding a limited issue, as argued and raised before us, leaving the said issue open, and may not be construed to have, per our order, determined the same as well.

5 ITA No. 5050/Mum/2011 (A.Y. 2007-08) Daanish Syscom Ltd. vs. ITO

4. In the result, the assessee's appeal is allowed on the aforesaid terms.

Order pronounced in the open court on February 11, 2015

Sd/- Sd/-

(Vijay Pal Rao) (Sanjay Arora) या यक सद य / Judicial Member लेखा सद य / Accountant Member मुंबई Mumbai; 0दनांक Dated : 11.02.2015 व. न.स./Roshani, Sr. PS आदे श क# $ त&ल'प अ(े'षत/Copy of the Order forwarded to : 1. अपीलाथ! / The Appellant 2. "#यथ! / The Respondent 3. आयकर आयु1त(अपील) / The CIT(A) 4. आयकर आयु1त / CIT - concerned

5. वभागीय " त न6ध, आयकर अपील*य अ6धकरण, मुंबई / DR, ITAT, Mumbai

6. गाड9 फाईल / Guard File आदे शानस ु ार/ BY ORDER,

उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील य अ धकरण, मुंबई / ITAT, Mumbai