TMI Blog2018 (3) TMI 1312X X X X Extracts X X X X X X X X Extracts X X X X ..... he payee had suffered taxes on the said commission income at maximum marginal rate and had also derived commission income of ₹ 16.12 crores which admittedly includes commission payments made by the assessee herein. CIT-A had rightly appreciated these facts and contentions of the assessee and had rightly deleted the disallowance and we find no infirmity in the said order of the ld CITA in this regard. Accordingly, the Ground No. 2 raised by the revenue is dismissed Grant depreciation at 15% on Electrical Installations - Held that:- CIT-A had given a categorical finding that the electrical installations were integral part of plant and machinery installed at the factory and that the electrical installations inter alia included items such as transformers, electrical panels, HT wirings etc which were necessary for operating plant and machineries installed at the factory. He further held that without the aid and use of supporting electrical installations, the assesee’s factory could not have become operational. These findings are not controverted by the revenue before us. Hence we do not find any infirmity in the order of the ld CITA in this regard. Accordingly, the Ground No. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of developing operating landed properties. The ld AO observed that the warehouse was not used by the assessee but had been let out and therefore it could not be said that it was used for business. The ld AO held that the primary object of the company was to let out the warehouse for which it had charged a composite rent for letting out the spaces along with fixtures, plants amenities. The ld AO relied on the decisions of Hon ble Supreme Court in the case of S.G.Mercantile Corporation (P) Ltd reported in 83 ITR 700 (SC) and Shambhu Investment (P) Ltd vs CIT (Civil Appeal No. 6459 to 6460 of 2001). The ld AO accordingly treated the income received from letting out warehouse under the head house property and thereby not allowing expenses claimed in computing business income. 2.2. The assessee submitted that it was formed in the year 2006. The main object of forming the company was to conceive, own, set-up, establish and construct infrastructure facilities of any type or form and also to operate, manage, control exploit the building, complex or the super structure build by it. In pursuance of its main objects, the asseseee company acquired a land at Matigara. After conduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in a purely commercial manner to earn profits. Based on these facts, the assessee had offered the receipt of license fee as income from business . The assessee also placed reliance on the decision of the Hon ble Madras High Court in the cases of CIT vs NDR Warehousing (P) Ltd (TCA No. 303 to 305 812 of 2013 dated 1.12.2014) wherein the rental income earned by the assessee from warehouses was held to b assessable as business income . It was argued that it was the ld AO s view that the main object of the company was to construct and let out properties was of no consequence. The assessee drew the attention of the ld CITA to the recent decision of the Hon ble Supreme Court in the case of Chennai Properties Investments Ltd reported in 56 taxmann.com 465 (SC) . The ld CITA appreciated the contentions of the assessee and by placing reliance on the decision of the Hon ble Supreme Court in the case of Chennai Properties supra and the decision of co-ordinate bench of this tribunal in the case of Dutta Properties vs ITO in ITA No. 973 to 979/Kol/2012 dated 1.7.2015, held that the rental income is to be taxed under the head income from business . Aggrieved, the revenue is in appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he warehousing facilities enabled the occupiers to preserve the goods without being subjected to vagaries of nature. The assessee had carried on an organized activity with a view to commercially exploit the civic infrastructure set up by it at substantial cost . For setting up such civic infrastructure, the assessee had borrowed substantial sums on which the assessee was paying interest at commercial rates of interest. For carrying on such organized activity, the assessee had employed skilled and semi skilled staff. 2.3.1. We find that the issue under dispute is settled by the decision of the Hon ble Supreme Court in the case of Chennai Properties Investments Ltd reported in 56 taxmann.com 465 (SC). In that case, the assessee was a company incorporated with the main object, as stated in the Memorandum of Association, to acquire the properties and to let out those properties. The assessee had therefore acquired certain properties and rented it out and the rental income received therefrom was shown as income from business. The AO however assessed the rental income under the head income from house property instead of business . When this question came up for consideration be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue to take a differential stand by treating the rental income as income from house property. The principle of consistency cannot be given a go by eventhough the principle of resjudicate does not strictly apply to income tax proceedings. Reliance in this regard is made on the decision of Hon ble Supreme Court in the case of Radhasoami Satsang vs CIT reported in 193 ITR 321 (SC) . 2.3.3. The ld DR placed reliance on yet another recent decision of the Hon ble Supreme Court in the case of Raj Dadarkar Associates reported in (2017) 81 taxmann.com 193 (SC) which was held in favour of the revenue. The ld AR stated that the said decision is distinguishable on facts. In the case of Raj Dadarkar supra, the assessee therein, had let out shops / stalls to various occupants on monthly rent. The assessee collected charges for minor repairs, maintenance, water and electricity. As per the terms of allotment by the BMC, the assessee was bound to incur all these expenses and assessee in turn collected extra money from the allottess. The assessee collected 20% of monthly rent as service charges. Such service charges were also used for providing services like watch and ward, electricity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, the circumstances under which the payment became necessary when no such payment was made earlier. The assessee replied that the unit was at the inception stage of commercial production and has less idea about the market availability of the produce. The company was unable to obtain orders from open market. There was daily production of its product and a huge working capital involvement was there. Hence it had to appoint M/s R.S.Ispat Ltd (its holding company) for obtaining orders for and on behalf of the assessee for which payment of commission to them was warranted. The assessee had the following trading activity during the relevant year :- Sale of Finished goods Non alloy steel ingot ₹ 36,05,83,080/- Sale of Raw materials Stores - C.I. Ingot Mould ₹ 29,26,980/- - Ferro Silicon ₹ 20,48,080/- ₹ 36,55,58,140/- Sale of Trading Goods - M.S.Scrap ₹ 6,38,154/- - M.S.Wire ₹ 26,14,500/- - Misc. Ite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed marketing and distribution channels. The assessee therefore decided to avail the benefit of marketing and distribution netweork, knowledge and expertise of R.S.Ispat Limited and appointed it as their sole sale promotion agent for a period of one year. Formal agreement was executed on 30.3.2011 which was duly notarized. In terms of the sales promotion agreement, R.S.Ispat Ltd was entrusted with the task of assisting in sales and other sales related auxiliary services. In consideration, the assessee was required to pay 4% of the total sales invoice billed during the tenure of the agreement. Accordingly, in terms of the sales promotion agreement, the assessee paid commission of ₹ 1,47,26,906/- to M/s R.S.Ispat Limited. It was pleaded that the legislative intent of enacting section 40A(2) of the Act was to curb avoidance of tax by way of shifting of profits from one concern to another, by making payments to sister concerns/ related parties. The assessee s flagship company M/s R.S.Ispat Limited is an independent operational company which is assessed to tax by DCIT, Circle 3(1), Kolkata and had filed its return of income for the Asst Year 2012-13 declaring total income of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al before us on the following ground:- 2. Disallowance of payment of service commission to related parties under same group of management and located at the same address with the assessee u/s 40A(2) of the IT Act, 1961. 3.3. We have heard the rival submissions. We find that the ld CITA had given a categorical finding that the assessee had completely outsourced its marketing activity to R S Ispat Limited which had sourced the entire sales to the assessee . Admittedly the sales were made by the assessee to its related parties (42%) and also to unrelated parties (58%) . The commission was paid by the assessee to R.S.Ispat Limited @ 4% on total sales made by the assessee. It is not in dispute that R S Ispat Limtied had established an extensive marketing network; capable of procuring orders for the assessee s products. Since under the agreement, R.S.Ispat Limited was entrusted with the entire marketing and sales promotion activities and the assesse was not required to undertake any marketing efforts of its own, the parties had agreed for a uniform basis for computing the amount of compensation payable by the assessee in the form of commission. The commission payable to R.S.Ispa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s reflected in the Balance Sheet. In the course of assessment proceedings, the assessee had furnished the details of opening and closing written down value (WDV) of plant and machineries. The ld AO thereafter show caused the assessee to explain as to why the electrical installations at the factory should not be treated as office equipment instead of plant and machinery and therefore why the normal depreciation should not be reduced from 15% to 10%. In response the assessee submitted the nature and purpose of electrical installations and explained that these installations were made at the factory and not the office premises. It was explained that these electrical installations were made to operate and run the factory along with machineries installed at the factory unit. Accordingly the electrical installations formed an integral part of plant and machinery. The assessee placed reliance on the decision of the Hon ble Punjab and Haryana High Court in the case of CIT vs Oswal Woollen Mills Limited reported in 289 ITR 261 (P H) wherein the assessee in that case had claimed depreciation at 25% on electrical installations in the unit treating it to be plant and machinery . The AO how ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... qualify for depreciation at the general rate applicable to plant machinery. On the contrary the AR furnished evidence to show that in the earlier year the depreciation was allowed at the rate of 15% being the general rate applicable to plant machineries. In the circumstances, I find that if in the earlier years, the character of the depreciable asset was accepted by the Department to be plant machinery eligible for depreciation at general rate of 15% then in later year the AO could not change the character and or category of the depreciable asset and reduce the permissible rate to 10%. I further find that the assessee s claim for depreciation in respect of electrical installations is supported by the judgments of the Punjab Hariyana High Court in the case of CIT vs. Oswal Wollen Mills Limited (289 ITR 261), CIT vs. Metalman Auto Pvt. Ltd. (11 taxmann. Com 51) CIT vs. Subrata Dutta Choudhary (197 Taxman 71). Since the AO has not brought on record any material to the contrary, following the ratio laid down in these directions, I direct the AO to allow the depreciation at a higher rate of 15% in respect of electrical installations and delete the disallowance of ₹ 4,02 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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