TMI Blog2010 (12) TMI 695X X X X Extracts X X X X X X X X Extracts X X X X ..... ied on long term basis there is no question of making any payment for publicity. Obviously the assessee had made the payment as a donation to RPG Academy of Art and Music which could not be held as expenditure incurred wholly and exclusively for the purpose of business - Decided against the assessee Regarding set off/carried forward - Held that: under the provisions of section 72 the brought forward loss/depreciation has to be adjusted against the business income and in case the loss is not fully set off against business income it shall be carried forward to the subsequent year. The brought forward loss in our view cannot be set off against the income from other sources or capital gain. - ITA No. 2653/M/2007, ITA No. 2457/M/2007 - - - Dated:- 15-12-2010 - R.V. Easwar, Rajendra Singh, JJ. Arvind Sonde for the Appellant Ashima Gupta for the Respondent ORDER Rajendra Singh: These cross appeals are directed against the order dated 25.1.2007 of CIT(A) for the assessment year 2003-04. These appeals are being disposed off by a single consolidated order for the sake of convenience. 2. The appeal of the assessee in ITA No.2653/M/2007. The assessee in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee during the year. The dividend has been specifically defined as income from other sources in section 56(1). No case has been made out that dividend in this case was incidental to any business activity. Therefore we confirm the order of CIT(A) holding the dividend income as income from other sources. As regards the interest income, the same had been received by the assessee from inter-corporate deposits, fixed deposits and deposits with mutual funds. The case of the assessee is that temporary surplus funds had been invested from which interest income had been received and therefore it should be assessed as business income. Reliance has been placed on the judgment of Hon'ble High Court of Mumbai in case of CIT vs Paramount Premises Pvt. Ltd. (supra). We have gone through the said judgment and in our view the said case is distinguishable. In that case the assessee who was in the real estate business had received advance installments in connection with booking of flats and pending utilization in the construction business these deposits were temporarily put in deposits and loans. It was therefore held that interest income sprang from business activities. In the present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.2.2 Before us the Learned AR for the assessee submitted that CIT(A) was not correct in stating that the assessee was the deemed owner of the premises under section 27(iiib) of the I.T. Act. It was pointed out that the premises had been taken by the assessee on month to month lease and this claim of the assessee had not been rejected by the authorities below. Section 27(iiib) clearly provided for exclusion of any rights in a propeprty by way of lease on month to month or for a period not exceeding one year. Therefore the case of the assessee was not covered under the provisions of section 27(iiib). Rental income therefore could not be assessed as income from house property. The dispute was only whether the income should be assessed as business income as claimed by the assessee or under the head 'other sources' as done by the authorities below. It was further submitted that it was not a case of simple letting out of the property. The assessee had let out the space with several facilities such as telephone, furniture and fixtures, computer with internet facilities, board room facilities cleaning facilities etc. He referred to the 38th Annual Report of the company in which at page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sum of Rs.45.63 lac had been spent by the assessee on improvement of the premises including the provision of facilities of various equipments and furniture and fixtures, etc. The assessee had developed the property and had commercially exploited the same along with various facilities and income had therefore to be assessed as income from business. 2.2.5 We have perused the records and considered the rival contentions carefully. The dispute is regarding the nature of income received by the assessee from the business centre. The assessee was earlier in some other business which had closed. After closure of the said business, the assessee had passed a resolution for making productive use of its premises for running the same as a business centre under the provisions of clause 34 of the object clause of the memorandum of association which authorized the assessee company to carry one any other business calculated directly or indirectly to enhance the value of or render profitable any of the company's properties. The said resolution was approved in the 38th Annual General Meeting of the company a copy of which has been placed on record. In pursuance of such resolution the company dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s aspects of the matter as well as the various judgments placed on record we are of the view that rental income on the facts of the case has to be assessed as business income. It is not a case of simple letting out of the property to enjoy the rental income. The assessee has developed the property and also made provisions for various services as mentioned earlier with a view to commercially exploit the property. The property has been let out with various facilities and amenities for corporate clients such as board room facilities, letters receipt/dispatch facilities, computer with internet facilities, security arrangements in addition to telephone and electricity and water facilities etc. The income has therefore to be assessed as business income. This view is supported by the judgment of Hon'ble Supreme Court in case of S.G. Mercantile Corporation Pvt. Ltd. vs CIT (83 ITR 700). In the said case one of the object of the assessee in its memorandum of association was to take on lease or otherwise acquire and to hold, improve, lease or otherwise dispose of land, houses and other real estate and personal properties and to deal with the same commercially. The assessee had taken one prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had debited expenditure of Rs.9 lacs as co-sponsorship fees. The assessee explained that the amount had been paid to RPG Academy of Art and Music who organized numerous well attended art exhibitions. The expenditure had been incurred to publicize the business centre and the facilities offered therein to the various corporate clients and therefore the expenditure was allowable as revenue expenditure. AO however did not accept the argument and observed that the assessee had let out the premises on a long time basis and the same was fully occupied and therefore there was no rationale in making the payment. He therefore disallowed the expenditure holding the same as non business expenditure. In appeal CIT(A) agreed with the AO that the expenditure had not been incurred wholly and exclusively for the purpose of business and therefore confirmed the disallowance. 2.3.1 Before us the Learned AR for the assessee reiterated the submissions made before lower authorities that the expenditure had been incurred for publicizing the business centre and therefore the expenditure was allowable as revenue expenditure. The Learned DR on the other hand supported the findings of the authorities belo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order that income from business centre has to assessed as business income and therefore provisions of section 35DDA will be applicable in case of the assessee as per which any expenditure in connection with any VRS scheme has to be allowed in five equal installments starting with the year in which the expenditure was incurred. The AO is therefore directed to allow the expenditure under the provisions of section 35DDA. 2.5 The sixth dispute is regarding addition on account of sundry creditors outstanding of Rs.80,94,091/- which was treated by the AO as income under section 41(1). The total sundry creditors at the end of the year was shown by the assessee at Rs.1,15,52,915/-. The AO after examination of details noted that sundry creditors to the tune of Rs.80,94,091/- had ceased to exist and therefore the same were treated as income under section 41(1) of the I.T. Act. The details of these creditors and the reasons given by the AO against each of them for treating them non existent were as under: Particulars Rs. Reasons given by AO Other expenses 3566018 Assessee failed to give break up Sundry creditors 1479824 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r carefully. The dispute is regarding additions on account of sundry creditors under section 41(1) of the Income-tax Act. Under the provisions of section 41(1) trading liability which ceases to exist during the year has to be treated as income of the assessee. It appears in this case the AO with a view to examining whether liabilities were existing or not had called for necessary details and confirmations but the assessee had not given details and break-up in respect of substantial liabilities amounting to Rs.35,66,018/-, Rs.14,79,824/- and Rs.6,03,710/- and in many other cases the assessee did not filed confirmations as desired by the AO which is clear from the details of liabilities given in this para earlier. In our view AO is entitled to examine the creditors and the assessee expected to give the necessary details as only after examination it can be found whether the liabilities have ceased or not. The assessee has also submitted that in some cases it had made payment subsequently while in some other cases the assessee had itself written off the liabilities in subsequent years. Therefore for the various reasons mentioned above we are of the view that the matter requires fresh e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce made by the AO aggrieved by which the assessee is in appeal before the Tribunal. 2.6.2 Before us the Learned AR for the assessee reiterated the submissions made earlier that the expenditure should be allowed as deduction against the capital gain. Learned DR on the other hand placed reliance on the orders of authorities below. 2.6.3 We have perused the records and considered the matter carefully. The dispute is regarding allowability of expenditure of Rs.10,90,837/- being the rates and taxes relating to the land which admittedly was not used for the purpose of business. The assessee sold the land during the year and earned long term capital gain of Rs.1,04,23,716/-. Since the expenditure had been incurred in relation to land which was not used for the purpose of business the expenditure cannot be allowed while computing the income from business. As regards allowability of claim while computing the capital gain from sale of land the assessee has raised an additional ground on this issue and therefore this aspect will be dealt with while dealing the additional ground later. 2.7 The eighth dispute is regarding the disallowance of professional fees of Rs.32,56,724/-. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vastukarma 2940 Commercial Union House Rs.1890 Mukut Flat Rs.1050/- 26 Crawford Bayley and co. 2025 AVP Equipments Supplier dispute 27 Thanawala Consultancy Services 1400 Acturial Valuation 28 V.S.Somani and Co. 650 Consultant for Accounts work 29 Duncan Investments 500 Sundry Expenses Total 3256724 2.7.1 AO asked the assessee to explain as to why the expenditure should not be disallowed as business of the assessee was already closed. The assessee explained that these expenses related to professional fees and sales tax matters bills for which were received during the relevant year and therefore the same were claimed as deduction during the year. AO however observed that the assessee had sold its fibre glass unit in 1998-99 and most of the receipts were shown as capital receipts. The assessee also demolished the factory building and discontinued the business completely. The assessee did not do any business for quite a few years. Therefore these expenses were pertained to the discontinued business. The AO further observe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed the records and considered the matter carefully. The dispute is regarding allowability of depreciation of Rs.3,49,915/- on plant and machinery. We have already held that income from business centre has to be assessed as business income. Therefore depreciation on all the plants and machinery installed in the business centre has to be allowed. We hold accordingly. 2.9 In the grounds No.10 and 11 the disputes raised relate to disallowance of employee cost of Rs.10,18,000/- and administrative expenses of Rs.22,56,000/-. The AO disallowed these expenses on the ground that the assessee was having income only from other sources. However, out of administrative expenses the expenses relating to repair and maintenance (553000) electricity (430000) and office rent (103000) were allowed by the AO against the income from the business centre. Details of the administrative expenses were as under: Rs. Particulars 5,53,000 Repairs and Maintenance 4,30,000 Electricity 1,03,000 Office rent 11,000 Insurance 1,64,000 Telephone, Cables and Postage 1,36,000 Shares/Debentures Handling cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness loss only to the extent of business income of Rs.85,41,939/- and the balance business loss of Rs.13,28,796 was not set off/carried forward. In appeal CIT(A) confirmed the order of AO on the ground that there was no business during the year and therefore there was no question of set off/carried forward of the balance business loss. Aggrieved by the said decision the assessee is in appeal before the tribunal. The assessee has also raised an additional ground that brought forward business loss/unabsorbed depreciation shall be set off against income from other sources and capital gain. 2.10.1 We have heard both the parties. The Learned AR submitted that the brought forward business loss/unabsorbed depreciation has to be set off against income from other sources and capital gain and the remaining loss if any has to be allowed to be carried forward as the assessee was still doing the business of running the business centre. The Learned DR on the other hand placed reliance on the orders of authorities below. 2.10.2 We have perused the records and considered the matter carefully. The dispute is regarding set off of brought forward business loss/unabsorbed depreciation. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereas the Learned DR placed reliance on the orders of the authorities below. 2.12.2 We have perused the records and considered the matter carefully. The dispute is regarding allowability of expenditure of Rs.10,90,837/- on account of rates and taxes. The said expenditure related to the land which was not used for the purpose of business and therefore as held earlier in para 2.6.3 of this order cannot be allowed as deduction against the income from business. The assessee has now claimed that the expenditure should be allowed while computing the income from capital gain from sale of the land. We are however unable to accept the claim. Under the provisions of section 48, only the cost of acquisition, cost of improvement and expenditure incurred wholly and exclusively in connection with the transfer of assets can be allowed as deduction while computing the income from capital gain. The impugned rates and taxes had been paid after the acquisition of land and therefore cannot be treated as part of cost of acquisition. The expenditure also did not result into improvement of the land. It can also not be allowed as expenditure incurred wholly and exclusively in connection with the trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the tribunal. 3.2.1 We have heard both the parties perused the records and considered the matter carefully. The dispute is regarding allowability of professional expenses. CIT(A) has allowed the claim against income from other sources with which the revenue is aggrieved. We have already considered the issue while dealing with the appeal of the assessee and held that the claim has to be allowed against the business income vide para 2.7.3 of this order as we have held that income from business centre has to be assessed as business income. The expenditure will therefore be allowed against the business income and the ground raised by the revenue is dismissed. 3.3 The third dispute is regarding the decision of CIT(A) to allow the employee cost of Rs.10,18,000/- under section 57(iii) of the I.T. Act. The AO had disallowed the claim on the ground that there were no business activities. CIT(A) however allowed the expenditure against income from other sources. Aggrieved by the said decision the revenue is in appeal. 3.3.1 We have heard both the parties, perused the records and considered the matter carefully. The employee cost has been disallowed by the AO on the ground tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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