TMI Blog2015 (4) TMI 400X X X X Extracts X X X X X X X X Extracts X X X X ..... penses - CIT(A)deleted the addition - Held that:- what the Assessing Officer has overlooked is that even under the mercantile method of accounting, the expenses are booked at the point of time when the liability to pay crystallizes and irrespective of whether the benefit are wholly in the current year, or partly in future year as well, a revenue expenditure is allowed as a deduction in the year in which it is incurred. The contribution pertains to the current year and is based on the revenues of the current year. It is undisputed that that it covers the period related to the relevant previous year. There is no dispute that expenditure is a revenue expenditure, there is no dispute that the expenditure is incurred in the present year, there is no dispute that all along even the increased contributions have been allowed as revenue expenses in the year in which the contributions have been made and to which contributions pertain. In such circumstances, a purely adhock disallowance on the basis that the benefits of this contribution will also be available in a subsequent period, is wholly uncalled for. We are unable to see any merits in this same.We have also noted that the expenses are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted by the assesse that renting of commercial complex is one of the main objects of the company and that this issue was raised in earlier years also and finally settled by the ITAT Bench A in which it was held that income from commercial complex is to be assessed as property income only . A copy of the order passed by the Tribunal was also submitted to the Assessing Officer. The AO took note of the same but pointed out that the dispute before the Tribunal was whether the income was taxable as income from other sources or as income from house property and it was in this context that the Tribunal held that the income was taxable as income from house property. This decision, according to the Assessing Officer, had no relevance in the present context where the dispute is with respect to taxability under the head profits and gains from business and profession vis- -vis taxability under the head income from house property . As regards the reference to the main objects of the assesse company, the AO was of the view that this fact shows that rental income from commercial plaza is to be taxed as business income more so in view of business objects for which company is establ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of an organized business activity, the Assessing Officer rightly taxed it under the head profits and gains from business and profession . The assesse is not satisfied by the stand so taken by the CIT(A) as well, and is in further appeal before us. 5. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 6. The true test for as to whether income from letting of a property is to be taxed under the head income from house property or as a business income is as to what is the primary object of the assesse, rather than whether the assesse is letting out the property as part of its main business. As held by Hon ble Calcutta High Court in the case of CIT Vs Shambhu Investments Pvt Ltd (249 ITR 47), which has been approved by Hon ble Supreme Court in the case of Shambhu Investments Pvt Ltd Vs CIT (263 ITR 143), if it is found applying such test that the main intention is for letting out the property or any portion thereof the same must be considered as rental income or income from property and in case it is found that the main intention is to exploit the immovable property by way of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the licence, the vault could not be used for any purpose other than storing cinema films. The assessee installed a fire alarm and paid an annual amount to the municipality towards fire services. It maintained a regular staff and also paid for the entire staff of the Indian Motion Picture Distributors Association for services rendered to the licensees. It was held that the assessee was carrying on an adventure or concern in the nature of trade and the subject which was hired out was a complex one. Dealing with the activities carried on by the assessee in that case and agreeing with the view taken by the Bombay High Court, the Supreme Court held : The assessee kept the key of the entrance which permitted access to the vaults in its own exclusive possession. The assessee was thus in occupation of all the premises for the purpose of its own concern, the concern being the hiring out of specially build vaults and providing special services to the licensees. As observed by Viscount Finlay in Governors of the Rotunda Hospital, Dublin vs. Coman (1920) 7 TC 517; (1921) AC 1, the subject which is hired out is a complex one' and the return received by the assessee is not the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... more than simple letting out of property where the emphasis is on the property itself rather than the services. It is true that the commercial or office complex is on the same plot on which the hotel is situated but it is undisputedly distinct from, even if somewhat attached to, the hotel itself, and, therefore, the fact of the commercial complex being on the same plot does not help the case of the revenue. The physical proximity of the hotel and the commercial complex does not really matter as long as the character of arrangement has distinct character, and there is no dispute on that aspect. It is a case of renting simplictor and the services incidental to letting out do not constitute such complex character so as to be render it as a business by itself. 9. We have also noted that undisputedly in the earlier assessment years, coordinate benches have held that the income from letting out is in the nature of income from house property. Once there are categorical findings to this effect, and there is no dispute on that fact, it is not open to the lower authorities to still hold that the income can be taxed as business income because that aspect of the matter was not examined. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this way will help the company in future years and, therefore, cannot be said to be expenses held for business during the year under consideration. The assesse company has been following the mercantile method of accounting, and, therefore, out of total expenses debited, a sum of 50% (being the additional brand building expenses charged) is related to the profits of the subsequent years and cannot be allowed. Therefore, disallowed and added back to the income of the assesse company. This will result in disallowance of ₹ 25,95,251 and the income of the company is enhanced by this much of amount. 15. Aggrieved by the stand so taken by the AO, assesse carried the matter in appeal before the CIT(A) who deleted the disallowance and observed as follows: The submissions of the appellant are considered. It is apparent that from FY 07-08, relevant to AY 08-09, the appellant is paying a higher sum towards its contribution for brand building, and the payments for brand building have been allowed by the AO in the earlier years, including the preceding year when payments were enhanced. In the year under consideration, adhoc disallowance to the extent of 50% has been made without any ..... X X X X Extracts X X X X X X X X Extracts X X X X
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