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2016 (2) TMI 82 - ITAT MUMBAI

2016 (2) TMI 82 - ITAT MUMBAI - TMI - Treatment of property lease income as income under the head “Profits and Gains of Business or Profession” - Held that:- The entire dispute has to be considered in the light of the decision of the Hon’ble Supreme Court in the case of Chennai Properties & Investments Ltd Vs CIT [2015 (5) TMI 46 - SUPREME COURT] wherein held that letting out of the properties being the business of the assessee, the income from which has to be treated as income from business. Th .....

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of the assessee as “Operation of Mall’ therefore any income earned by the assessee by the operation of mall has to be taxed under the head Profits & Gains of Business or Profession. The main object of the company as per the Memorandum of Association also refers to such activities as the main object for which the company is incorporated. As the main object itself shows that the assessee-company has been incorporated for running shopping malls /departmental stores, super markets, shopping arcades, .....

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e AO to exclude the notional lease rental income from the total income of the assessee - Decided in favour of assessee. - Disallowance of interest (a) for giving interest free advances (b) for earning exempt income - Held that:- A perusal of the factual matrix elsewhere shows that the assessee was having sufficient own funds for making the investments and for giving interest free advances. The facts of the case are squarely covered by the decision of the Hon’ble High Court of Bombay in the c .....

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y Mehta For The Department : Shri B.B. Rajendra Prasad ORDER PER N.K. BILLAIYA, AM: These are cross appeals b y the assessee and the Revenue against the very same order of the Ld. CIT(A)-9, Mumbai dated 20.3.2014 pertaining to assessment year 2009-10. As both these appeals were heard together, they are disposed of by this common order for the sake of convenience. ITA No. 3879/M/2014 - Assesee s appeal 2. The first grievance of the assessee relates to the treatment of property lease income as inc .....

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various services to its tenants and has received ₹ 5,70,88,487/- under the head Recovery of common area maintenance and utility expenses . The assessee was asked to explain why the property lease income should not be assessed as Income from House Property and accordingly why the claim of depreciation should not be disallowed along with the claim of brokerage expenses. 3.1. The assessee filed a detailed reply vide letter dated 8.12.2011 categorically explaining the main object for which th .....

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of interest expenses holding that the assessee has given interest free advances while it has paid interest on its borrowings. The AO further made disallowance u/s. 14A of the Act. Once again treating a part of the interest expenditure being incurred for earning exempt income and completed the assessment. 4. Aggrieved by this, the assessee carried the matter before the Ld. CIT(A) and reiterated its claim of income to be taxed under the head Profits & Gains of Business simultaneously justifyi .....

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disallowed u/s. 36 of the Act. 5. Aggrieved by this finding of the Ld. CIT(A), the assessee and the Revenue are in appeal before us. 6. The Ld. Counsel for the assessee reiterated what has been stated before the lower authorities. The Ld. Counsel drew our attention to the assessment order for A.Y. 2008-09 and pointed out that the property lease income has been accepted under the head Profits & Gains of business by an order made u/s. 143(3) of the Act dated 24.12.2010. The Ld. Counsel furthe .....

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d by the assessee from running and operations of a Mall and service charges recovered as chargeable under the head Profits & Gains of Business. The Ld. Counsel further pointed out that in this case the Tribunal has also considered the decision of the Hon ble Bombay High Court in the case of Runwal Developers Pvt. Ltd. which has been considered by the Ld. CIT(A). 7. Per contra, the Ld. Departmental Representative supported the findings of the Revenue authorities. 8. We have given a thoughtful .....

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reme Court has further observed that the Memorandum of association of the assessee company clearly mentions that main objects is to acquire and hold the properties and holding the aforesaid properties and earning income by letting out those properties is the main objective of the company. Therefore, any income earned has to be taxed under the head Income from business . 8.1. In the present case also we find that in A.Y. 2008-09, the AO himself has accepted the nature of business of the assessee .....

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ets, entertainment, recreation and amusement centre therefore any income earned from such activities has to be taxed under the head profits and gains of business. This will be in line with the ratio laid down by the Hon ble Supreme Court in the case of Chennai Properties & Investment Ltd (supra). We, accordingly set aside the findings of the Ld. CIT(A) and direct the AO to treat the income under the head Profits & Gains of Business. 8.2. Having held that the income is to be taxed under t .....

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issued by the ICAI. It was strongly contended that the lease rental was neither actually received nor receivable but is only computed on notional basis to comply with mandatory Accounting Standards. 9.2. The claim of the assessee was denied by the Revenue authorities. 9.3. Before us, the Ld. Counsel for the assessee straightaway relied upon the decision of the Hon ble High Court of Bombay in the case of Reliance Industrial Infrastructure Ltd 379 ITR 340. It is the say of the Ld. Counsel that on .....

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a) had the occasion to consider the following question raised before it: (B) Whether, in the facts and in the circumstances of the case and in law, the Tribunal was right in dismissing the Revenue s ground of appeal No. 2 holding that the lease equalization credited to the profit and loss account over and above the lease rental cannot be considered as income and thereby upholding reducing of the assessee s total income by lease equalization of ₹ 2,06,21,580/- credited to the profit and los .....

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o as to meet the Accounting Standards. Further, even if one accepts the submission on behalf of the Revenue that these guidelines have not been notified by the Central Government for u/s. 145(2) of the Act and, thus, cannot be accepted yet what follows is that the amount credited as a lease equalization fund to the profit and loss account has to be ignored as it is not real income. It is an amount which is completely notional and brought into the books only for complying with the Accounting Stan .....

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lowing the findings of the Hon ble Jurisdictional High Court, we direct the AO to exclude the notional lease rental income of ₹ 1,49,70,691/- from the total income of the assessee. Ground No. 2 is accordingly allowed. 10. Ground No. 3 & 4 are consequential to our findings given for ground No. 1 and the same are treated as allowed. 11. Ground No. 5 & 6 relate to the disallowance of interest (a) for giving interest free advances (b) for earning exempt income. 11.1. Our attention was .....

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