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M/s Prestige Estates Projects Ltd. Versus The Deputy Commissioner of Income-tax

2016 (5) TMI 967 - ITAT BANGALORE

Income received from letting out of Malls - assessable under the head “Income from business or profession” or under the head “ Income from house property” - Held that:- There should be no consideration of primary and secondary lettings in construing the section 12(4) of 1922, which has analogy to 56(iii) of IT Act of 1961. In this case, the letting of building is along with letting machinery, plant or furniture required for ancillaries services and therefore, we hold that the alternative plea of .....

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We have considered the submissions of the assessee and orders of the authorities below. At the time of hearing, the ld. DR submitted that the very same issue has been decided against the assessee in assessee’s own case for the assessment year 2009-10. Thus we upheld the disallowance of compounding fees.

Deduction u/s 80-IB(10) - Held that:- Any disallowance of expenditure would certainly enhance the profits of eligible business. If assessee is carrying on eligible business, then, the .....

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te to remit the issue to the file of the AO and direct the AO to examine the claim of assesee in the light of the provisions of sec.80-IB(10) of the IT Act, 1961. Accordingly, we set aside the issue to the file of the AO and direct the AO to re-compute the deduction available u/s 80-IB(10) of the Act, in accordance with the provisions of the Act.

Disallowance u/s 14A - whether the interest and other indirect expenditure relatable to earning exempt income is disallowable u/s 14A - Held .....

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expenditure for day today management and monitoring such investment portfolios. Therefore, we are of the view that once there is exempt income relatable administrative expenditure should be disallowed in proportion to the exempt income. The AO after considering the relevant facts, disallowed the administrative expenditure by invoking provisions of Rule 8D(2)(iii) of IT Rules, 1962. Therefore, we upheld the disallowance made by the AO in respect of administrative expenditure - ITA No. 845(Bang.) .....

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and disposed by way of common order for the sake of convenience. 2. The brief facts of the case are that the assessee is a limited company engaged in the business of real estate and as builders and developers filed its return of income for the assessment year 2010- 11 on 14-10-2010 declaring total income of ₹ 70,64,77,400/-. The return of income was processed u/s 143(3) of the IT Act and subsequently, the case was selected for scrutiny and accordingly, notice u/s142(1) & 143(2) of the .....

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e treated as income from house property. In response to the notice, the assessee submitted that it is in the business of letting out of properties and earning rental income and the same has been considered as business receipts for all these assessment years. The assessee further submitted the jurisdictional ITAT in assessee s own case for assessment year 2005-06 to 209-10 has held rental income from malls is chargeable to tax under the head profits of business and not under the head income from .....

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the AO relied upon the decision of the Hon ble Supreme Court in the case of M/s Shambu Investment Pvt. Ltd Vs CIT (2003) 263 ITR 143, wherein it has been held that income derived by the assessee by letting out the furnished premises on monthly rental basis to various parties along with furniture, fixtures, lights, air-conditioners etc., for being used as payable space and also provided them common services like watch and ward, electricity and water was assessable as income from house property. .....

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eceived towards fit-outs fitted to the building in respect of fit-outs let out independently let out and a separate agreement was entered with the tenants therefore, it cannot be considered as composite letting out of premises alongwith building and other fit-outs. The assessee further submitted that the jurisdictional ITAT in assessee s own case for assessment year 20005-06 to 2009-10 has held that rental income from letting out of fit-outs is taxable under the head income from other sources . .....

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r the head income from other sources . 6. Aggrieved by the assessment order, the assessee preferred an appeal before the ld. CT(A), before the ld. CIT(A) the assessee reiterated the submissions made before the AO. The assessee further submitted that merely because, income is attached to immovable property it cannot be the factor for assessing such income as income from house property. It was further submitted that the income from letting out of the property by way of commercial exploitation and .....

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t is submitted that the assessee has earned rental income from fit-outs which are independently provided to the tenants and a separate agreement has been entered with the tenants. The activity of letting out of fitouts is a commercial exploitation of property. Therefore, it cannot be considered as composite letting out of land and building alongwith the fit-outs. The assessee further submitted that the jurisdictional ITAT in assessee s own case for the assessment year 2005-06 to 2009-10 held tha .....

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arly, a rental receipt from letting out of fit-outs is assessable under the head Income from house property . Aggrieved by the CIT(A) s order, revenue is in appeal before us. 8. The ld. DR submitted that the ld. CIT(A) is not justified in holding that the rental income received by the assessee from Malls is assessable under the head Income from business or profession and not as income from house property, despite a specific agreement between the landlord and the tenant, contemplating a landlord .....

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t the though the jurisdictional ITAT, in the assessee s own case for the assessment year 2005-06 held that the rental receipts from letting out the Malls is assessable under the head Income from business , the fact emanate from the agreement clearly suggests that it is mere letting out of properties and the resultant income should be assessed under the head Income from house property . 9. On the other hand, ld. AR of the assessee submitted that the issue involved in this appeal is squarely cover .....

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eard both parties and have gone through the material available on record. The first issue that came up for our consideration is whether the income received from letting out of Malls is assessable under the head Income from business or profession or under the head Income from house property . A similar issue had come up for consideration before the co-ordinate Bench of this Tribunal in assessee s own case for the assessment year 2005-06 and the co-ordinate bench of the Tribunal, under similar cir .....

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business and the CIT(A) grossly erred by ignoring the fact that the sample agreement in respect of the rental receipt clearly establishes a typical landlord - tenant relationship between the assessee and tenants and, therefore, the income received as rental receipts should have been ordered to be treated as income from house property . ii) At the outset, we would like to point that an identical issue had cropped up before the Hon ble Tribunal for the AY: 2005-06 in the assessee s own case where .....

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imary and secondary lettings in construing the section 12(4) of 1922, which has analogy to 56(iii) of IT Act of 1961. In this case, the letting of building is along with letting machinery, plant or furniture required for ancillaries services and therefore, we hold that the alternative plea of the appellant that in case the income is not to be assessed under the head income from house property then it is required to be assessed under the head income from other sources this is without prejudice to .....

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out of Malls is assessable under the head Income from profits and gains of business or profession . The CIT(A), by following ITAT, decision in assessee own case for the earlier assessment year allowed the claim of the assessee. We do not see any error in the order of the CIT(A). Therefore, we inclined to upheld the CIT(A) order and reject the ground of revenue. 12. The next issue that came up for our consideration is whether the income received from letting out of fit-outs independently is asses .....

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that the coordinate bench of this Tribunal under similar circumstances held that the issue is in favour of the assessee. The relevant portion of the order is re-produced hereunder; 3) Direction of CIT(A) to AO to assess the hire charges in respect of fit-outs as income from other sources. i) Nevertheless, the revenue s brief submission was that the CIT(A) had grossly erred in directing the AO to assess the hire charges in respect of fit-outs which were laid out to tenants as income from other so .....

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and the ld. counsel indicate that the intention of the assessee for rendering the same as income from other sources ought not to have been disturbed as in ealier years . Hence, the receipts on letting of it is to be taxed under the head income from other sources on the basis of the decision of the Tribunal in the earlier year and also on the basis of the principal of consistency. Once the rental income on letting out I taxed under the head income from other sources , then the assessee will be en .....

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ige Estate Projects Ltd., in ITA No.119/2014 under similar circumstances held that the rental income received by the assessee from letting out of Malls and fit-outs is assessable under the head Income from business and Income from other sources . The relevant portion of the order is re-produced hereunder; ….2. Similar question arose for consideration before this Court in ITA No.73/2014 which was decided on 01-04-2014 following the judgment of this Court in the case of CIT-III Vs Velankani .....

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g land, putting up commercial buildings thereon and letting out such buildings with all furniture as his profession or business, then notwithstanding the fact that he has constructed a building and he has also provided other facilities and even if there are two separate rental deeds, it does not fall within the heading of income from house property. Therefore, firstly what is the intention behind the lease and secondly what are the facilities given along with the buildings and documents executed .....

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law raised in this appeal are already answered in the aforesaid decision, this appeal is dismissed . 14. Considering the facts and circumstances of the case and also respectfully following the Co-ordinate Bench decision, we are of the view, that the income received from letting out of fit-outs is assessable under the head Income from other sources . The CIT(A) by relied upon ITAT decision in assesee s own case directed the AO to assess the rental receipts from fit out under the head Income from .....

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. The AO was of the opinion that the expenditure incurred by the assessee is in the nature of penalty which is not allowable u/s 37(i) of the IT Act, 1961. It is the contention of the assessee that the expenditure incurred by way of compounding fees is paid to the local authorities for regularizing the violations in the sanctioned plan. The assessee further contended that it had paid compounding fees to BBMP on various projects to compound the irregularities in sanction of plan and paid the fees .....

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nstruction which nothing but a fine or penalty for violation of the Municipal Act. Therefore, the same cannot be allowed as deduction while computing the income under the head Profits and gains of business or profession . Aggrieved by the assessment order, the assessee preferred appeal before the ld.CIT(A), who after considering the assessee s own case for the assessment year 2006-07, upheld the disallowance made by the AO. 18. The ld.AR, at the time of hearing fairly accepted that the issue is .....

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he payment of compounding fees is neither prohibited by law or an offence. The BBMP has received occupancy certificate in respect of construction after regularizing the said deviations and once the occupancy certificate is issued the offence no longer remains. Therefore, requested to delete the addition made by the AO. On the other hand, ld. DR strongly supported the order of the ld. CIT(A). The ld. DR further argued that the issue in question is covered against the assessee by assessee s own ca .....

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ompounding fee paid to BBMP to regularize the deviations from the sanctioned plan is not a fine or penalty for violation of any law. The assessee further contended that it has paid the compounding fee which is within the permissible limits allowed under the provisions of Municipal Act. The BBMP has regularized the deviation by collecting prescribed fees as per the provisions of Municipal Act and issued occupancy certificate to the projects. Therefore, it cannot be considered as fine or penalty. .....

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d that the very same issue had come up for consideration before the C Bench of this Tribunal for assessment year 2007-08 in ITA No.962/Bang/2011 and vide orders dated 14/9/2012, the Tribunal had decided the issue against the assessee by following the decision of this tribunal in the assessee s own case for the assessment year 2001-02 and 2003-04. The relevant portion of the order of the tribunal is at para 5 to 6 of the assessment order. The same is reproduced hereunder for easy reference: 5. Ha .....

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e compounding fees is not a penalty for infraction of law and hence allowable . At page 361, the Hon ble High Court has referred to the order issued in the case of Mamta Enterprises. In the instant case also, the order which has been issued by the Commissioner while granting occupancy certificate, is that the assessee has paid the compounding fine. Before the Hon ble High Court it was contended by the appellant s counsel that construction of a building in violation of the sanctioned plan cannot .....

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ion of Sri Kulkarni. We are unable to agree with the submission of Sri Kulkarni that since the provision in clause (b) of section 483 of the Corporation Act permits compounding of the offence, once the violation is compounded, there was no offence committed in the eye of law; and the offence committed is wiped out. Section 300 of the Corporation Act prohibits commencement of the construction or reconstruction of a building, without there being a permission granted by the Corporation for the exec .....

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d that the construction or reconstruction of a building has been commenced without obtaining the permission or being carried on or has been completed otherwise than in accordance with the plans or particulars on which such permission or order was based. Section 436 of the Act, among other things, provides that if the construction or reconstruction of any building is commenced without the permission of the Commissioner; or is carried on or completed otherwise than in accordance with the particula .....

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reach of the provisions of the Act, rules, byelaws or regulations which may by rules made by the Government be declared compoundable. Therefore, from the scheme of the several provisions in the Act referred to above, it is clear that nobody can put up any new construction or proceed to reconstruct the existing building without there being a sanctioned plan or permission granted by the Commissioner on that behalf, the putting up any construction without there being a sanctioned plan is made an of .....

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uction is in violation/deviation of the sanctioned plan, the Commissioner may, if he considers that the violation/deviations are minor viz., only when the deviations/violations is within 5% of (1) the minimum set back to be left around the building (2) the maximum plot coverage (3) permissible floor area ratio and maximum height of the building and that the demolition under Chapter XV of the act is not feasible without affecting the structural stability, then he may regularize such violations/de .....

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, read along with clause (b) of section 483, empowers the Commissioner to compound the violation or deviation of the sanctioned plan done by a person who constructs a building . After holding that the amount paid is compounding of an offence, the Hon ble jurisdictional High Court held that such an expenditure is not to be deemed to have been incurred for the purpose of business or profession and no deduction or allowance can be made in respect of such an expenditure. Thus, the decision of jurisd .....

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le MP High Court observed at page 498 as under:- In our considered opinion the manner in which the Tribunal has dealt with the issue so far as precedents of judicial propriety in following decisions of the High Court are concerned, the same should have been referred to this Court for examination. It is, in our humble opinion, on issue which the High Court alone has to decide and not for the Tribunal to decide. We have our own reservations as to whether the Tribunal could make a comment on the de .....

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rization of violation/ deviation are not allowable expenditure. We also uphold the finding of the learned CIT(A) that in case the compounding fine/penalty paid for regularization of violation/deviation is ultimately held as fees then provision of section 43B will be applicable and the amount will be deductible as per the provisions of section 43B. This disposes of appeal for the assessment year 2001-02 . 4. Respectfully following the decision of the coordinate bench which is in the consonance wi .....

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pounding fees is not allowed as deduction, the same has to be considered for deduction u/s 80-IB(10) of the IT Act, 1961. The ld. AR submitted that the assessee is eligible for deduction u/s 80-IB(10) of the Act, therefore, any disallowance of expenditure which results in enhancement of eligible profit which is allowed as deduction u/s 80-IB(10) of the Act, 1961. In support of his arguments relied upon the decision of the ITAT of Delhi Bench in the case of DCIT Vs Shree Ganesh Developers & B .....

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shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made for the purpose of such expenditure. Therefore, he submitted the enhanced profit shall not be treated as eligible profit for the purpose of deduction u/s 80IB(10) of the IT Act, 1961. The ld. D.R further submitted that the assessee has raised this ground for the first time before the ITAT and the facts of which were before the lower authorities therefore, the issue may .....

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ement of eligible profit. Since, the assessee is eligible for deduction u/s 80- IB(10) of the IT Act and the enhanced profit should be allowed as deduction u/s 80-IB(10) of the IT Act, 1961. We find force in the argument of the assessee for the reason that any disallowance of expenditure would certainly enhance the profits of eligible business. If assessee is carrying on eligible business, then, the total profits of the business shall be eligible for deduction under the provisions of Act. In the .....

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he light of the provisions of sec.80-IB(10) of the IT Act, 1961. Accordingly, we set aside the issue to the file of the AO and direct the AO to re-compute the deduction available u/s 80-IB(10) of the Act, in accordance with the provisions of the Act. 24. The next issue that came up for our consideration is the disallowance u/s 14A of the IT Act, 1961. The AO disallowed proportionate interest expenditure and indirect expenditure u/s 14A of the IT Act r.w. rule 8D(2)(ii) and 8D(2)(iii). The AO was .....

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income should be disallowed in full. In case of other expenditure where the direct nexus is not established to earn the exempt income, the proportionate expenditure as prescribed under Rule 8D should be disallowed. It is the contention of the assessee that it has utilized the borrowed funds for the purpose of investments in shares to earn exempt income. Therefore, no disallowance can be made u/s 14A of the IT Act, 1961. It is further submitted that to invoke the provisions of sec.14A of the IT .....

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failed to allocate the relatable interest and other indirect expenditures on pro-rata basis. The AO was of the opinion that the assessee has not proved to the satisfaction of the AO that it has not utilized the borrowed funds for the purpose of investments in shares. The AO further opined that as per the amended provisions of sec.14A of the Act, there is no distinction between the direct and indirect expenditure. In case, where there is exempt income, the relatable expenditure in respect of inte .....

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