TMI Blog2016 (5) TMI 967X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 total profits of the business shall be eligible for deduction under the provisions of Act. In the present case, there is dispute about the activity of the assessee which is eligible for deduction under sec.80-IB(10) of the IT the Act, 1961. However, the assessee has raised the issue before the Tribunal for the first time. The lower authorities have not had an occasion to consider the plea of the assessee in the light of the provisions of sec.80-IB(10) of the Act. Therefore, we deem it appropriate 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 A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent proceedings, the AO notice that the assessee has received rental income from Forum, Eva Mall and UB City and treated the same under the head Income from business , against which various expenditures have been claimed. Therefore, issued show cause notice to the assessee asking why the rental income from properties shall not be 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 house property . Therefore, requested to allow the income as claimed by the assessee under the head income from business or profession . The AO after considering the submissions of the assessee held that the income derived by the assessee by letting out properties to tenants is akin to any landlord tenant relationship therefore, the rental income from properties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 as an organized commercial activity accompanied by professional services amenities or facilities is chargeable to tax as business income and not as income from house property . The assessee further submitted that the jurisdictional ITAT in assessee s own case for the assessment year 2004-05 has held that rental income from malls is chargeable to tax under the head Profit and gains of business and not under the head income from house property . 7. As regards the rental income from the fit-outs, it 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nataka in assessee s own case for the assessment year 2009-10 has held the issue in favour of assessee. Therefore, the order of the ld.CIT(A) should be upheld. 10. We have heard 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 circumstances held that the income received from letting g out of Mall is assessable under the head Profits and gains of business or profession . The relevant portion is reproduced hereunder; 2. Assessing of the rentals from Forum Mal and Eva Mall as income from Profits and gains from business/profession . i) The revenue s submissions was very blunt to the effect that the CIT(A) erred in directing the AO to assess the rental receipt from Forum Mall and Eva Mall as income from profits and gains from busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e next issue that came up for our consideration is whether the income received from letting out of fit-outs independently is assessable under the head Income from other sources or Income from house property. The ld. AR of the assessee at the time of hearing submitted that the issue is covered by assessee s own case for the assessment year : 2006-07 and the ITAT, under similar circumstances held that the income received from letting gout of fitout is assessable under the head Income from other sources . We have gone through the case laws relied upon by the assessee and in the light of the facts of the present case and find 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 sources . i) Yet again, we find a solace from fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from house property . But if the assessee is in the business of taking 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 in respect of each of them is to be seen. Thirdly, it is to be found out whether it is inseparable or not. If they are inseparable and the intention is to carry on the business of letting out the commercial property and carrying at complex commercial activity and getting rental income therefrom, then such a rental income falls under the heading of profits and gains of business or profession . 3. In that view of the matter, we do not see any merit in this appeal. As the substantial questions of law raised in this appeal are already answered in the aforesaid decision, this appeal is dismissed . 14. Considering th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decided against the assessee in assessee s own case for the assessment year 2006-07. However, submitted that the lower authorities have erred in not appreciating the impugned expenditure incurred towards regularization of construction made in excess of sanction plan and which was within curable limits therefore, the compounding fees paid to regularize the deviations from sanctioned plan cannot be considered as fine or penalty for violation of any law in force. The ld. AR further submitted that the 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 case for the assessment year 2006- 07. The ITAT, in assessee s own case for the assessment year 2006- 07 has held that the compounding fees is in the nature of fine or penalty cannot be allowed as deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowable . 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 be treated as a violation of a serious nature, which is prohibited by law or amounting to commission of an offence. The Hon ble jurisdictional High Court after observing as under held that byelaws empower the Commissioner to compound the violation or deviation of the sanctioned plan by a person who constructs a building:- Having elaborately heard learned counsel appearing for the parties, while we find considerable force in the submission of Sri Seshachala, we are unable to accede to the submission 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 committe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wers the Commissioner to compound the offence. Byelaw 5.6 framed by the Corporation in exercise of the power conferred under it under section 428 of the Act enables the Commissioner to set out the circumstances under which he could compound an offence. It is useful to refer to the said byelaw which reads as hereunder: 5.6.1 Whether any construction 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/deviations by sanctioning of a modified plan with a levy of a suitable fee to be prescribed. The Commissioner shall come to such conclusion only after recording detailed reasons for the same. Violations/ deviations under the provision shall not include the buildings which are constructed without obtaining any sanctioned plan whatsoever and also the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 with the decision of the Hon ble jurisdictional High Court, this appeal of the assessee is dismissed. 20. Considering the facts and circumstances of the case and also keeping in view the judicial discipline, by following the coordinate bench decision, in assessee s own case for assessment year 2009-10 we upheld the disallowance of compounding fees. 21. The next issue that came up for our consideration is deduction u/s 80-10B of IT Act, 1961. The assessee has raised alternative plea that if the compounding 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee in the light of the provisions of sec.80-IB(10) of the Act. Therefore, we deem it appropriate 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. 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 of the opinion that the assessee has earned dividend income and claimed exempt u/s 10(34), but failed to disallow expenditure relatable to exempt income. The AO further held that in view of the amended provisions of sec.14A read wit Rule 8D, disallowance of proportionate expenditure in respect of interest and other expenditure is mandatory, where the assessee has earned exempt income. It is further observed that in the case of direct expenditure, any expenditure incurred directly to earn exempt inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the financial statement, we find that the assessee share capital and reserves which is in excess of investments made in shares. Therefore, we are of the view that the AO was not correct in disallowing the proportionate interest by invoking provisions of Rule 8D of IT Rules, 1962. As regards the disallowance of administrative expenditure, the AO has disallowed proportionate administrative expenditure by invoking the provisions of Rule 8D (2)(iii). Although, the assessee contended that it has not invested borrowed funds for the purpose of investments in earning exempt income, the assessee cannot get away with the plea it did not incur any administrative 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. 27. In the result, the appeal filed by the Revenue i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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