TMI Blog2017 (10) TMI 314X X X X Extracts X X X X X X X X Extracts X X X X ..... e is liable for deduction under section 24(a) and other deductions of interest of pre-construction period and interest on loan which are to be allowed while computing the income from house property. Accordingly, disallowance made by the Assessing Officer for the sums aggregating to ₹ 18,19,71,202/- is directed to be deleted. Disallowance under section 14A read with rule 8D - Held that:- Since the assessee’s only grievance before us is that, the disallowance under section 14A should be restricted to the extent of exempt income of ₹ 7,63,867/-, therefore, following the ratio and principle laid down by the Hon'ble Delhi High Court in the case of Cheminvest Ltd. Vs. CIT (2015 (9) TMI 238 - DELHI HIGH COURT), we restrict the disallowance at ₹ 7,63,867/- as disallowance of expenses cannot exceed the income earned. Thus, ground No.2 of the assessee is partly allowed. Deemed dividend under section 2(22)(e) - interest payment on OFCD held by Select Holiday Resorts Pvt. Ltd. which is one of the holding company of the assessee-company - Held that:- We are unable to appreciate such a hypothesis of the Revenue to approach the payment of interest to holding company/ siste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . D. AGRAWAL, PRESIDENT AND SHRI AMIT SHUKLA, JUDICIAL MEMBER For The Assessee : Shri Ajay Vohra, Sr. Advocate For The Department : Shri S. S. Rana, CIT (DR) ORDER PER AMIT SHUKLA, J.M.: The cross-appeals for assessment year 2008-09 have been filed by the assessee as well as by the Revenue against the impugned order dated 28/3/2013, passed by the Ld. CIT(Appeals)-XI, New Delhi for the quantum of assessment passed under section 143(3) of the Act; appeal for assessment year 2009-10 has been filed by the assessee against the impugned order dated 28/3/1013; appeal for assessment year 2010-11 has been filed by the assessee against the impugned order dated 31/7/2014; cross-appeals for the assessment year 2011- 12 have been filed by the assessee as well as by the Revenue against the impugned order dated 31/7/2014. 2. Since the issues involved in all the appeals are common arising out of identical set of facts, therefore, same were heard together and are being disposed of by way of this consolidated order. 3. In order to understand the facts and the issues involved in the impugned appeals and the implication thereof on the grounds raised by the respective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... much as the assessing officer did not record any satisfaction as to the incorrectness of the amount of suomoto disallowance made by the appellant in the return of income. 2.3 Without prejudice that the Commissioner of Income- Tax (Appeals) erred on facts and in law in not deleting the amount of ₹ 7,63,867/- suo-moto surrendered for disallowed by the appellant in the return of income, while sustaining disallowance made by the assessing officer under section 14A of the Act in the assessment order. 4. The brief facts qua the issues raised in ground No.1 to 1.3 are that the assessee is a Public Limited Company engaged in the business of development/ construction of shopping malls, office complex and multiplex, etc. During the relevant previous year, the assessee company has completed construction of complex called as Select City Walk at Saket, New Delhi, which became operational from 29th September, 2007. The commercial area of the said complex was divided into following categories by the assessee:- * Shopping mall / Retail space *Service apartments * Office space * Multiplex * Parking * Surplus business space for general/common use. 5. Out of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee company and hence, the income from such activity is to be taxed as business income. He also scrutinized the specimen copy of certain lease license agreement and noted that these were generally for a period of three years which may or may not be extended and also had certain terms and conditions, but these lease license agreement does not prevent the assessee in selling the balance constructed space. After referring to various judgments like; Karanpura Development Co. Ltd. Vs. CIT reported in 44 ITR 362 (SC); CIT vs. Halai Nemon Association reported in 243 ITR 439 (Mad.) and some Tribunal decisions, AO held that the income shown by the assessee under the head income from house property should be taxed as business income and accordingly, disallowed the statutory deduction claimed by the assessee under section 24(a) of ₹ 8,11,43,540/-. He also disallowed 1/5th interest for pre-construction period amounting to ₹ 1,32,43,886/- and also deduction of interest on loan of borrowed funds for ₹ 8,75,83,776/-. Accordingly, total disallowance worked out by the Assessing Officer on this score aggregated to ₹ 18,19,71,202/-. 7. Before the ld. CIT (A), the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of technical evaluation of area intended to be used for respective purposes. We shall be one of the first few Retail Shopping Centres in India that would be fully license/lease based. We have already, by the end of the year under review, entered into MOU's for License/Lease of about 60% of the Leasable / Licensable area in the Retail Podium... 8. Consistent with the said intent/object, the assessee during the construction period itself had entered into Memorandum of Understanding (MoU) with various prospective lessees, to provide the retail space on lease on completion of construction thereof. The sample copies of the MoU entered with various lessees were also filed before the ld. CIT(Appeals) just to point out that the intention of the assessee was always to own the retail space. Thus, from these facts and material, the assessee pointed out that rental income earned by the assessee from letting out retail space has rightly been offered under the head income from house property. In support, the assessee had also relied upon catena of decisions, which have been dealt and incorporated by the ld. CIT (A) from pages 8 to 16 of the appellate order. 9. The ld. CIT (A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss income from the mall. I therefore, uphold the action of the AO in treating the entire income of the appellant as income from business and profession and not from House Property. The addition made is confirmed. The ground of appeal is ruled against the appellant. 10. Before us, the ld. Sr. Counsel for the assessee, Shri Ajay Vohra, submitted that the main distinctive feature in the assessee s case is that it has divided the entire complex into various categories and only leasing of retail space alone has been treated as income from house property and receipts from sale and exploitation of other commercial space has been treated as business income. So far as the Assessing Officer s contention that the assessee had made a huge chunk of sale of constructed space for a sum of ₹ 154.72 crores, he pointed out that the same was done only in the first year when the complex was ready, i.e., relevant to the previous year of the assessment year 2008-09. Thereafter, there has been no sale and assessee has been constantly showing license fee from retail as income from house property and the balance receipts from other spaces have been shown as business income. Mr. Vohra subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer as well as the ld. CIT(A), submitted that, what is to be seen here in this case is, whether the assessee was systematically engaged in the exploitation of commercial property for earning income or not. The Assessing Officer has categorically noted that the intention was to carry on the business for sale of commercial space and it was in this background the Assessing Officer has treated the entire receipts to be taxed under the head business income. In any case running and operating of shopping mall is always a business adventure and renting of space is part of such activity. Ld. CIT-DR also tried to distinguish the judgment of the Hon'ble Supreme Court in the case of Raj Dadarkar Associates vs. ACIT (supra) on the ground that in that case there was no intention by the appellant to sell the said shop as he got the license/lease for managing the market for 12 years which he had constructed and sub-licensed to various shopkeepers. He also strongly relied upon the judgment of the Hon'ble Delhi High Court in the case of Jay Metal Industries Pvt. Ltd. Vs. CIT reported in [2017] TIOL 1338 and also the judgment of the Hon'ble Delhi High Court in the case of CIT vs. Ansal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod only had entered into a MoU with various prospective lessees to provide retail space on lease and to earn rental income. These facts have not been disputed either by the Assessing Officer or by the ld. CIT (A). Ostensibly when assessee has constructed a property solely with an intention and purpose to give it on lease and to earn rental income/ license fee, then the income has to be assessed under the head income from house property , because right from the stage of conception of the project and construction, the intention was only to exploit the property for lease rent. Before us, the ld. Sr. Counsel for the assessee has given a comparative chart showing gross income earned during assessment years 2008-09 to 2012-13 to show that how the assessee had been showing income under various heads, which is reproduced as under:- Description A/Y 2012-13 A/Y 2011 12 A/Y 2010-11 A/Y 2009-10 A/Y 2008-09 Amount Rs Amount Rs. Amount Rs. Amount Rs. Amount Rs. L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 174,317 Others 1,680,532 1,582,100 5,523,481 1,787,539 2,928,978 Miscellaneous Income 833,008 1,749,810 8,430,185 1,361,972 --- Total Income ( Rs.) 1,708,827,007 1,378,853,005 1,222,790,064 1,131,595,335 1,935,074,645 14. From the above it is quite apparent that only license fee has been shown by the assessee as income from house property under section 22. One of the main allegation of the Assessing Officer as well as the ld. CIT (A) is that, since mall is being used for the business of the assessee and was constructed with purpose to earn profit and assessee has also mixed up with other activities like marketing and advertising, holding events, arranging weekly bazaars, etc., therefore, income earned has to be reckoned as business income. So far as the purpose for construction of retail shops in the mall to earn profit by way of business adventure, is not borne out from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... handed over possession of the market portion. * The terms and conditions subject to which the market portion to run and maintain municipal market contained in the terms and conditions of the auction. The premises allotted to the assessee was a bare structure, on stilt, that is, pillar/column, sans even four walls: In terms of the auction, it was the assessee who had to make the entire premises fit to be used as a market, including construction of walls and construction of entire common amenities like toilet blocks, etc. * After taking possession of the premises, the assessee spent substantial amount on additions/alterations of the entire premises, including demolishing the existing platform and, thereafter, reconstructing the same according to the new plan sanctioned by the MCGB. The assessee constructed various shops and stalls of different carpet areas on the premises. * The assessee collected the Receipt from the sub-licensees in form of leave license fees and service charges for providing various services, including security charges, utilities etc. * The assessee filed the return wherein income from the aforesaid shops and stalls sub-licensed by it was offered to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 22 of the Act are satisfied with primary ingredient that the assessee is the owner of the said building or lands appurtenant thereto. Section 22 of the Act makes annual value of such a property as income chargeable to tax under this head. How annual value is to be determined is provided in Section 23 of the Act. Owner of the house property is defined in Section 27 of the Act which includes certain situations where a person not actually the owner shall be treated as deemed owner of a building or part thereof. In the present case, the appellant is held to be deemed owner of the property in question by virtue of Section 27(iiib) of the Act. On the other hand, under certain circumstances, where the income may have been derived from letting out of the premises, it can still be treated as business income if letting out of the premises itself is the business of the assessee. 15. What is the test which has to be applied to determine whether the income would be chargeable under the head income from the house property or it would be chargeable under the head Profits and gains from business or profession , is the question. It may be mentioned, in the first instance, that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etail space in the shopping mall is to be taxed under the head income from house property under section 22; and consequently, the assessee is liable for deduction under section 24(a) and other deductions of interest of pre-construction period and interest on loan which are to be allowed while computing the income from house property. Accordingly, disallowance made by the Assessing Officer for the sums aggregating to ₹ 18,19,71,202/- is directed to be deleted. 18. So far as the other judgments, which have been referred by the ld. CIT (A) in the impugned order as well as by the ld. D.R., we are not venturing into distinguishing the same, because, on the facts, the assessee s case strongly indicates that lease rent income from leasing of retail space is purely a rental income and the principle and ratio laid down by the Hon'ble Apex in the case of Raj Dadarkar Associates vs. ACIT (supra), which has been rendered taking into consideration various judicial precedents and analysis of the statutory provisions is squarely applicable on the facts of present case. Thus, we are refraining from entertaining into the semantics of various judgments referred and relied upon befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts. These receipts have been claimed as interest free deposits and refundable in nature. As against these loans, the assessee had debited sum of ₹ 8,99,95,318/- as interest on fixed loans; sum of ₹ 3,76,50,274/- as Optional Fully Convertible Debenture (OFCD); and ₹ 99,19,273/- as bank and finance charges. The Assessing Officer, from the perusal of the balance sheet, noted that the assessee had issued 100 OFCDs totaling to ₹ 100 crores with fixed interest liability. Out of the said OFCDs, 70 OFCDs were held by Select Holiday Resorts Pvt. Ltd. , which was the holding company of the assessee-company. On this background, he assumed that out of 100 OFCDs, 70 OFCDs is actually held by the holding company and therefore, the assessee-company cannot be held to be owner/ beneficiary from the entire OFCD and payment of interest cannot be allowed on entire OFCD. Accordingly, he held that proportionate interest in the ratio of 30:70 becomes disallowable and accordingly, worked out a sum of ₹ 2,63,55,191/- as taxable on two counts namely; firstly, the amount equivalent to ₹ 2,63,55,191/- is disallowable because the Assessee-company has borrowed another intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the following decisions:- (1)Kantilal Manilal v. CIT [1961] 41 ITR 275 (SC). (2) Shashibala Navnitlal vs. CIT, 54 ITR 478 (Guj.) 29. On the other hand, the ld. Sr. Counsel for the assessee, Shri Ajay Vohra, strongly relied upon the order of the ld. CIT(A) and submitted that payment of interest cannot be reckoned as loan or advance and, therefore, the ld. CIT(A) has rightly deleted the addition by saying that it cannot be taxed as deemed dividend. 30. After considering the rival submissions and on a perusal of the relevant finding given in the impugned order, we find that it is an undisputed fact that, what has been disallowed by the Assessing Officer is in fact interest payment on OFCD held by Select Holiday Resorts Pvt. Ltd. which is one of the holding company of the assesseecompany. The assessee for generating of funds had offered 100 OFCDs totaling to ₹ 100 crores, out of which 70 OFCDs have been subscribed/ held by Select Holiday Resorts Pvt. Ltd. On such OFCD, assessee-company had paid interest payment of ₹ 3,7650,274/- (for the entire 100 OFCD). The Assessing Officer held that 70% of such interest is to be taxed, because, firstly, the assessee compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sent to the Assessing Officer to submit his remand report and for examining the same. However, the Assessing Officer objected to the admission of additional evidence instead of examining the same. The ld. CIT (A), duly took note of the additional evidence and allowed depreciation of plant and machinery on the ground that once the AO has assessed the business income and plants and machinery have been put to use for the business purpose depreciation has to be allowed. 33. On the other hand, the Ld. Sr. Counsel submitted that all the details of plant and machinery installed were given before the AO and what was asked by the AO was filed. AO s main objection was that in absence of bills it was difficult to ascertain whether machinery was put to use. Before the CIT (A) assessee had submitted the entire evidences not only of installation but actual use of plant and machinery for the purpose of assessee s business. When Ld. CIT (A) called for AO s comment and to examine the details, he chose not to verify and instead opposed for its admission which cannot be appreciated. 34. We have heard the parties at length on this issue and also perused the relevant material placed before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ighted at page 31 of the impugned appellate order. Based on these facts and evidences, the ld. CIT (A) has given a finding of fact that, since the assessee has shown income from business during the year and there is no way income would have been earned without utilizing the assets like lift, parking equipments, etc. and such income has been accepted by the Assessing Officer, then depreciation on such assets cannot be disallowed. Such a finding of the ld. CIT (A) is based on correct appreciation of facts and law and we do not find any reason to deviate from such a finding or set aside the issue to the file of the AO as contended by the Ld. CIT-DR, because all the relevant material to corroborate the claim are already on record and confronted to the AO. Accordingly, ground No.2 is dismissed. 35. Accordingly, appeal of the Revenue is dismissed. 36. So far as the other appeals of the assessee in I.T.A. No 3752/DEL/2013 for assessment year 2009-10 and I.T.A. No 5401 5402/DEL/2014 for assessment years 2010-11 and 2011-12 are concerned, as admitted by both the parties, assessee has raised identical grounds relating to taxability of rental income/ license fee from lease of retail s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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