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2017 (10) TMI 314

e was not carrying on any systematic or organized activity of providing service to the occupiers of the shops, albeit other service charges pertaining to the common maintenance, event and advertising, parking fees, etc., has been offered separately for tax under the head profits and gains of business of profession. So far as retail space is concerned, it is lease rent simplicitor, which is evident from the copy of sample lease deed which has been placed by the assessee and also the copies of MoU. - Thus, on the facts of the present case and also relying upon the principle laid down in the case of Raj Dadarkar & Associates vs. ACIT (2017 (5) TMI 586 - SUPREME COURT OF INDIA), we hold that the receipts from the lease rent/license fee from lease of retail 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 .....

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ese 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. - I.T.A. No.3751/DEL/2013, I.T.A. No.3775/DEL/2013, I.T.A. No.3752/DEL/2013, I.T.A. No.5401 & 5402/DEL/2014 And I.T.A. No.5241/DEL/2014 - Dated:- 4-10-2017 - SHRI G. 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 agains .....

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rental income under section 22 read with section 24 of the Act. 2. That the Commissioner of Income-Tax (Appeals) erred on facts and in law in confirming disallowance under section 14A of the Act read with Rule 8D of the Income-tax Rules. 1962 ( the Rules) to the extent of ₹ 12,45,053/-. 2.1 The Commissioner of Income-Tax (Appeals) erred on facts and in law in holding that disallowance under section 14A of the Act was mandatorily to be computed as per Rule 8D of the Rules in assessment years 2008-09 and onwards. 2.2 The Commissioner of Income-Tax (Appeals) erred on facts and in law in not appreciating that application of Rule 8D was not automatic in the present case, since the preconditions for applying the said rule as prescribed in subsections (2)/ (3) of section 14A of the Act were not satisfied in as 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 retu .....

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lect City Walk is a very famous shopping mall in Saket, New Delhi, which is purely a commercial property and not a residential property; and secondly, the assessee has developed the entire complex for multi use and sale of the spaces and, therefore, the entire receipts have to be taxed under the head business income. He also noted that during the year the assessee had sold constructed space for ₹ 154.74 crores and the same has been reflected in the Income & Expenditure account, which is much higher than the receipts from lease license fee which is ₹ 27.38 crores. AO further observed that sale of land rights as well as constructed space in various forms is only a beginning of business of purchase and sale as well as activity of dealer in land by the assessee 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 referri .....

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continued management interest, a wellregulated and disciplined environment, and a strategically controlled Tenant Mix with the shopper in focus. Operations We have adopted a business model whereby the Retail Podium is proposed to be retained by the company and licensed/leased in order to preserve the quality of trade and tenant mix, instead of being sold in small fragmented pieces. In view of the possibility of sale of certain components of the project, they have been bifurcated as Inventory being project components intended to be sold and Capital Work in progress being components intended to be retained by the Company. Accordingly, the cost of construction has been appointed and allocated to the constituents of the project on the basis 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 enter .....

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a commercial asset, then it would partake character of income from his business, whether he uses that commercial asset himself or lets it out to somebody else to be used. The asset would not cease to be a commercial asset simply because temporarily it was let out to another person for their use. So long as the commercial asset is capable of being exploited as such, its income is business income irrespective of the manner in which the asset is exploited by the owner of the business. The owner is entitled to exploit it to his best advantage and he may do so either by using it himself personally or by letting it out to somebody else. It is therefore, apparent that the appellant is earning business 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 spa .....

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talls on it and gave the same to various persons on sublicensing basis, then the income from sub-licensing was to be taxed as income from house property and not as business income. Thus, Mr. Vohra submitted that this judgment clearly clinches the issue in favour of the assessee. 11. So far as reliance placed by the ld. CIT(A) in the case of S.G. Mercantile Corporation P. Ltd. Vs. CIT reported in [1972] 83 ITR 700 (SC), he submitted that in that case assessee was not the owner of the property and on this background the judgment was rendered and would be inapplicable on the present case. 12. On the other hand, the ld. CIT-D.R., strongly relying upon the orders of the Assessing Officer 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 a .....

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s seen from the records that right from the conception of the complex and the initial years when the complex was under construction, assessee had always intended to keep the retail space under its control and possession so as to give it on lease and earn regular income. This is quite evident from the Director s report and Notes of Accounts in the financial year 2005-06, which has been incorporated in the foregoing paragraphs. The said disclosure at the initial stage assumes great significance to gauge the intention of the assessee and purpose of constructing the complex. Consistent with the said intend/ object, the assessee during the construction period 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 .....

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or the purpose of leasing it out and that is why these spaces were never entered as stock-in-trade in the books of account. The business motive if any, is evident from sale of other spaces like service apartments, offices, multiplex theater, which assessee did sold in this year and sum amounting to ₹ 154.47 crores from sale of such spaces has been already offered it as business income in this year. The receipts from other activities like marketing and & advertising, holding events, arranging weekly bazaars, at the common space etc., have also been consistently shown as business income. It is qua the retail space only the assessee always had intention and motive to earn rental income and thus, the finding of the Assessing Officer and the ld. CIT (A) is completely divorced from the facts and material placed on record before them. On these facts and background, it would be very relevant to refer to the ratio and principle laid down by the Hon'ble Supreme Court in the case of Raj Dadarkar & Associates vs. ACIT (supra). One of the main substantial question of law for consideration before the Apex Court was as under:- Whether in the facts and circumstances of the case, .....

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reasons given for so computing the income under the head 'Income from House Property' were by virtue of section 27(iii b), the appellant was 'deemed owner' of the premises as it had acquired leasehold right in the land for more than 12 years; in agreements for sub-licensing the words lease compensation' were used instead of license fees' and deposits were referred as 'sub-lease deposits'; property tax had been levied on the assessee. * The Tribunal also held that assessee had not established that it was engaged in any systematic or organized activity of providing service to the occupiers of the shops/stalls so as to constitute the receipts from them as business income. The assessee received income by letting out shops/stalls, and therefore, the same had to be held as income from house property. 16. On these facts, the Hon'ble Apex Court, after analyzing various provisions contained in sections 22 to 27 and also various judgments of its own Court including that of Sultan Bros. (P.) Ltd. Vs. CIT reported in [1964] 51 ITR 353 (SC) and the judgment in the case of Chennai Properties and Investments Ltd. Vs. CIT (supra) and Rayala Corporation (P.) Ltd .....

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s. Such a question would depend upon the circumstances of each case. It is so held by the Constitution Bench of this Court in Sultan Bros. (P) Ltd. v. CIT, (1964) 5 SCR 807 and we reproduce the relevant portion thereof: 7. … We think each case has to be looked at from a businessman's point of view to find out whether the letting was the doing of a business or the exploitation of his property by an owner. We do not further think that a thing can by its very nature be a commercial asset. A commercial asset is only an asset used in a business and nothing else, and business may be carried on with practically all things. Therefore, it is not possible to say that a particular activity is business because it is concerned with an asset with which trade is commonly carried on. We find nothing in the cases referred, to support the proposition that certain assets are commercial assets in their very nature. Finally, the Apex Court, after analyzing various judgments, concluded that where assessee has obtained a property on lease, constructed various shops and stalls and gave the same to various persons on sub-license basis, then the income from sub-license was to be taxed as income f .....

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he outset submitted that the dividend income earned by the assessee, which has been claimed as exempt is only ₹ 7,63,867/-, whereas the disallowance made by the Assessing Officer is ₹ 12,45,053/-. He submitted that the disallowance under section 14A should be restricted to the extent of exempt income earned and no further relief is sought for. In support of this proposition, he strongly referred and relied upon the judgment of the Hon'ble Delhi High Court in the case of Cheminvest Ltd. Vs. CIT, reported in (2015) 372 ITR 694 (Delhi). 20. The Ld. CIT-D.R., on the other hand, relied upon the orders of the Assessing Officer as well as the Ld. CIT (A). 21. 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 (supra), 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. 22. In the result, appeal of the assessee is partly al .....

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s interest and that too, to its Holding Company, therefore, it is a clear cut case of diversion of interest bearing loan to sister/related company; and secondly, it is taxable u/s 2(22) of the IT Act 1961, whereby the assessee-company is transferring a profit of ₹ 2,63,55,191/- to its Holding Company under the name and guise of interest payment. 25. Before the ld. CIT (A), the assessee submitted that funds have been provided by the holding company to the assessee-company in the form of OFCD which have been utilized by the assessee company in the business activities and development & construction of commercial complex, the income from which has been assessed and brought to tax in the assessment order. Inflow and utilization of borrowed fund by the holding company is not in dispute and the payments on account of interest cannot be held to be bogus or mere diversion of funds simply because OFCDs have been subscribed by the holding company. In any case, the holding company is a separate entity from the assessee in the eyes of law and therefore, presumption of diversion of fund does not arise. 26. So far as taxing of deemed dividend under section 2(22)(e) is concerned, it was .....

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othesis of the Revenue to approach the payment of interest to holding company/ sister concern; firstly, payment of interest on OFCD can never be reckoned as loan or advance given as stipulated in section 2(22)(e), as OFCD is one of the mode of securing an unsecured loan and there is no payment of loan or advance from accumulated profits; and secondly, there is no diversion of any interest bearing fund, because assessee has offered OFCD to a separate entity which has been subscribed by them, on which assessee is paying interest. Hence, there could be no case of diversion of any interest bearing loan or advance of fund to sister concern for non-business purposes. Thus, the ground raised by the Revenue has no merits and the addition has rightly been deleted by Ld. CIT (A). Accordingly, ground raised by the revenue is dismissed. 31. So far as second ground is concerned, i.e., addition of ₹ 8,16,38,515/- on account of disallowance of depreciation on plant and machinery is concerned, the ld. CIT D.R. submitted that assessee has made a claim of depreciation on second set of plant and machinery, which has been disallowed by the Assessing Officer on the ground that evidence of purchas .....

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which he has relied upon general voucher whereby accounting entry for capitalization of aforesaid plant and machinery from work-in-progress was passed at the time of finalization of account for the relevant year as at the last date, i.e., 31/3/2008 after presumed that it has been installed on the last date of the accounting year and therefore, was not put to use. Assessee s contention has been that the details of addition to plant and machinery and the date on which they are being put to use were verified and reported by the Auditors in Annexure -4 to the Tax Audit Report in Form no. 3CD which provided all the items of plant and machinery which were installed and put to use on 29/9/2007 itself, which was the date of commencement of operation of the complex. Before the ld. CIT (A), assessee had filed various evidences to substantiate and corroborate the claim of depreciation on plants and machinery installed as on 29th September, 2007. The assessee made another attempt before the Ld. CIT (A) to show that the entire complex along with plant and machinery was put to use on 29/9/2007 itself along with details of purchase of plant and machinery. All these details were sent to the Asses .....

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re perusal of grounds of appeal raised by the assessee in these years. Since similar facts and findings of the AO and ld. CIT (A) are permeating in these years also, therefore, our findings given above in I.T.A. No 3751/DEL/2013 for the assessment year 2008-09 qua this issue will apply mutatis-mutandis in these years also. Accordingly, we hold that income from license fees from lease of retail shops/ spaces will be assessed under the head income from house property and consequently, the assessee would be eligible/ entitled for the deductions permissible under section 24 and in accordance with law. Thus, the 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 allowed. 37. So far as appeal of the Revenue in I.T.A. No 5241/DEL/2014 for assessment year 2011-12 is concerned, Ld. CIT DR fairly pointed out that the tax effect on the disputed issue as has been raised by the Revenue in the grounds of appeal is much less than ₹ 10 lakhs and therefore at the threshold the revenue s appeal is not maintainable. Admittedly the issue of disallowance is ₹ 20,79,477, on which t .....

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