Separate agreement towards rent of property and hiring charges for equipment and services allowable. Revenue cannot prevent it merely for loss to Revenue.
ABCAUS Case Law Citation
ABCAUS 3395 (2020) (09) ITAT
Important case law relied upon by the parties:
Ranbaxy laboratories vs. CIT (2011) 336 ITR 136 (del)
CIT vs. Jet Airways (I) Ltd (2011) 331 ITR 236 (Bom)
In the instant case, the assessee had challenged the order passed by the CIT(A) on the issue of chargeability of income under the head business and profession.
During the year under consideration, the appellant company had leased out a premises along with the facilities including diesel generator, electric panel, air conditioner, lifts, service to replace/ repair the lighting equipment, firefighting equipment, and also the other services including housekeeping, horticulture and landscaping and water supply with water pumps and sump pumps.
For the first two years, the assessee received the composite rent towards the rent of property and services provided and hiring the equipment and income was assessed as business income.
However, after three years, the assessee entered into supplementary agreement from the relevant assessment year letting out the property separately from the provision of services and hiring the equipment.
As a result of the supplementary agreement, for the Assessment Year under consideration the assessee filed the return of income showing income under the head “business and profession” and claiming various expenses in Profit & Loss Account for provision of services and hiring of equipment apart from house property income for rent of premises. The Original assessment was also completed u/s 143(3) of the Income Tax Act, 1961 (for short “the Act”).
Subsequently, the Assessing Officer (AO) recorded that the company treated the income received from house property as income received from business and profession and tried to under-assess the income chargeable to tax and therefore, the income chargeable to tax had escaped assessment due to incorrect treatment of the income received from the house property.
Assessment was therefore, reopened by issuing notice u/s 148 of the Act. Later, by reassessment order passed under section 143(3)/147 of the Act, the AO disallowed some part of business expenses and accepted the income from house property as declared. Simultaneously, the AO initiated and concluded the penalty proceedings under section 271(1)(c) of the Act.
The CIT(A) allowed total business expenses, but disallowed the statutory repairs u/s 24(a) of the Act and also the interest against income from house property. CIT(A) also initiated and concluded the penalty proceedings under section 271(1)(c) of the Act in respect of the enhancement made.
Before the Tribunal, the assessee contended that it is open for the assessee to go for composite receipts for letting out the demised premises and also the service provided coupled with hiring of the equipment, and in the alternative to go for separate agreements one for letting out the premises and the other for the hiring of equipment and providing certain services.
It was submitted that merely because on earlier occasion the assessee opted to go for the composite remuneration, it does not prevent the assessee forever not to let out the premises separately from hiring the equipment and providing services on a separate remuneration.
Separate agreement for rent of building and hiring charges allowable
The Tribunal opined that an assessee is free to arrange his business and to enter into an agreement separately one for letting out the premises and another for the services and hiring of the equipment.
The Tribunal stated that equipment may be inseparable from the building, but the Revenue cannot force the assessee to provide any services or to hire the equipment along with letting out the property.
The Tribunal added that it is always open for an assessee not to provide the services or not to hire the equipment, while letting out the premises. Whether or not such services could be provided or the equipment could be hired independently, is the prerogative of the assessee and the lessee. When it is possible for the assessee to provide or not the services and to hire or not the equipment, then it is equally the prerogative of the assessee to provide them at a separate cost. Revenue cannot force the assessee to enter into any agreement in any particular form, but at the best, the Revenue can probe into the genuineness of the transaction or the correctness of the quantum of expenditure.
The Tribunal opined that when the assessee had chosen to bifurcate the transaction and to charge separately towards the rent of the premises and for the services provided and hire charges, the Revenue cannot prevent the same on the ground that such process would result in loss to the Revenue.
Accordingly, the Tribunal held that the action of the authorities below not to permit the assessee to arrange their business in the way which is beneficial to them, within the permissible limits of law, is impermissible.
The Tribunal further held that the assessee was entitled to claim the business expenses in respect of the income from the services provided and hiring of equipment, and statutory deductions under section 24(a) of the Act insofar as the income from the house property was concerned.
Thus, the appeal of the assessee was allowed.
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