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COMMISSIONER OF INCOME TAX: DELHI-VIII Vs. ASHOK MITTAL
January, 06th 2014
$~03
*IN THE HIGH COURT OF DELHI AT NEW DELHI
                                   Date of decision: 21st November, 2013
+                  INCOME TAX APPEAL 27/2013


      COMMISSIONER OF INCOME TAX: DELHI-VIII...Appellant
              Through   Mr. Balbir Singh, Standing Counsel.

                          versus

      ASHOK MITTAL                           ..... Respondent
              Through    Mr. Mohit Chaudhary, Ms. Damini
              Chawla, Ms. Radhika Arora and Mr. Harsh Sharma,
              Advocates.

      CORAM:
      HON'BLE MR. JUSTICE SANJIV KHANNA
      HON'BLE MR. JUSTICE SANJEEV SACHDEVA

SANJIV KHANNA, J. (ORAL)

      This appeal by the Revenue under Section 260A of the Income

Tax Act, 1961 (Act, for short) relates to assessment year 2000-01. By

order dated 8th April, 2013, notice limited to the question of addition of

Rs.31.5 lacs was issued. The contention of the Revenue is that the

respondent-assessee had earned income of Rs.31.5 lacs as "Investment

Manager" from Fareast Corporation Pvt. Ltd. and M/s European

Investment Ltd.    but this income should be taxed under the head

"income from other sources". Tribunal, it is submitted has erred in

holding it as "business income".

2.    The respondent-assessee, an individual, was carrying on six


ITA 27/2013                                            Page 1 of 8
different types of business activities as per paragraph 3.1 of the

assessment order. For the purpose of the said activities, the assessee

had also setup six different sole proprietorship concerns. The details of

the sole proprietorships and the activities carried on are as under:-

"
S.No     Name of Concern                   Business Activities

1.       M/s Ashok Mittal & Co             Dealing in shares, investments
                                           loan finance & related activities
2        M/s Pondy Marble Processors       Dealing in Marble & tiles

3.       Ms. Litolier                      Trader/Dealer in Lamps &
                                           Lighting, Fittings, Fixtures etc.
4.       Ms. Light & Lighting              Trading in Lamps, Lighting
                                           Accessories & Fitting etc.
5.       M/s Carrara Marbles &             Manufacturing of Marble items
         Granite Industry
6        M/s Ashok Exports                 Exports of Marble

                                                                          "

3.     The first/original assessment order records that the concerns

mentioned from serial number 2 to 6 during the assessment year in

question had virtually carried out no business activity. The entire

business activity was carried out by M/s Ashok Mittal & Co. The

assessment order records that all the six concerns were situated at one

premises and M/s Carrara Marble & Granite Industries had a factory at

Daman. The assessee has stated that they had maintained a common

centralised expenditure account for the six sole proprietorship concerns.

The expenditure relating to each concern was apportioned. The stand


ITA 27/2013                                             Page 2 of 8
of the respondent-assessee was that income of the each sole

proprietorship concern was ultimately to be taxed in one hand i.e. the

individual and all income and expenditure would have therefore be

clubbed. The Assessing Officer in the assessment order has recorded

that prima facie the contention of the respondent-assessee appeared to

be logical and acceptable, but the assessee had debited huge expenses

in the profit and loss account of M/s Litolier and this should not be

accepted. He further observed that the claims were too high when

compared to the business carried out by the each proprietary concern.

He accordingly disallowed on ad-hoc basis some portion of the

expenditure incurred by M/s Litolier. First appellate authority agreed

with the Assessing Officer. On further appeal before the tribunal, an

order of remand was passed for fresh decision after examining the

veracity of claim by the assessee.

4.    In the second round, the Assessing Officer examined claim of

Rs.31,50,000/- received as management and advisory fee from Fareast

Corporation Pvt. Ltd. and M/s European Investment Ltd. under the

heading "Miscellaneous Income". The Assessing Officer has held as

under:-




          "3.   Miscellaneous Income

          That during the year the assessee has received
          Rs.31,50,000/- as management & advisory fees
          from Fareast Corporation Pvt Ltd. and M/s
ITA 27/2013                                         Page 3 of 8
          European Investment Ltd copy of the agreements
          are enclosed. It may stated that the similar receipt
          of the assessee in A.Y. 1998-99 and 1999-2000
          have been assessed as business income.            A
          comparative chart regarding miscellaneous income
          received by the assessee for A.Y. 1999-2000 to
          2001-02 is enclosed.

          The receipt on account of establishment charges
          has been assessee in earlier assessment years as
          `Business Receipts' and following the principle of
          consistency, the same may be treated as `Business
          Receipts'

          x x x x x x x x x x"

5.    Thereafter, Assessing Officer has made reference to other issues

under the same heading but the same are not relevant.            The only

finding recorded by the Assessing Officer is as under:-

             "During the year, the assessee has claimed the
          receipt of Rs.31,50,000/- from M/s Fareast
          Corporation Pvt. Ltd. and M/s European
          Investment Ltd. The assessee has filed the copy
          of the agreement entered into by the assessee with
          both the above parties. On going through the
          agreement it is seen that the assessee has been
          appointed as investment manager by both of these
          firms (namely M/s. Fareast Corporation Pvt. Ltd.
          and M/s. European Investment Ltd.) to invest and
          reinvest and manage such of its funds as may
          from time to time be entrusted to him and in
          consideration of the services to be rendered by the
          investment manager under this agreement, the
          company agreed to pay sum of Rs.1,50,00/- per
          month. The assessee was asked to indentify
          expenses attributable to Misc. expenses vide not
          sheet entry dated 19.11.2010. However, the
          assessee has stated that he has not maintained the
          separate records of expenses incurred by M/s
          Litolier against different sources of income and
ITA 27/2013                                          Page 4 of 8
          segregated the expenses in the ratio of income
          earned which is not acceptable especially when
          this income is assessed as income from other
          sources. This income cannot be accepted to be
          business income since the assessee has not been
          able to identify and substantiate the expenses
          incurred for earning such income. There does not
          appear to be any expenses on account of
          infrastructure, staff etc. for earning the income
          under the head miscellaneous income. Hence this
          income is to be assessed under the head income
          from other sources."

6.    It is clear from the aforesaid finding recorded by the Assessing

Officer that he has not discussed the nature and character of the said

receipt. The Assessing Officer did not dispute genuineness of the

receipt. He has accepted that income was received pursuant to the

agreements between the assessee and M/s Fareast Corporation Pvt. Ltd.

and M/s European Investment Ltd. As noticed above, the assessee also

dealt with share investment, loan finance and related activities.

7.    The Commissioner of Income Tax (Appeals) in the first

appellate order deleted the said addition and has held that the receipt of

Rs.31.5 lacs was taxable under the head "business income" and not as

"income from other sources". He observed that the Assessing Officer

had not discussed the basis and had assumed that no expenses were

incurred for earning of income from management and advisory services

and in case the Assessing Officer was not satisfied on the basis of

segregation of expenses, he should have adopted some other method for


ITA 27/2013                                            Page 5 of 8
apportionment of expenses. He further observed that the Assessing

had erred in treating the receipt of Rs.31.5 lacs under the head "income

from other sources" instead of "business income" as he had neither

stated nor held that the assessee was not rendering services to the

foreign companies. Moreover, all expenses claimed by the respondent-

assessee were allowed by the Assessing Officer under the head "other

business income" of M/s Litolier and there was no dispute that

expenses were incurred by M/s Litolier. He has held:-




             "4.1 After examining the nature of these receipts
          and the accounting treatment in the appellants books
          of accounts, I am of the opinion that the Assessing
          Officer has not appreciated the facts. The controversy
          regarding whether the income is to be treated as
          business income or as Income from Other Sources has
          arisen on account of the appellant crediting the gross
          amount of Rs.31,50,000/- to the Profit & Loss
          Account of M/s. Litolier, which is engaged in the
          business of trading of lamps. The Assessing Officer
          was of the view that the receipts from management
          and advisory fees had nothing to do with the business
          activity of M/s Litolier, hence the same could not be
          treated as business income. However, the Assessing
          Officer has failed to examine the nature of the
          receipts independently, as directed by the Honble
          ITAT. It has been submitted before the undersigned
          that the copies of the agreements entered into by the
          appellant with Far East Investment Corporation Ltd.
          and European Investment Ltd. were filed before the
          Assessing Officer vide letter dated 27.08.2010 which
          show that the appellants proprietorship concern M/s
          Litolier was appointed as ,,Investment Manager to
          invest and manage the funds and assets entrusted to
          him by these Mauritius based companies. The
          appellant has contended that the management fees
          were accounted for. In the case of M/s. Litolier
ITA 27/2013                                          Page 6 of 8
          because as per its consistently followed modus
          operandi, administrative expenses are incurred
          centrally through M/s Litolier and apportioned in the
          different proprietorship business concerns in
          proportion to the turnover. The appellant has not
          maintained separate record for expenses incurred for
          separate sources of income and has shown all
          expenses incurred under one consolidated account for
          his convenience. However, it cannot be denied that
          some expenditure has been incurred for earning of the
          management and advisory fees in terms of common
          expenses of office overheads, salaries, rent etc. It is
          also seen that the Assessing Officer has not
          disallowed any portion of the expenditure claimed by
          M/s. Litolier, thus, implicitly accepting that the
          expenditure is duly incurred.            Whether the
          expenditure is deducted against the Income from
          Business of M/s. Litolier or against the Income from
          Other Sources, it results in no difference to the
          taxable income. Moreover, it is seen that the
          appellant also derives income from business of
          speculation, dealing, in shares, investments, loan
          finance and related activities in the name of M/s
          Ashok Mittal & Co. Hence the management of the
          funds and assets of the two afore-mentioned
          companies is along the lines of the business activity
          of the other proprietorship concern. I find no cogent
          reason in the assessment order to support the finding
          that the income from management and advisory fees
          requires to be assessed as Income from Other
          Sources. The Assessing Officer has brought nothing
          on record to prove that the appellant did not carry out
          the stated activity of investment management. The
          alleged reason that the appellant could not identify the
          related expenses does not establish that the income
          was not derived from the business activity of
          ,,Investment Manager.
          (4.2)           The appellants contention that on the
          principle of consistency, the income from investment
          management and advisory fees should have been
          assessed as business income is also with merit. There
          is no fundamental difference in the nature of business
          activity between the present income.            In the
ITA 27/2013                                           Page 7 of 8
          Assessment Year 1998-99, the ,,miscellaneous
          income was disclosed and assessed as business
          income in the order under section 143(3) dated
          29.03.2001. This was the first year of the agreement
          signed with Far East Investment Corporation Ltd. and
          Eurpopean Investment Ltd. As there is no change in
          the terms of the agreement or in the nature of services
          rendered, even on account of principle of consistency,
          the Assessing Officer action of treating the income as
          Income from Other Sources is not justified. For all the
          above reasons, the appellant succeeds at Grounds of
          Appeal Nos.1 to 2."


      The aforesaid findings have been affirmed by the tribunal.

9.    In view of the aforesaid factual position, we do not find any

merit in this appeal and the same is dismissed. No costs.


                                             SANJIV KHANNA, J.



                                      SANJEEV SACHDEVA, J.
      NOVEMBER 21, 2013
      NA




ITA 27/2013                                          Page 8 of 8

 
 
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