$~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
|
