Commissioner of Income Tax v. Ashok Mittal

2. The respondent-assessee, an individual, was carrying on six 2013:DHC:6001-DB 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           │
└────────────────────────────────────────────────────────────────────────────────┘

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 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 respondentassessee 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 appellant‟s 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 Hon‟ble 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 appellant‟s 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 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 appellant‟s 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 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