INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "G": NEW DELHI
BEFORE SHRI I.C.SUDHIR, JUDICIAL MEMBER
AND
SHRI O.P.KANT, ACCOUNTANT MEMBER
ITA No. 4594/Del/2011
(Assessment Year: 2007-08)
ACIT, Satbir Singh,
Circle-33(1), 4/73, WEA Krishna
New Delhi Vs. Market, Karolbagh,
New Delhi
PAN:AOGPS9991A
(Appellant) (Respondent)
Appellant by : Sh. Sujit Kumar, Sr. DR,
Respondent by : Sh. Y.P. Rawala, CA
Date of Hearing 12.10.2015
Date of pronouncement 30 .11.2015
ORDER
PER O.P.KANT, ACCOUNTANTMEMBER
This appeal of the Revenue is directed against the order dated 11.07.2011 of
the learned Commissioner of Income-tax (Appeals)-XXVI for Assessment Years
2007-08. The grounds of appeal raised by the Revenue are as under:-
1. "The CIT(A) has erred in directing the rental income from the hotel
property is assessable under the head "income from house property" instead
of income from other sources" when the lease deed showed that it was a
running hotel which was let out from which he was earning business income
till the time it was let out and when the Supreme Court decision in Sultan
Brothers Pvt. Ltd. Vs. CIT (1964) 51ITR 353 is applicable to the matter".
2. "The CIT (A) has erred in directing that the rental income from the
showroom let out with furniture and fixtures is assessable under "income from
house property" instead of "income from other sources" when the lease
deed showed that the showroom is furnished with a strong room suitable for
diamond and jewellery showroom and lease deed also states that the
showroom is completely furnished with fixtures and movable furniture by the
lessor which makes it clear that the letting out of the shop and the furniture
and fixtures are inseparable and when the Supreme Court decision in Sultan
Brothers Pvt. Ltd. Vs. CIT (1964) 51ITR 353 is applicable to the matter".
3. "The CIT(A) has erred in directing that the rental income from the hotel
property and the rental income from the show room let out with furniture
and fixtures is assessable under "income from house property" instead of
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"income from other sources" in view of the decision in M K Dar vs CIT (1982)
138 ITR 801 (All.) and CIT vs DL Kanhere (1973) 92 ITR 535 (Bom.) where it was
held that the lease income enjoyed from the letting out of the cinema
building and the furniture, etc. would be assessed as income from other
sources and when the said cases are in principal similar to the case at
hand."
4. "The CIT(A) has erred in holding that there is no question of disallowance
of depreciation on the basis of provision of section 38 of the Act when
neither has the assessee claimed any depreciation nor any depreciation is
allowable in view of the provisions of section 38".
2.1 Facts in brief relevant to the grounds of appeal as culled out from the orders
of the lower authorities are that the assessee filed return of income on 31.03.2008
declaring total income of Rs.43,41,800/- which included rental income from six
properties declared under the head `income from house property'. In the scrutiny
assessment completed under section 143(3) of Income Tax Act, 1961 (in short `the
Act')on 31.12.2009, the ld. Assessing Officer accepted the rental income from
properties declared in return of income under the head `income from house
property' except following two properties:
1. Hotel Building along with asset therein, and
2. Business premises of jewellery show-room along with furniture.
2.2 In respect of Hotel building, the ld. Assessing Officer observed that the
assessee was running a hotel in earlier years, which was let out and therefore
rental income from hotel building was liable for assessment under the head
`income from other sources' in view of the judgment of Hon'ble Supreme Court in
the case of Sultan Brother Pvt. Ltd. Vs. CIT (1964) 51 ITR 353 (SC). Whereas, the
assessee contended before the ld. Assessing Officer that primary purpose of letting
out the hotel building was to earn income from the property and therefore in view
of the later judgment of the Hon'ble Supreme Court in the case of Sambhu
Investment Pvt. Ltd Vs. CIT, 263 ITR 143, the income was to be assessed under the
head `Income from house property'. The ld. Assessing Officer did not accept the
contention of the assessee and noted that as per clause (iii) of section 56(2) of the
Act the letting out of the property was inseparable from letting out of the furniture
and other assets of the hotel and the facts of the case being squarely covered by
the judgement of the Hon'ble Supreme Court in the case of Sultan Brother Pvt. Ltd.
Page 3 of 10 ITA No. 3804/Del/2013
(supra), the income derived from letting out of the hotel property was held as
assessed under the head `income from other sources' as under:-
"Total receipts on letting out of hotel property Rs.43,48,000/-
Less:
Deduction u/s 57:
Interest Rs.3,25,362/-
Income from other sources Rs.40,54,638/-"
2.3 In respect of shop let out with furniture and fixtures including strong room for
diamond and jewellery showroom, following the decision in respect of Hotel
property, the ld. Assessing Officer held that the rental income from shop is also
assessable under the head `income from other source's as under:-
"Total receipts on letting out of shop Rs.1,50,000/-
Less: Deduction u/s 57 Nil
Income from other sources 1,50,000/-"
2.4 The ld. Assessing Officer further did not allow the depreciation in respect of
the two properties stating that neither the assessee had claimed any depreciation
nor depreciation was allowable in view of the provision of section 38 of the Act.
2.5 Aggrieved, the assessee filed appeal before the learned Commissioner of
Income-tax (Appeals), wherein he contended that the facts of the case of the
Sultan Brother Pvt. Ltd. (supra) were different from the facts of the case of assessee
and later decision in the case of Sambhu Investment Pvt. Ltd. (supra) was
applicable to the facts of the assessee. The submission of the assessee before the
learned Commissioner of Income-tax (Appeals) is summarized as under:-
· The main asset let out was the building and not the furniture or the
other assets.
· The assessee was unable to run the hotel and therefore he gave the
building and furniture and other amenities on lease.
· The main asset in the case is land and building and furniture and other
amenities were having a nominal value of land and building.
· The Assessing Officer considered the decision of the Supreme Court in
the case of Sultan Brothers Pvt. Ltd. (supra) decided in 1964 based on
the old Income Tax Act, 1922, whereas the Hon'ble Supreme Court in
the later decision in the year 2003 in the case of Sambhu Investment
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Ltd. (supra) upheld the decision of the Calcutta High Court reported in
249 ITR 47 (Cal) and the Hon'ble Calcutta High Court has considered
the decision of different Courts including the decision of the Hon'ble
Supreme Court in the case of Sultan Brother (supra).
· In the case of Sultan Brothers (supra) the rent of property was almost
equal to rent from furniture, whereas in the present case approximate
value of land and building is Rs.2.78 crores as compared to furniture
and fixture of Rs.13,11,472/-, therefore the ratio of rental receipts on
account of movable and immovable property was 4.44% and 95.56%,
· The lessee also made a substantial investment in the furniture and
fixtures etc.
· In earlier year, the Assessing Officer himself has assessed the rental
income from the Hotel property under the head income from house
property.
2.6 Similarly in respect of shop / showroom property the submission filed before
the learned Commissioner of Income-tax (Appeals) by the assessee are
summarised as under:-
· The assessee installed safe, CCTV and air conditioner etc as basic
amenities for running of a shop.
· The market value of the shop was around 60 lakhs whereas the cost of
all amenities was Rs.5.43 lakhs.
· The shop could not be let out without the basic amenities and in the
case of Deputy Commissioner of Income Tax Vs. GR Rao (Hyderabad)
(2010) 134 TTJ 87 the Tribunal has held that income let out from the
building with some basic amenities was assessable under the head
income from house property.
2.7 In view of the submission of the assessee, the learned Commissioner of
Income-tax (Appeals) held that the rental income from the above referred two
properties was assessable under the head `Income from house property'. In
respect of depreciation on above two properties, the ld learned Commissioner of
Income-tax (Appeals) held as under:-
Page 5 of 10 ITA No. 3804/Del/2013
"It may, thus, be observed that Section 38 of Income-tax Act, 1961, does not
disallow depreciation on assets which are assessable under the head
'income from other sources'. It only restricts the deduction proportionately
with regard to the use of the assets in business or otherwise. In the instant
case, all the assets are exclusively used by the lessee in the activity of letting
out. Thus, there is no question of disallowance of depreciation on the basis
of provisions of/section 38 of the Income-tax Act, 1961.
It has, thus, been submitted that even if the income were to be treated
under the head 'income from other sources', the total depreciation which
works out to Rs.9,55,479/- as per details placed on record will have to be
allowed as deduction u/s 57 (ii) of the Income-tax Act."
3 Aggrieved with the above findings of the ld. Commissioner of Income-tax
(Appeals), the Revenue is before us.
4. The learned Senior Departmental Representative relied on the order of the
Assessing Officer and submitted that Assessing Officer has rightly invoked the case
of Sultan Brothers (supra), as the furniture, other assets etc were inseparable from
the building and therefore, rental income from hotel building and other assets was
assessable under the head `Income from other sources' only. Similarly in respect of
shop/ showroom, the learned Senior Departmental Representative submitted that
rental income has been correctly assessed by the Assessing Officer under the
head `Income from other sources'. Whereas on the other hand, the learned
Authorized Representative of the assessee relied on the order of the learned
Commissioner of Income-tax (Appeals) and submitted that in respect of hotel
building, the cost of investment in furniture and fixtures was not more than 5% of
the total cost of investment in land and building and that being a basic amenities
for letting out the building, the judgement of the Hon'ble Supreme Court in the
case Sultan Brother (supra) was not applicable to the facts of the assessee. He
reiterated the submission made before the learned Commissioner of Income-tax
(Appeals). In respect of shop/show-room, he submitted that providing safe, air
conditioner or CCTV camera was a basic necessity for letting out the property to
jewelers who were prospective tenants in the area.
5. The first three grounds of the Revenue are in respect of whether the rental
income from above two properties is assessable under the head `Income from
other sources' or under the head `Income from House Property', therefore all the
three grounds are decided together.
Page 6 of 10 ITA No. 3804/Del/2013
6. We have heard the rival submission and perused the material available on
record including the order of the learned Commissioner of Income-tax (Appeals).
We find that the learned Commissioner of Income-tax (Appeals) has taken into
consideration the facts of the case and the decision of the Hon'ble Supreme
Court in the case of Sultan Brothers (supra) as well as the decision in the case of
Sambhu Investment (supra) and thereafter arrived at a conclusion that rental
income from above referred two properties was to be assessed under the head
`income from house property' rather than under the head `income from other
sources'. In the cases of M K Dar Vs. CIT( supra) and CIT Vs. D L Kanhere & anr (
supra) relied upon by the Revenue in its grounds of appeal, the assessment years
involved are 1958-59 &1959-60 and 1959-60 to 1965-66 respectively. The
judgements in both these cases have been given relying on the judgement of the
Hon'ble Supreme Court in the case of Sultan Brothers P ltd. We find that the
judgement in the case of Shambhu Investment ( supra) is a later on and in that
case Hon'ble High Court of Calcutta after considering the ratio laid down in the
case of Sultan Brothers P ltd ( supra) and other judgements subsequent to the
judgement of Sultan Brothers P ltd ( supra), has held as under :
"Taking a sum total of the aforesaid decisions it clearly appears that merely
because income is attached to any immovable property cannot be the sole
factor for assessment of such income as income from property. What has to be
seen is what is the primary object of the assessee while exploiting the property.
If it is found applying such test that the main intention is for letting out the
property or any portion thereof, the same must be considered as rental income
or income from property. In case it is found that the main intention is to exploit
the immovable property by way of complex commercial activities, in that event
it must be held as business income.
In the light of the above, let us now apply such test in the present case. From
the copy of the agreement produced before us it appears that the assessee has
let out the furnished office at monthly rent payable month by month by the
respective occupants. Services rendered to the various occupants according to
the said agreement are not separately charged and the monthly rent payable is
inclusive of all charges to the assessee.
To decide this issue we cannot overlook the fact that the cost of the property
was Rs. 5,42,443. A portion of the said property is used by the assessee himself
for his own business purpose. The rest of the said property has been let out to
the various occupiers as stated hereinbefore. It further appears that the
Page 7 of 10 ITA No. 3804/Del/2013
assessee had already been recovered a sum of Rs. 4,25,000 as and by way of
security free advance from three occupants. Hence, the entire cost of the
property let out to those occupiers has already been recovered as and by way of
interest free advance by the assessee. Hence, it cannot be said that the assessee
is exploiting the property for its commercial business activities and such
business activities are primary motto and letting out the property is a secondary
one."
7. The above judgement of the Hon'ble High Court has been affirmed by the
Hon'ble Supreme court in their judgment reported in 263 ITR 143.
8. From the submission made on behalf of the assessee before the ld.
Commissioner of Income-tax( Appeals)and before us , we find that the main asset
in case of hotel property was land and building and cost of investment of which at
relevant time has been estimated at Rs. 2.78 crore, whereas cost of the furniture
and fixture has been estimated at merely Rs. 13.11 lakhs. Further, we find that the
assessee was unable to run the hotel, so he leased out the property to earn
income from the property. We have also noted that the structure of building was
as such that it could not have been let out for the purpose other than running a
hotel and therefore letting out of the furniture and fixture and other amenities was
a necessity, without which the assessee could not have fetched the prospective
tenant. The main object was letting out of the building and not machinery or
furniture or fixture, as it is the building along with furniture and fixture etc has been
let out and not the machinery or furniture or fixture along with building. The basic
object was to explore the potential of the building and therefore the learned
Commissioner of Income-tax (Appeals) has rightly held that income from the hotel
building is assessable under the head `income from house property'. The findings
of the Hon'ble High court in the case of Shambhu Investment (supra), which have
been affirmed by the Hon'ble Supreme Court are squarely applicable to the facts
of the assessee. Similarly in the case of shop/ show room building was equipped
with safe, air conditioner, CCTV camera etc, which were essential for prospective
tenant in that area of jewellery and the main asset again was building and not the
amenities provided. We are of the opinion that there is no infirmity in the decision
of the learned Commissioner of Income-tax (Appeals) in holding the income from
shop as income under the head income from house property.
Page 8 of 10 ITA No. 3804/Del/2013
9. In view of the above we hold that no interference is required in the decision
of the learned Commissioner of Income-tax (Appeals) and therefore ground Nos.1,
2 and 3 of the Revenue are dismissed.
10. In Ground No.4 the Revenue has raised that learned Commissioner of
Income-tax (Appeals) has erred in holding that there was no question of
disallowance of depreciation u/s 38 of the Act in respect of the two properties. We
find that the learned Commissioner of Income-tax (Appeals) has considered the
provision of section 38 wherein the disallowance for part house of the property for
own business purpose is prescribed. Apparently, the provisions of the section 38 of
the Act are not applicable in the facts of present case as the properties were not
subjected to partly use for official or business purpose by the assessee. The ground
of the Revenue that the assessee has not claimed the depreciation is also based
on incorrect appreciation of facts, because the assesses has offered rental
income under the head income from house property, in which depreciation is not
allowable deduction, so there was no requirement for the assessee to claim the
depreciation. Since, we have already held the rental income from both the
properties as assessable under the head `income from house property', the issue
whether depreciation is allowable to the assessee in respect of those two
properties under the head `income from other sources' is mere academics. In
view of facts, the ground No. 3 of the Revenue is also dismissed.
11. In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open court on 30.11.2015.
Sd/- Sd/-
(I.C.SUDHIR) (O.P.KANT)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 30 /11/2015
A K Keot
Copy forwarded to
1. Applicant
2.
3. Respondent
4. CIT
5. CIT (A)
6. DR:ITAT
ASSISTANT REGISTRAR
ITAT, New Delhi
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