IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCH `B' CHANDIGARH
BEFORE SHRI H.L.KARWA, VICE PRESIDENT
AND SHRI T.R.SOOD, ACCOUNTANT MEMBER
ITA No.1035/CHD/2011
Assessment Year: 2007-08
DCIT, CC-1, V M/s Sona Projects (P) Ltd.,
Ludhiana. G.T.Road,
Near Fire Brigade Office,
Ludhiana (Pb.)
PAN: AACCS-2709M
(Appellant) (Respondent)
Appellant by : Shri Akhilesh Gupta
Respondent by : Shri Ashwani Kumar
Date of Hearing : 12.06.2012
Date of Pronouncement : 14.06.2012
ORDER
PER T.R.SOOD, AM
In this appeal, revenue has raised various grounds but
at the time hearing, ld. DR submitted that only two disputes
are involved, namely; (i) assessability of rental income under
the head `business income' and consequential disallowance of
interest, house tax, statutory allowance of 30% and (ii) relief
granted by ld. CIT(A) in respect of agriculture income
assessed by AO as `'income from other sources'.
2. In the first issue, after hearing both the parties, we find
that during assessment proceedings, the AO noted that
assessee had received annual rent of Rs.59,48,571/- out of
which a sum of Rs.7,72,465/- was claimed on account of
house tax paid, Rs.133,161/- as interest on borrowed loan
and Rs.15,52,832/- as per provisions of Section 24(a) @ 30%
2
of annual income. The assessee was asked to justify the
claim of declaring such income under the head `income from
house property'. In response, it was stated vide letter dated
23.11.2009 as under :
"As reg ards yo ur Honour's qu ery rel ating to
al l o wan ce of 30% of re pairs of rental inco me be no t
d is al l o we d and why ren tal inco me be no t tre ated as
bus iness inco me, it is sub mi tted th at a se arch h as
been took pl ace at the bus iness pre mises of the
assessee co mp any on 28. 12. 05. T he assess men ts
f or A/Ys 2000-01 to 2006-07 h ave al re ad y been
co mpl e ted by Your Honour's predecessors v ide
order d ated 20. 1 2. 2007 u/s 153A re ad wi th sec tio n
153C and 143( 3). In those ye ars al so the assessee
co mp an y was in rece ip t of rental inco me f ro m i ts
co mpl ex kno wn as "Son a Co mpl ex" . Wh atever ren tal
inco me was rece i ved in thos e res pec tive ye ars h ave
dul y been sho wn as inco me f rom house pro per ty
and no t as bus i ness inco me and the con ten tion o f
the assessee co mp an y h as dul y bee n
acce p ted/ assess ed b y Your Ho no ur's predecessor s
f or the ye ars me n tioned above. T he pos ition is th e
s ame in the ye ar under consider ation. Co p y of the
assess men t order and co mpu tation f or A/Y 2006-07
are encl osed. T he assessee co mp an y h as al s o
taken v ar ious l o ans f ro m p ar ties f or cons truc tion of
th is co mpl ex bu il d ing in the p as t, de tail of wh ich
h as al re ad y been f il ed. Wh atever i n teres t h as bee n
p aid, h as been cl ai me d ag ains t th e ren tal inco me in
the p as t. L ike wis e, in the ye ar un der cons ider ation ,
in teres t p aid on these l o ans h as been cl ai me d as
ex pend iture ou t o f rental inco me. "
3. The AO was not satisfied with the above reply and
noted that as per Memorandum of Association of the
company, the main objects were to invest in land and
3
building properti es, to acquire by purchase, lease, exchange,
construction or otherwise, buil dings, offi ce, show-rooms etc.
to construct, purchase, acquire, dwell the properties.
According to him, from these objects, it was cl ear that mai n
object was to deal with the real estate. Therefore, assessee
was not a simpli ster owner of a property, which has been
given on rent. He also noted that assessee has claimed an
expenditure of Rs.72,796/- on account of lease deed
charges, whi ch clearly indicate that main activity was
business activity and accordingl y, the rental i ncome was
held to be assessable under the head `income from business
or profession'. Consequently deduction u/s 24( 1) @ 30%
amounting to Rs.15,52,832/- was denied. Interest
amounting to Rs.1,33,161/- on borrowed capital was also
disallowed because only such interest was paid i n earli er
year. Payment no house tax amounting to Rs.7,72,465/-
was also disall owed because i ncome was assessed as
`business income'.
4. On appeal, it was mainly submitted before ld. CIT( A)
that there was a search in the premises of assessee and still
rental i ncome was assessed as income from house propert y
only. Therefore, following the principle of consistency, the
income should have been assessed on rental income.
Moreover, no depreciati on is bei ng claimed, whi ch clearly
shows that income is from house property onl y. It was
further submi tted that in earlier years, certain l oans were
taken which were partly used for purchase of property as
well as repa yment of loans and the expenses were allo wed
4
accordingly. This year, no loan has been used for repayment
of loans, therefore, interest was cl aimed against the income
from house property. Ld. CI T(A), after exami ning the
submissi ons found force in the same and observed that once
assessee was owner of the buil di ng, the income has to be
assessed as income from house property. In this regard, he
has relied on various decisions including the decision of
Hon'ble Bombay High Court in the case of CI T V National
Storage Pvt. Ltd. 48 I TR 577, wherein i t is observed that,
"House o wn ing, ho wever prof itabl e it may be, cannot be a
business f or the purpose of inco me tax Act". Accordingly, he
held that income was assessabl e under the head `income
from house property' correspondi ng deductions were to be
allowed.
5. Before us, ld. DR strongl y supported the order of AO.
6. On the other hand, ld. Counsel for the assessee, while
supporti ng the order of CI T(A), submitted that in all earlier
years, the identi cal income has been assessed as income
from house property. Even after the search, when
assessments were framed u/s 153A/153C, income was
assessed as income from house property.
7. We have heard the rival submi ssions carefully and
found that l d. CI T( A) has correctl y decided the issue. Once
assessee is owner of a building and has earned rental
income, the same has to be treated as income from house
property because speci fic head, dealing wi th i ncome on
house property i s available. As far as the deduction on
account of house tax and interest is concerned, the same are
5
deductible even under the head `income from business or
professi on'. Therefore, we find nothing wrong with the
appellate impugned order and confirm the same.
8. In the second issue, after hearing both the parti es we
find that during assessment proceedings, AO noticed that
assessee has declared agri culture income of Rs.4,93,350/-.
Assessee was asked to justif y the exemption. It was stated
vide letter dated 23.11.2009 as under :
"Regarding your Honour's query rel ating as to wh y
agricul tural income earned by the assessee co mp any
be not treated as nor mal inco me as against sho wn by
the assessee co mpany f or rate pur poses onl y/cl ai med
as exe mp t, it is sub mitted that wh atever agricul tural
inco me has been sho wn, h as shown on the bas is of
lease agree men t entered into by the assessee
co mpany with agricul turis ts. T he agricul tural income
is exe mpt f rom tax as per provis ions of Section 10(1)
and is added onl y f or rate pur poses, irrespec tive of
the f act whe ther an assessee is engaged in
agricul ture ac tivities or other wise. In vie w of the
above the inco me f rom agricul ture should be treated
as an exe mp t in co me. It is f urther sub mitted that
provisions of Section 14A is also not appl ic able in the
instant case as there is no expend iture
incurred/debited to P&L A/c wh ich can be said to be
incurred f or the purposes of earning an exe mp ted
inco me i.e. agricul tural inco me as no expend iture is
incurred in connection with the lease agree ments f or
agricul tural l and. "
9. The AO was not satisfied with the above e xplanation
and observed that land was basically purchased for real
estate activi ties and was given on lease to various parti es.
Therefore, income could not be treated as agriculture
6
income. On appeal before CI T(A) , it was mainly submitted
that even i ncomes received from agriculturist out of lease
charges, were to be treated as agriculture income under
Section 10(1) of the Income-tax Act,1961. Ld. CI T(A) was
satisfied with the submissi ons and allowed the claim of
agriculture income.
10. Before us, ld. DR supported the order of AO.
11. On the other hand, ld. Counsel of the assessee
supported the appellate order.
12. After hearing rival submi ssions, we find that ld. CI T(A)
has adjudicated the issue vide para 6 of his order, which is
as under:
"I have considered the basis of addition made by the
AO and AR' s argu ments on the same. It is an
undisputed f act that the l ands in question have been
used f or the pur poses of agricul tural oper ations and
these l ands are own ed by the assessee co mpany. It
is al so a matter of record th at assessee is in receipt
of lease/rent charges f rom the persons who have
carried out the agricul tural o perations on the l and.
As such, the amounts received by the assessee are
squarel y covered under the def inition of agricul tural
inco me as def ined in S.1(1A)( a). The said agricul tural
inco me is exe mpt in vie w of S.10(1). In the
circu mstances, th e AO's action in tre ating the same
as tax able is against the l aw as detail ed above.
Theref ore, the addition is deleted."
13. Ld. CI T(A) has gi ven a finding that ultimately, lands in
question were used for agricul ture purposes and this fact
has not been denied before us. As per the defi nition of
`agricul ture income' u/s 2(1A ) (a) , the agriculture income
7
means, "any rent or revenue derived f rom l and wh ich is
situ ated in India and is used f or agr icul tural purposes."
Thus, even revenue receipts from leasi ng out land for
agriculture purposes, is to be treated as agriculture income.
In these circumstances, we find nothing wrong with the
order of the CI T( A) and confirm the same.
14. In the result, appeal filed by the revenue is dismi ssed.
Order pronounced in the Open Court on 14 t h June,2012.
Sd/- Sd/-
(H.L.KARWA) (T.R.SOOD)
VICE PRESIDENT ACCOUNTANT MEMBER
Dated: 14 t h June,2012.
`Poonam'
Copy to:
The Appellant, The Respondent, The CI T(A), The CI T,DR
Assistant Registrar, I TAT
Chandigarh
|
