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DCIT, CC-1,Ludhiana. V M/s Sona Projects (P) Ltd.,G.T.Road,Near Fire Brigade Office,Ludhiana (Pb.)
June, 16th 2012


                       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



       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%

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

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

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


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

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

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

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)
Dated: 14 t h June,2012.
Copy to:
     The Appellant, The Respondent, The CI T(A), The CI T,DR

                                     Assistant Registrar, I TAT
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