2002 (11) TMI 32 - HC - Income Tax

The Tribunal was justified in accepting the income from complex letting as income from business and the Tribunal was justified in allowing 1/6th repairs of the properties in question in place of repairs to building at Rs. 2,08,118 claimed as business expenses. Tribunal is not right in law in allowing the claim of the assessee regarding depreciation amounting to Rs. 50,486 on other assets. The assessee is entitled to depreciation treating the income under the head Income from business under section 28 - The Tribunal was not in fully right in upholding the order of the Commissioner of Income-tax (Appeals) bifurcating the income as income from house property and income from other sources - Tribunal was right in allowing collection charges amounting to 6 per cent. of the annual letting value under the head House property income . However, as regards the balance amount, the assessee is entitled to claim deduction under section 28 Further, the assessee will be entitled to permissible deduction as income from house property to the extent for which the property is used and also deduction permissible under the head Income from business as we have held the said income as income from business.

Issues Involved:
1. Depreciation claim by the assessee.
2. Allowance of collection charges under 'House property income.'
3. Bifurcation of income as 'house property' and 'other sources.'
4. Depreciation on other assets.
5. Classification of income from complex letting as 'business income.'

Issue-wise Detailed Analysis:

1. Depreciation Claim by the Assessee:
The Tribunal confirmed the order of the Commissioner of Income-tax (Appeals) allowing the assessee's claim of depreciation. However, the High Court held that the Tribunal was not right in upholding the order of the Commissioner of Income-tax (Appeals) allowing the assessee's claim of depreciation. The court concluded that the deductions permissible can only be allowed in respect of the rent and not for depreciation on the value of buildings.

2. Allowance of Collection Charges under 'House Property Income':
The Tribunal allowed collection charges amounting to 6 per cent of the annual letting value under the head 'House property income.' The High Court agreed with this decision but added that the balance amount should be claimed as a deduction under section 28 of the Act, treating it as income from business.

3. Bifurcation of Income as 'House Property' and 'Other Sources':
The Tribunal upheld the Commissioner of Income-tax (Appeals) bifurcating the income as income from 'house property' and 'other sources.' The High Court disagreed, stating that the income from services rendered should be treated as 'income from business' and not 'other sources.' The court emphasized that the assessee was in the business of rendering services to tenants, and thus, the income should be assessed under 'profits and gains of business or profession.'

4. Depreciation on Other Assets:
The Tribunal allowed the claim of the assessee regarding depreciation amounting to Rs. 50,486 on other assets. The High Court held that the assessee is entitled to depreciation treating the income under the head 'Income from business' under section 28 of the Act, thus supporting the Tribunal's decision in this regard.

5. Classification of Income from Complex Letting as 'Business Income':
The High Court concluded that when the property is let out with services, it constitutes complex letting, and the income derived is not merely from ownership but from business activities. The court ruled that the income received for rendering services should be taxed under 'profits and gains of business or profession,' while the rent should be taxed as 'income from house property.' The court referenced Supreme Court judgments in CIT v. National Storage Pvt. Ltd. and Karnani Properties Ltd. v. CIT to support this conclusion.

Conclusion:
The High Court provided a detailed analysis, concluding that income from complex letting should be bifurcated into 'income from house property' for rent and 'income from business' for services rendered. The Tribunal was directed to reassess the income of the assessee accordingly. The court answered the questions referred to it, largely in favor of the assessee, except for the depreciation claims related to buildings. The reference was disposed of with no order as to costs.

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