2014 (5) TMI 1028 - AT - Income Tax

Disallowance of depreciation - Lease rental income - Income from house property - Held that - Since both parties have accepted that the assessee herein has leased out only building during the years relevant to the assessment years 2007-08 and 2009-10, the rental income is assessable under the head Income from house property only. Hence, we do not find any infirmity in the decision of the learned Commissioner of Income-tax (Appeals) in confirming the assessment of rental income under the head Income from house property - Admittedly, the assessee is submitting certain facts which were not considered by the Assessing Officer. According to the learned authorised representative the assessee has leased out building and plant and machinery during the year relevant to the assessment year 2004-05. However, the assessment order is silent about the receipt of rental income. It is seen that the Assessing Officer has disallowed the depreciation only for the reason that the assessee did not carry on any manufacturing activity and hence the assets were not put to use. If the assessee has let out the building and plant and machinery together, then the decision rendered by this Bench of the Tribunal in the assessee's own case for the assessment year 2005-06 is applicable to this year. However, as stated earlier, the Assessing Officer has not examined these aspects. - Matter remanded back - Decided partly in favour of assessee.

Summary

Issues:
1. Disallowance of depreciation claimed by the assessee for assessment years 2004-05, 2007-08, and 2009-10.
2. Classification of rental income received by the assessee under the head "Income from business" or "Income from house property."

Analysis:

Issue 1: Disallowance of Depreciation for Assessment Years 2004-05, 2007-08, and 2009-10
The Assessing Officer disallowed the depreciation claimed by the assessee for the assessment year 2004-05 as the assets were not put to use for manufacturing activities. This disallowance was based on various case laws. In the subsequent assessment years 2007-08 and 2009-10, the Assessing Officer classified the rental income received by the assessee as income from house property, disallowing the claimed depreciation benefits. The Commissioner of Income-tax (Appeals) upheld these decisions, leading the assessee to file appeals before the Appellate Tribunal.

Issue 2: Classification of Rental Income
The assessee declared lease rental income under the head "Income from business" for the years 2007-08 and 2009-10, claiming depreciation on the assets. However, the Assessing Officer classified this rental income as "Income from house property," relying on a relevant court decision. The Commissioner of Income-tax (Appeals) affirmed this classification, prompting the assessee to appeal. The Tribunal noted that the assessee had only leased out the building during these years, agreeing that the rental income should be assessed under the head "Income from house property." The Tribunal upheld the Commissioner's decision for these two years.

In conclusion, the Appellate Tribunal allowed the appeal for the assessment year 2004-05, directing the matter back to the Assessing Officer for further examination. The appeals for the other two years were dismissed. The judgment emphasized the importance of correctly classifying income and ensuring assets are used appropriately to claim depreciation benefits in accordance with the law.