2013 (12) TMI 1568 - AT - Income Tax

Treatment to the rental income as Income from House Property - there is no element of any organized set of activities carried out by the assessee during the year and the only rental income is being received from the property.

Summary

Issues Involved:
1. Treatment of income from letting out of poultry sheds as income from house property versus business income.
2. Treatment of sale of agricultural lands as long-term capital gains versus exempt agricultural income.
3. Disallowance of depreciation on poultry lands.

Detailed Analysis:

1. Treatment of Income from Letting Out of Poultry Sheds:
The assessee, a private limited company engaged in the business of poultry farms, leased out poultry sheds for eight months and reported the rental income as business income. The Assessing Officer (AO) treated this income as income from house property, disallowing the business expenditure claimed by the assessee. The CIT(A) upheld the AO's decision, referencing several judicial precedents, including Sultan Brothers Pvt. Ltd. vs. CIT and Shambhu Investments Pvt. Ltd. vs. CIT, which emphasized that for an activity to be assessed as a business, there must be an organized set of actions for earning income. The CIT(A) found no such organized activity in the assessee's case and confirmed the treatment of rental income as income from house property. The Tribunal upheld the CIT(A)'s decision, rejecting the assessee's grounds.

2. Treatment of Sale of Agricultural Lands:
The Revenue contested the CIT(A)'s decision to delete the addition of long-term capital gains on the sale of agricultural lands, which the assessee claimed as exempt agricultural income. The AO argued that the lands were used for poultry farming and were within 8 kilometers of Bibinagar, thus not qualifying as agricultural lands. However, the assessee provided additional evidence, including certificates from local authorities, proving that the sold lands were different from those used for poultry farming and were situated approximately 17 kilometers from the nearest municipality. The CIT(A) accepted the assessee's contention and deleted the addition. The Tribunal upheld the CIT(A)'s order, confirming that the lands sold were indeed agricultural and exempt from capital gains tax.

3. Disallowance of Depreciation on Poultry Lands:
For the assessment year 2006-2007, the Revenue challenged the CIT(A)'s direction to the AO to reconsider the disallowance of depreciation on poultry lands. The assessee argued that the depreciation claimed was on a distinct property, not the poultry sheds yielding rental income. The CIT(A) remitted the issue to the AO for examination. The Tribunal upheld the CIT(A)'s order, noting that the CIT(A) had not directed the allowance of the claim but merely asked for a re-examination.

Conclusion:
The Tribunal dismissed the cross-appeals for both assessment years, upholding the CIT(A)'s decisions on all issues. The treatment of rental income as income from house property was confirmed, the deletion of long-term capital gains on the sale of agricultural lands was upheld, and the remand for reconsideration of depreciation on poultry lands was validated.