2009 (9) TMI 970 - AT - Income Tax

Characterization of income - Disallowance of portion of house keeping charges treated as '' income from other sources'' - AO believed money received by the assessee is not genuine and at best he could receive only a sum being the charges for giving on hire, the table, sofa sets, etc. - Principle of consistency - the assessee is in the business of providing House Keeping services to various business associate concerns., activities are being carried out since 1998-99 and except providing services, no business was carried out by the assessee - CIT(A) deleted the addition - HELD THAT - No case for interference in the order of the Learned CIT(Appeals) as AO has not doubted that what the assessee is receiving is income from business as part of it as has been so assessed by him. Only a part has been treated as income from other sources . Assessee has been assessed in the past on these receipts from House Keeping Services under the head Business . Facts remaining the same, the Revenue should take a consistent view. It has been so held in the case of CIT vs. Malbaro Polychem Pvt.Ltd. 2008 (9) TMI 193 - RAJASTHAN HIGH COURT , in the case of CIT vs. Moon Light Builders and Developers 2007 (1) TMI 173 - DELHI HIGH COURT and CIT vs. Dineshkumar 2005 (1) TMI 12 - MADHYA PRADESH HIGH COURT . Thus, if the facts are not different, then view once taken should be followed in subsequent year also. If certain part of expenditure incurred by group concerns in receiving services from the assessee-company is not genuine or is excessive, then action is required to be taken in their hands. Assessee-company is showing the receipts in full as taxable income. There is no reason to either reduce it or change the head. The logic given by the AO in treating the part of the receipt as income from other sources is not comprehendible and does not create any logical difference between receipts taken under the head business and receipt taken under the head other sources . Following the rule of consistency, no such distinction should have been created and secondly, it does not at all affect the taxability of the receipt and tax imposed. Disallowance of depreciation - Depreciation cannot be disallowed whether the part of income is assessed under the head business or under the head other sources as under both the heads there is provision for allowing depreciation. When income is computed under the head business , depreciation is allowable u/s.32 as per Rules and when income is computed u/s.56 and income is of the nature of clauses (ii) (iii) of section (1) of section 56, then deduction of the nature of that provided u/s.32(1) 32(2) are to be allowed by virtue of section 57(2). The receipt shown by the assessee is fully taxable and has been so offered by the assessee. Order of the Learned CIT(A) is correct and, therefore, does not require any interference. Appeal of the Revenue is dismissed.

Summary

Issues:
1. Disallowance of portion of housekeeping charges treated as income from other sources.
2. Disallowance of depreciation amount.
3. Assessment of housekeeping charges as business receipts.
4. Consistency in assessment approach between business income and income from other sources.
5. Allowance of depreciation under different heads of income.

Issue 1: Disallowance of portion of housekeeping charges:
The appeal filed by the Revenue challenged the deletion of disallowance of a portion of housekeeping charges treated as income from other sources. The Assessing Officer found the money received by the assessee not genuine and assessed part of it as income from other sources. The CIT(A) treated the entire sum as business income, emphasizing the provision of various business services to associated concerns. The CIT(A) allowed depreciation and held that the charges received should be assessed as business receipts for services provided. The Tribunal upheld the CIT(A)'s order, stating that the Assessing Officer's approach was narrow and not holistic, emphasizing the business nature of the receipts.

Issue 2: Disallowance of depreciation amount:
The Revenue objected to the disallowance of depreciation amounting to Rs. 18,53,334. The Assessing Officer did not allow depreciation due to considering the activities as income under other sources. However, the CIT(A) allowed depreciation, stating that the receipts from the exploitation of depreciable assets were for business purposes. The Tribunal concurred with the CIT(A)'s decision, directing the allowance of depreciation under the Income Tax Act.

Issue 3: Assessment of housekeeping charges as business receipts:
The main contention revolved around whether the housekeeping charges received by the assessee should be assessed as business receipts or income from other sources. The Assessing Officer treated a portion as income from other sources, while the CIT(A) considered the entire sum as business income. The Tribunal supported the CIT(A)'s view, emphasizing the business nature of the services provided and the consistent assessment approach followed in previous years.

Issue 4: Consistency in assessment approach:
The Tribunal highlighted the importance of maintaining consistency in the assessment approach between business income and income from other sources. Referring to judicial precedents, the Tribunal emphasized that if the facts remain the same, the Revenue should take a consistent view in subsequent years. The Tribunal criticized the Assessing Officer's distinction between business income and income from other sources as lacking logical basis and unnecessary.

Issue 5: Allowance of depreciation under different heads of income:
The Tribunal clarified that depreciation should be allowed irrespective of whether the income is assessed under the head of business or other sources. It emphasized that under both heads, provisions exist for allowing depreciation. The Tribunal upheld the allowance of depreciation under the Income Tax Act and rejected the Revenue's appeal.

In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order regarding the treatment of housekeeping charges as business receipts and the allowance of depreciation. The judgment emphasized the holistic approach in assessing income and the importance of consistency in tax assessments.