1996 (3) TMI 538 - AT - Income Tax

Summary

Issues Involved:
1. Classification of income from leasing out premises.
2. Determination of annual letting value (ALV) of the leased flats.
3. Allowances and reliefs under sections 28 to 44D.
4. Charge of interest under section 217 and enhancement of penalty under section 273.
5. Consideration of notional interest on interest-free deposits for determining ALV.

Issue-wise Detailed Analysis:

1. Classification of Income from Leasing Out Premises:
The primary issue was whether the compensation received from leasing out premises should be assessed as income from house property or as business income. The Commissioner (Appeals) and the Assessing Officer (AO) both concluded that the income should be assessed as income from house property. The assessee argued that since it was in the leasing business, the rental income should be treated as business income. However, the Tribunal upheld the decision of the Commissioner (Appeals), stating that the rental income must be taxed under the head 'House property' as the assessee was the owner of the flats and the income was derived from exercising ownership rights. The Tribunal cited several Supreme Court decisions, including East India Housing & Land Development Trust Ltd. v. Commissioner, to support this conclusion.

2. Determination of Annual Letting Value (ALV) of the Leased Flats:
The next issue was the determination of the ALV of the three flats. The Commissioner (Appeals) set the ALV at Rs. 58,212 based on the municipal rateable value, which was contested by both the assessee and the Revenue. The Revenue argued that the ALV should include notional interest on the interest-free deposit received from the lessee. The Tribunal found merit in the assessee's contention that notional interest should not be included in the ALV calculation. It was noted that no interest was received or receivable on the interest-free deposit, and thus, section 23(1)(a) could not be invoked to include such notional interest. The Tribunal upheld the Commissioner (Appeals)'s determination of the ALV based on the municipal rateable value.

3. Allowances and Reliefs under Sections 28 to 44D:
The assessee argued that the Commissioner (Appeals) erred by not granting allowances and reliefs under sections 28 to 44D. However, since the income was determined to be assessable under the head 'House property', only the deductions permissible under that head were allowed. Consequently, this ground was rejected.

4. Charge of Interest under Section 217 and Enhancement of Penalty under Section 273:
The assessee contended that the Commissioner (Appeals) did not consider the grounds relating to the charge of interest under section 217 and the enhancement of penalty under section 273. The Tribunal noted that these grounds were indeed raised before the Commissioner (Appeals) but were not addressed in the order. Therefore, the Commissioner (Appeals) was directed to consider these grounds.

5. Consideration of Notional Interest on Interest-Free Deposits for Determining ALV:
The Revenue's appeal centered on the inclusion of notional interest on the interest-free deposit of Rs. 22,50,000 for determining the ALV. The Tribunal, referencing its earlier decision on the same issue, dismissed the Revenue's appeal, reiterating that notional interest should not be included in the ALV calculation as no interest was received or receivable.

Conclusion:
The appeals of the assessee were partly allowed, and those of the Revenue were dismissed. The Tribunal upheld the classification of rental income as income from house property, determined the ALV based on the municipal rateable value without including notional interest, and directed the Commissioner (Appeals) to consider the grounds related to the charge of interest and penalty enhancement.