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2013 (5) TMI 932 - AT - Income Tax

Issues Involved:
1. Classification of lease rent as income from other sources or income from house property.
2. Disallowance of proportionate interest payments.

Issue 1: Classification of Lease Rent

The appellant, engaged in trading, declared income with lease rent treated as income from house property. AO classified it as income from other sources due to the property's condition. Ld.CIT(A) ruled in favor of the assessee, considering the land's nature. The Revenue challenged this decision.

The Chennai ITAT and Delhi ITAT decisions were cited, emphasizing land's vastness not determining income source. The Tribunal noted the land's details from the rent agreement, confirming the presence of structures. The lease income was deemed 'income from house property' as per section 22 conditions. The Ld.CIT(A)'s decision was upheld, dismissing Grounds No. 1 & 2.

Issue 2: Disallowance of Proportionate Interest Payments

The AO disallowed a portion of interest payments, citing lack of working capital need and funds usage. Ld.CIT(A) deleted this disallowance, highlighting the excess of interest-free loans over interest-bearing ones. The Revenue contested this decision.

The Tribunal observed the loan details and relied on the Bombay High Court's ruling regarding interest-free funds. It was noted that the AO and Ld.CIT(A) did not address the borrowed funds' utilization for business purposes. The issue was remanded to the AO for further examination. Ground No. 3 was allowed for statistical purposes.

In conclusion, the appeal by the Revenue was partly allowed, with the Tribunal providing detailed reasoning for each issue addressed in the judgment.

 

 

 

 

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