2010 (4) TMI 712 - AT - Income Tax

Income from house property or Other sources - lease rentals towards the amenities and furniture and fixtures - While leasing out the building the assessee entered into two agreements with the tenant one towards the rent of the building and the other towards the amounts for providing the amenities for the same building - CIT(A) directed the assessing officer to split and treat the hire charges into two as one is income from house property and the other income from other sources - Held that - We have to see the intention of the assessee whether the letting was the doing of a business or to exploitation of his property by an owner. The assessee when exploited the property to derive rental income it has to be held that the income realized by him by way of rental income from a building if the property with other asset attached to the building to be assessed as income from house property only. - the entire income is to be assessed as income from house property - order of CIT(A) reversed - decided in favour of revenue. Computation of sales consideration u/s 48 - sale value - AO considering the value of super structure to determine the sale value and compute the capital gain - CIT(A) directed AO to consider the sales consideration as per value of the land adopted by the Registrar for Stamp Duty purpose on the date of registration of the development agreement - Held that - the consideration for the transfer of capital asset is what the transferer receives in lieu of the assets order of CIT(A) reversed - Decided in favour of revenue.

Issues Involved:
1. Classification of income from lease rentals towards amenities and furniture.
2. Determining the sales consideration for capital gains purposes.
3. Head of income classification for rental income and hire charges.

Issue-wise Detailed Analysis:

1. Classification of Income from Lease Rentals Towards Amenities and Furniture:

The first common ground in all these appeals is that the CIT(A) erred in holding the income received as lease rentals towards the amenities and furniture and fixtures is to be assessed under the head 'other sources' and accordingly, the depreciation is to be allowed from the income so arrived. Since the assessee is unable to furnish the details of furniture and fixtures, the question of allowing depreciation does not arise.

The main contention of the departmental representative is that all amenities are integral part of the buildings. Because there is separate agreement, it does not lead to the conclusion that it is to be assessed separately as income from business. The AR submitted that the rental income received from the letting of amenities is 'income from business' and this was covered in favour of the assessee by the order of this Tribunal dated 7.3.2008 in ITA No.528/Hyd/2005 in the case of Lallu Brothers Trust, Secunderabad Vs. ACIT for the assessment years 2000-01.

After perusing the material available on record and the facts of the case, the Tribunal concluded that most of the items listed as amenities are common in nature and necessary for the software companies to carry out their day-to-day work. The Tribunal opined that the assessee made separate lease agreements to aid in tax planning, and the lease from the lessee's point of view is for the property as a whole. The TDS certificates and the lack of detailed asset information further support this view. The Tribunal held that the real rental value was bifurcated into two separate incomes: rental income of house property and hire charges of the equipment. Therefore, the income from letting out was chargeable under the head 'income from house property.' The Tribunal reversed the order of the CIT(A) and restored that of the assessing officer, allowing this ground of the revenue.

2. Determining the Sales Consideration for Capital Gains Purposes:

The next common ground in appeal Nos. ITA No.6, 69, and 7/Hyd/2010 is that the CIT(A) erred in considering the fact that the real consideration received by the assessee in lieu of the land forgone by him is the superstructure and therefore the same should be considered as sale consideration instead of the market value of the land.

The brief facts of the case are that the assessee filed a return of income along with her son and daughter owned land situated at Survey No.12 of Kondapur Village, Hyderabad. The said land was given to M/s SDE engineers Ltd., on a development basis. The assessee along with her son and daughter were allocated an area in the superstructure constructed on the said land by the developer. The assessing officer treated the relinquishment of rights on the land as a transfer u/s 2(47) of the Income Tax Act and computed capital gain accordingly. The CIT(A) directed the assessing officer to consider the sales consideration as per the value of the land adopted by the Registrar for Stamp Duty purposes on the date of registration of the development agreement. The Revenue appealed against this decision.

The Tribunal held that the consideration for the transfer of a capital asset is what the transferor receives in lieu of the assets he parts with, and the full value of consideration cannot be construed as having a reference to the market value of the asset transferred. The Tribunal found no infirmity in the order of the assessing officer, who followed the order of the Tribunal in the case of M/s Vasavi Pratap Chand Vs. DCIT (89 ITD 73) (Del.). Accordingly, this ground taken by the Revenue was allowed.

3. Head of Income Classification for Rental Income and Hire Charges:

The assessee entered into two agreements: one for rental income and the other for amenities provided. The tenant deducted tax treating the whole amount as rental income and TDS u/s 194 of the IT Act. The assessing officer treated the entire income from letting as 'income from house properties.' On appeal, the CIT(A) directed the assessing officer to split and treat the hire charges into two, as one is 'income from house property' and the other 'income from other sources.' The Revenue is in appeal against this decision.

The Tribunal noted that the authorities have the freedom to go beyond the documents to find out the real intention of the parties. The Tribunal held that the real rental value was bifurcated into two separate incomes: rental income of house property and hire charges of the equipment. Further, the Tribunal concluded that the hire charges collected for providing amenities and the rent for the building do not come under the purview of sec.56(2)(iii) of the Act. The Tribunal reversed the order of the CIT(A) and restored that of the assessing officer, allowing this ground of the revenue.

Conclusion:

In conclusion, the Tribunal allowed the Revenue's appeals on all grounds, reversing the CIT(A)'s decisions and restoring the assessing officer's original determinations.

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