2014 (12) TMI 343 - AT - Income Tax

Addition of income from amenities income from property or not assessee offered the rental income under the head house property whereas income received towards amenities was shown as business income and assessee also claimed deduction towards interest expenditure and depreciation from such business income. - Held that - As decided in assessee s own case for the earlier assessment year, it has been held that the amenities provided are incidental to letting out the building, hence, such rental income is to be treated as income from house property - the annual rent in a case when the property is let throughout the year is the actual rent received or receivable by the owner - the assessee made two agreements one for let out of the property and another for providing amenities and there is a doubt in the mind of the assessing officer regarding the correctness of the income declared by the assessee as income from house property and income from business - the authorities have the freedom to go beyond the documents to find out the real intention of the parties - the AO came to the correct conclusion that real rental value was bifurcated into two separate income viz., one is rental income of house property and another is hire charges of the equipment. No precise test can be laid out to ascertain whether income referred to by whatever nomenclature, lease amount, rent or licence fee received by an assessee from leasing or letting out of assets would fall under the head profit and gains of business or profession and it has to be determined from the point of view of a businessman in that business depending upon the fact and circumstances of each case and there is no readymade jacket formula - the intention of the assessee has to be seen as to 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 rental would not have been realized but for the letting out of the machinery, plant or furniture along with such building and therefore, rental received for the building is to be assessed under the head income from other sources - the assessee as the owner of the building was only exploiting the property as owner by letting out the same and realizing income by way of rent - Such rental income was liable to be assessed under the head income from house property thus, the order of the CIT(A) is upheld Decided against assessee.

Summary

Issues:
1. Classification of income from amenities as income from property or business.

Analysis:
The appeal was against the order passed by the Commissioner of Income-tax(A)-IV, Hyderabad, for the assessment year 2008-09. The main issue raised by the assessee was regarding the treatment of income from amenities received from leasing a building to a tenant. The assessee argued that the income should be considered as business income, not income from property, citing a decision in a similar case. However, the Assessing Officer (AO) treated the entire amount received from leasing the building as income from property, leading to the appeal.

During the scrutiny assessment, it was found that the assessee, along with family members, owned a land and leased part of it to a developer. The developed area was further leased to a tenant, with separate agreements for rent and amenities. The assessee claimed the income from amenities as business income, but the AO disagreed, considering it as income from property. The CIT(A) also dismissed the appeal, citing a previous decision by the ITAT in the assessee's own case for earlier assessment years.

The ITAT, after hearing both parties and reviewing the previous decisions, agreed that the income from amenities should be treated as income from property, following the precedent set in the assessee's previous cases. The ITAT referred to a specific case where a similar issue was decided against the assessee and other co-owners, emphasizing that the rental income was incidental to letting out the building. The Tribunal upheld the decision of the CIT(A) based on the previous rulings and dismissed the appeal of the assessee.

In conclusion, the ITAT upheld the order of the CIT(A) and dismissed the appeal of the assessee, confirming that the income from amenities received by leasing out the building should be considered as income from property, not business income. The decision was based on the interpretation of the agreements and the precedent set in the assessee's own case for earlier assessment years.

This detailed analysis showcases the legal proceedings and the reasoning behind the decision to classify the income from amenities as income from property, following established precedents and interpretations of the agreements involved in the case.