2014 (12) TMI 794 - AT - Income Tax

Treatment of rental income as income from house property assessee into the business of letting out/renting out of business centre Deduction u/s 24(1) disallowed Held that - The asset which is let out is held as investment and not as stock in trade - In all the preceding years rental income is shown as income from house property and which has been accepted by the Revenue as such - the rule of res-judicata does not apply to income tax proceedings but at the same time the rule of consistency does apply - when the facts are similar and rental income from the same property is accepted as income from house property in the preceding years there cannot be any justification to treat the rental income as business income in the year under consideration without there being any change in the facts or in law - assessee is not carrying on any activity which can be said to be in the nature of business activity. It is simply receiving the rent of the building owned by it the similar issue has already been decided in Asstt. Commissioner of Income Tax Versus M/s Atria Partners DLF Centre 2014 (3) TMI 500 - ITAT DELHI - the partnership deed has mentioned not only the setting up of the commercial complex for sale but also mentioned for letting out and earning rental income - That it is a common practice that the partnership deed or a memorandum of association of the company are drafted covering large number of activities but which of several activities mentioned in the partnership deed or memorandum of association is carried on by the assessee will be relevant for the purpose of assessment under the Income Tax Act - the assessee owns a commercial complex for letting out and earning rental income than merely because the partnership also permits the assessee to sale the commercial complex will not change the nature of rental income - the rental income from a building is to be assessed under the head income from house property thus the order of the CIT(A) is upheld Decided against revenue. Allowance of expenditure from income from other sources u/s 57(iii) Whether the assessee could not prove that such expenditure was expended wholly 60 lacs from other sources - assessee has income from other sources out of which the total expenses allowed by the CIT(A) were only 1, 20, 000/- which is approximately 2% of the income from other sources and remaining 98% has been taxed - Incurring of 2% of the expenses on office maintenance salary conveyance legal and professional fee etc. cannot be said to be excessive or unreasonable thus the order of the CIT(A) is upheld Decided against revenue.

Summary

Issues Involved:
1. Justification of deleting the addition made by AO disallowing deduction u/s 24(1) of I.T. Act.
2. Classification of rental income as income from house property versus business income.
3. Deletion of disallowance of expenses claimed under Section 57(iii) of the IT Act.

Issue-wise Detailed Analysis:

1. Justification of Deleting the Addition Made by AO Disallowing Deduction u/s 24(1) of I.T. Act:
The Revenue challenged the deletion of an addition made by the Assessing Officer (AO) who disallowed a deduction under Section 24(1) of the Income Tax Act. The learned CIT(A) had deleted this addition. The ITAT noted that the assessee's property had been consistently treated as a fixed asset and not stock-in-trade in its balance sheet. The rental income from this property had been disclosed as income from house property in all preceding years and accepted as such by the Revenue. The Tribunal upheld the CIT(A)'s decision, emphasizing the rule of consistency, and found no justification for treating the rental income differently without any change in facts or law.

2. Classification of Rental Income as Income from House Property Versus Business Income:
The Revenue argued that the rental income should be treated as business income because the assessee's primary business was setting up commercial complexes for sale or letting out. However, the ITAT found that the assessee owned only one property, which was let out and held as an investment. The assessee had not engaged in any business activity other than receiving rent. The Tribunal cited similar cases involving the DLF Group, where rental income was consistently treated as income from house property. It was noted that the partnership deed allowed for both letting out and selling commercial complexes, but the actual activity carried out was letting out. The Tribunal upheld the CIT(A)'s decision to classify the rental income as income from house property.

3. Deletion of Disallowance of Expenses Claimed Under Section 57(iii) of the IT Act:
The AO had disallowed the entire expenses claimed by the assessee under Section 57(iii) against income from other sources. The CIT(A) allowed a partial relief of Rs. 1,20,000, considering that some expenses were necessary for maintaining the firm's status. The ITAT found no infirmity in this decision, noting that the allowed expenses were reasonable and constituted only about 2% of the income from other sources. The Tribunal upheld the CIT(A)'s decision to allow Rs. 1,20,000 as deductible expenses.

Conclusion:
The ITAT dismissed the Revenue's appeals, upholding the CIT(A)'s decisions on all issues. The Tribunal emphasized the importance of consistency in tax treatment and found no substantial reason to deviate from the established classification of rental income as income from house property. Additionally, the partial allowance of expenses under Section 57(iii) was deemed reasonable and justified. The decisions were pronounced in open Court on 12th December 2014.