2015 (6) TMI 699 - AT - Income Tax

Disallowance u/s 14A read with Rule 8D - assessee is a non-resident individual - Held that - AO has applied Rule 8D for making disallowance on income not chargeable to tax. The Hon ble Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd. (2010 (8) TMI 77 - BOMBAY HIGH COURT) has held that the provisions of Rule 8D are applicable from assessment year 2008-09. Thus, to the impugned assessment year, i.e. assessment year 2007-08, the provisions of Rule 8D will not be applicable. However, we are of the opinion that a reasonable disallowance has to be made on income not chargeable to tax. Accordingly, we direct the Assessing Officer to make a disallowance of 2% of interest free income earned by the assessee during the relevant period.- Decided partly in favour of assessee. Rejection of set off of short term capital loss against short term capital gains - Held that - The assessee had debited the short term capital loss in Profit & Loss account instead of treating it under the head capital gains . After the assessee realized her mistake, she filed a revised computation before the Assessing Officer at the time of scrutiny assessment. The Assessing Officer refused to accept the claim of the assessee. The Hon ble Supreme Court of India in the case of Goetze (India) Ltd. (2006 (3) TMI 75 - SUPREME Court ) has held that powers of the Tribunal are not impinged for accepting such claim of the assessee. Accordingly, we remit this issue back to the file of the Assessing Officer with a direction to consider the revised computation furnished by the assessee. - Decided in favour of assessee for statistical purposes. Rental income from property treated as business income instead of income from house property - Held that - For the assessment year under appeal the assessee changed the head from the business income to income from house property . The rental income whether to be treated as business income or under the head income from house property is a mixed question of fact and law. The authorities below have not examined the rent agreement entered into by the assessee with tenants and other facts surrounding the agreement. If the main intention of the assessee is to let out the property or any part of it, the rental income therefrom should be assessed under the head income from house property . If the object is to exploit the commercial property by letting out temporarily, then the income derived from such letting out of property can be termed as business income . We are of the considered opinion that this issue needs a revisit to Assessing Officer to examine the rent agreement and analysis of other material. The A.O. shall also take into consideration the general principles laid down by the Hon ble Supreme Court of India in the case of Universal Plast Ltd. v. CIT (1999 (3) TMI 15 - SUPREME Court ) to determine whether the rental income is assessable as business income or income from house property . - Decided in favour of assessee for statistical purposes.

Summary

Issues involved:
1. Disallowance u/s 14A read with Rule 8D
2. Rejection of set off of short term capital loss against short term capital gains
3. Rental income from property treated as business income instead of income from house property

Issue 1: Disallowance u/s 14A read with Rule 8D:
The Appellate Tribunal noted that the assessee had challenged the disallowance made by the Assessing Officer under Section 14A read with Rule 8D. While acknowledging that Rule 8D was not applicable for the assessment year 2007-08, the Tribunal directed a reasonable disallowance of 2% of the interest-free income earned by the assessee during the relevant period. This decision was based on the principle that some disallowance on income not chargeable to tax was warranted, even though Rule 8D did not apply for the relevant assessment year.

Issue 2: Rejection of set off of short term capital loss against short term capital gains:
The Tribunal addressed the matter of the assessee debiting short term capital loss to the Profit & Loss account instead of treating it under the head of "capital gains." The Tribunal referred to a Supreme Court decision stating that the Tribunal had the authority to consider such claims by the assessee. Consequently, the Tribunal remitted this issue back to the Assessing Officer for reevaluation based on the revised computation submitted by the assessee during the scrutiny assessment.

Issue 3: Rental income from property treated as business income instead of income from house property:
Regarding the treatment of rental income from property, the Tribunal observed that the assessee had historically reported such income under the head of "business income." However, for the assessment year in question, the assessee changed the classification to "income from house property." The Tribunal emphasized that whether rental income should be categorized as business income or income from house property depended on the specific facts and agreements involved. The Tribunal directed the Assessing Officer to reexamine the rent agreement and other relevant material to determine the appropriate classification of the rental income. The Tribunal also instructed the Assessing Officer to consider established legal principles to make this determination. Consequently, this issue was sent back to the Assessing Officer for further review.

In conclusion, the Appellate Tribunal partially allowed the appeal of the assessee on the grounds related to disallowance u/s 14A, set off of short term capital loss, and the treatment of rental income. The Tribunal provided detailed reasoning for each issue and directed the Assessing Officer to take specific actions based on the Tribunal's findings.