2015 (7) TMI 912 - AT - Income Tax

Eligibility of deductions allowable u/s 24 - Computation of income - AO assessed the contractual receipts of ₹ 11,50,000/- as income from other sources and not as income from house property as claimed by assessee - Held that - There is marked change in the terms of agreement and, therefore, it cannot be held that the entire receipts were towards rent. In the original agreement as per clause 16, the maintenance charges were paid to the society of the building hired by lessee which was in full settlement of the lessee s obligation towards any charges for common facilities running cost of lifts, lighting, common space, staircase, ground cleaning, maintenance of lawns or parking etc. Any enhancement of the same was to be borne by lessee. However, in the amended agreement the lessor took the responsibility for repair and renew, paint, whitewash and colour the building in the demised premises. Earlier also the maintenance and service charges paid to the society were not part of rent and, therefore, the submission of ld. Counsel cannot be accepted. CIT(A) assessed the contractual receipts of ₹ 11,50,000/- as income from other sources and not as income from house property as claimed by assessee - Decided in favour of revenue.

Summary

Issues Involved:
1. Assessment of rental income and maintenance charges.
2. Classification of income as "Income from House Property" or "Income from Other Sources."
3. Validity of ex-parte order by CIT(A).

Issue-wise Detailed Analysis:

1. Assessment of Rental Income and Maintenance Charges:
The primary issue revolves around the classification of Rs. 11,50,000 received by the assessee, which was claimed as rental income but assessed by the AO as income from other sources. The assessee derived salary income from three companies and rental income from business and other sources. The AO noted discrepancies in the assessee's declared rental income and contractual receipts, leading to a reassessment.

The assessee argued that the amount received was rental income, enhanced as maintenance and service charges, as per an amended lease agreement. The original lease deed dated 26-12-2006 and its addendum dated 1-4-2008 were examined. The addendum split the rent into lease charges and maintenance charges, which the assessee claimed were part of the rental income.

2. Classification of Income:
The AO, upon reviewing the TDS certificates, noted different deduction rates for rent (16.6%) and contract receipts (2%). This led to the conclusion that the receipts of Rs. 11,50,000 should be assessed as income from other sources, not as income from house property, disallowing deductions under section 24 of the Income Tax Act.

The assessee's counsel cited the ITAT decision in Suguna Kaur Vs. ACIT, arguing that the character of income should not change based on the agreement's nomenclature. However, the Tribunal differentiated the present case by highlighting the marked change in terms of the agreement, where the lessor assumed responsibility for maintenance, unlike the cited case.

3. Validity of Ex-parte Order by CIT(A):
The assessee contended that the CIT(A) passed an ex-parte order under section 250(6) of the Income Tax Act without extending a reasonable opportunity. However, the Tribunal did not find merit in this argument and upheld the CIT(A)'s decision.

Conclusion:
The Tribunal confirmed the AO's assessment, stating that the nature of receipts as maintenance and service charges was distinct from rental income due to the amended agreement's terms. The decision in the case of Suguna Kaur was found inapplicable due to factual differences. Consequently, the appeals filed by the assessees were dismissed, affirming the classification of Rs. 11,50,000 as income from other sources.

Order Pronouncement:
The order was pronounced in open court on 23/07/2015, dismissing both appeals filed by the assessees.