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Issues involved: Assessment of service charges as income from other sources, disallowance of depreciation on fans, interpretation of Income-tax Act provisions.
Assessment of service charges: The assessee, a private limited company, derived income from property, shares, business, and dividend. The dispute arose regarding the treatment of service charges received from tenants for amenities like electricity, lifts, water supply, maintenance, and watch and ward facilities. The Income-tax Officer initially categorized the service charges as income from property, disallowing the assessee's claim that they should be treated as business income. The Appellate Assistant Commissioner upheld this decision. However, the Tribunal ruled that the service charges should be assessed as income from other sources, allowing deductions under section 57 of the Income-tax Act, 1961. The Tribunal also noted that the service charges for electric fittings and other services rendered should be considered for depreciation under section 57. Interpretation of Income-tax Act provisions: The Tribunal's decision was based on distinguishing between income from property and income from other sources. It was observed that the services provided by the assessee were not part of an organized business operation aimed at profit-making but rather for tenant amenities. The Tribunal analyzed lease agreements and rent receipts to show that service charges were distinct from rent and should be assessed separately. Referring to legal precedents, including the case of Karnani Properties Ltd., the Tribunal concluded that the service charges constituted a separate item of receipt and should be assessed as income from other sources. Disallowance of depreciation on fans: The dispute also involved the disallowance of depreciation claimed by the assessee on fans installed in the property. While the Income-tax Officer disallowed this claim, the Tribunal held that the assessee could claim deductions under section 57 for expenses related to service charges. However, the Tribunal did not specifically address the claim for depreciation on fans, stating that the quantum of deduction should be determined by the Income-tax Officer. As a result, the High Court declined to answer the question related to the allowance of depreciation on fans due to insufficient factual findings by the Tribunal. In conclusion, the High Court upheld the Tribunal's decision to assess service charges as income from other sources, emphasizing the distinction between income from property and service charges for amenities. The Court also highlighted the need for clear factual findings to determine the eligibility for deductions such as depreciation on specific assets like fans under the Income-tax Act.
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