2014 (2) TMI 1337 - AT - Income Tax

Income from industrial sheds and godowns - taxable as income from house property OR busniss income - Held that - It is necessary to find out the primary object of assessee while exploiting the property. If it is found that the main intention is for letting out the property or any portion thereof the same must be considered as rental income or income from house property. In case, it is found that the main intention is to exploit the immovable property by way of complex commercial activities, in that event it must be held as business income . Referring to Rule of Consistency and bearing in mind the fact that it was a case of rental or commercial utilization of properties, which has been accepted, we are of the considered view that there is no reason to uphold this deviation. In view of the above discussions, we uphold the grievance of the assessee and direct the Assessing Officer to treat the income in question as income from business as has been in preceding and subsequent assessment year. This issue of assessee's appeal is allowed. Disallowance of municipal taxes - Held that - Now Ld. counsel for the assessee Shri S. K. Tulsiyan argued that the deduction qua interest should be allowed to the assessee and he stated that the addition of ₹ 64,389/- pertains to penalty and interest and the penalty is to the extent of ₹ 10,455/- but interest is to the extent of ₹ 53,934/-. Ld. counsel for the assessee made submission that this should be allowed. On query from the bench, the Ld. Sr. DR stated that this issue needs to be set aside as to the verification of facts by AO. On this, Ld. counsel for the assessee fairly conceded that the issue can be set aside.

Issues Involved:
1. Taxability of income from industrial sheds and godowns.
2. Applicability of Section 40(a)(ia) of the Income-tax Act, 1961.
3. Disallowance of municipal taxes.

Detailed Analysis:

1. Taxability of Income from Industrial Sheds and Godowns:

The primary issue is whether the income from industrial sheds and godowns should be classified as "income from house property" or "income from business." The assessee argued that the income should be treated as business income, citing the provision of various amenities and the commercial nature of the property. The CIT(A) reclassified the income as "income from house property," relying on the Supreme Court's decision in Shambhu Investment Pvt. Ltd. v. CIT, which held that composite rent received by the assessee is taxable under the head "income from house property" if the primary objective is letting out the property.

The Tribunal considered the principle of consistency as emphasized in Radhasoami Satsang v. CIT, where it was held that if a fundamental aspect permeating through different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be appropriate to change the position in a subsequent year. The Tribunal noted that the income had been consistently treated as business income in previous and subsequent years.

The Tribunal concluded that the property was exploited by way of complex commercial activities and upheld the assessee's contention that the income should be treated as business income. The Tribunal directed the Assessing Officer to treat the income from industrial sheds and godowns as business income, consistent with previous and subsequent assessments.

2. Applicability of Section 40(a)(ia) of the Income-tax Act, 1961:

The second issue pertains to the applicability of Section 40(a)(ia) of the Act, which deals with the disallowance of certain expenses if tax is not deducted at source. The assessee's counsel conceded that this ground was "not pressed," and the Tribunal dismissed the ground as not pressed without adjudicating on merits.

3. Disallowance of Municipal Taxes:

The third issue involves the disallowance of municipal taxes. The Assessing Officer disallowed Rs. 43,373 on the grounds that it pertained to an earlier period. The CIT(A) directed the AO to allow the claim to the extent of Rs. 56,523, noting that the payments were made for the relevant financial year, and the disallowance was incorrect.

The assessee further argued that the interest paid to the municipal authorities should be allowed as a deduction. The Tribunal set aside this issue to the AO for verification, directing the AO to determine whether the interest pertains to municipal authorities and decide accordingly.

Conclusion:

The Tribunal allowed the appeal partly for statistical purposes, directing the AO to treat the income from industrial sheds and godowns as business income and to verify the interest component of municipal taxes. The issue of Section 40(a)(ia) was dismissed as not pressed. The order was pronounced in the open court on 13th February 2014.

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