2018 (5) TMI 1817 - AT - Income Tax

Sale of paintings claimed to be gifted by late father renowned painter late Shri MF Husain - correct head of income - business income or capital receipt - definition of capital asset under section 2(14) - sufficient opportunities to produce the details - Held that - We find that now assessee s Counsel before us has clearly undertook to file the necessary details to prove that receipts from sale of paintings are on account of sale to the respective buyers. He undertook to file the confirmation from these buyers and the relevant evidences to prove that the sale proceeds are deposited in the bank account will be produced before the Assessing Officer. In such undertaking, we are of the view that the primary responsibility/onus is on assessee to file these details and in term of this undertaking we set aside this issue to the file of the Assessing Officer. Income from house property - Fair rental value u/s 23(1)(a) - deemed let out premises under section 23(1)(a) AO adopted Annual Letable value at ₹ 9,000 PM in respect of each of the two worli flats - Held that - Hon ble Bombay High Court in the case of CIT vs. Tip Top Typography 2014 (8) TMI 356 - BOMBAY HIGH COURT wherein it is held that for computing letable value, Municipal rateable value can be adopted by the AO. In view of the above, we direct the AO to compute the deemed rent as per Municipal rateable value and assess the income accordingly. This issue of assessee s appeal is set aside to the file of the AO.

Summary

Issues Involved:

1. Taxability of sale proceeds from paintings as business income or capital receipts.
2. Addition of unexplained income from sale proceeds of paintings.
3. Adoption of Annual Lettable Value (ALV) for deemed let-out properties.

Issue-wise Detailed Analysis:

1. Taxability of Sale Proceeds from Paintings:

The first issue concerns whether the sale proceeds of ?50 lakhs from paintings, claimed to be gifted by the assessee's father, should be treated as business income or non-taxable capital receipts. The assessee argued that the paintings were personal effects gifted by his father, thus not subject to tax. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] disagreed, treating the proceeds as business income due to the lack of documentary evidence proving the gift. The Tribunal found that the paintings were personal effects and thus not taxable, emphasizing that the definition of 'capital asset' under section 2(14) of the Income Tax Act excluded paintings from personal effects only from 01.04.2008. Hence, the addition of ?50 lakhs was deleted.

2. Addition of Unexplained Income:

The second issue pertains to the addition of ?50,59,465 as unexplained income from the sale of paintings. The AO and CIT(A) added this amount as the assessee failed to provide confirmations from buyers or details of the receipts. The Tribunal noted the assessee's inability to recall or obtain details due to residing abroad and the passage of time. The Tribunal set aside this issue to the AO, allowing the assessee another opportunity to provide necessary details and confirmations to prove the source and nature of the receipts.

3. Adoption of Annual Lettable Value (ALV):

The third issue involves the adoption of ALV for two deemed let-out flats in Worli, Mumbai. The AO estimated the ALV based on a local enquiry at ?9 lakhs per annum for each flat. The CIT(A) confirmed this estimation but directed the AO to compute the ALV for only seven months and twelve days for one flat due to possession timing. The Tribunal directed the AO to adopt the Municipal rateable value for computing the deemed rent, referencing the Bombay High Court's decision in CIT vs. Tip Top Typography, which held that the Municipal rateable value is a safe guide for determining fair rental value unless there is cogent material to discard it.

Conclusion:

The Tribunal partly allowed the appeal, deleting the addition of ?50 lakhs related to the sale of paintings as personal effects, setting aside the issue of unexplained income for further verification, and directing the AO to compute the deemed rent based on the Municipal rateable value for the properties in question.