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2017 (7) TMI 1371 - AT - Income TaxCorrect head of income - License Fees receipt - Profits and Gains of Business or Profession or Income from House Property - HELD THAT - When it remains as a matter of fact that the income from the composite letting of the furnished flats by the assessee had after thorough vetting and scrutinizing consistently accepted and assessed as business income by the department in the earlier years while framing regular assessments therefore in the absence of any new facts emerging during the year under consideration which could irrefutably dislodge the aforesaid view and therein justify a view to the contrary such an inconsistent approach on the part of the A.O would not be permissible. Reliance placed by the department on the judgment of H.A. Shah and Co. v. CIT 1955 (9) TMI 53 - BOMBAY HIGH COURT is distinguishable on facts whrein upheld the view arrived at by the A.O for the reason that during the year under consideration certain documents justifying taking of such contrary view were made available on record - unlike the facts involved in the case before the Hon ble High Court now when in the case of the present assessee no such material had therein emerged which could go to justify taking of an inconsistent view by the A.O therefore the income received by the assessee from composite letting of furnished flats on the basis of same facts as were there before him in the preceding years cannot be permitted to be assessed during the year under the head Income from house property . Except for raising of oral averments no material had been brought to our notice by the ld. D.R which could persuade us to subscribe to the claim of the department that certain new facts had emerged during the year under consideration which clearly militated against the validity and legality of assessing of the composite rental receipts under the head business income in the preceding years and would thus justify a departure from the consistent approach that had been adopted by the department at stretch for years. We thus in the backdrop of our aforesaid observations thus set aside the order of the CIT(A) and therein hold that the composite rental receipts were liable to be assessed as claimed by the assessee in her return of income as her business income . The Ground of appeal No. I is allowed. Depreciation Disallowance on fully furnished flats - Whether once the flats are used for the purposes of the business of composite letting they form part of the block of assets and in view of Explanation 5 to section 32 allowance of depreciation is mandatory and hence cannot be disallowed? - HELD THAT - Composite rental receipts are liable to be assessed as the business income of the assessee therefore the assailing of the disallowance of depreciation by the assessee is rendered as consequential. We thus direct the A.O to allow the claim of the assessee towards claim of depreciation. The Ground of appeal No. II being consequential to our adjudication of the head of income under which the composite letting receipts were liable to be assessed is thus allowed.
Issues Involved:
1. Classification of License Fees: Whether to be assessed under "Profits and Gains of Business or Profession" or "Income from House Property". 2. Depreciation Disallowance: Whether the claim of depreciation on fully furnished flats should be allowed. 3. Alternative Classification of Income: If not under "Profits and Gains of Business or Profession", whether the income should be taxed under "Income from Other Sources". 4. Deductions in Computing Annual Letting Value: Whether deductions in computing Annual Letting Value and income under "Income from House Property" should be allowed. Detailed Analysis: Issue 1: Classification of License Fees The primary issue was whether the license fees received from the composite letting of property should be assessed under "Profits and Gains of Business or Profession" or "Income from House Property". The assessee contended that the income had been consistently assessed as "business income" in previous years and there was no change in facts to warrant a different treatment. The Assessing Officer (A.O.) and the Commissioner of Income Tax (Appeals) [CIT(A)] determined that the income should be classified as "Income from House Property" based on the following: - No evidence was found during search and seizure to substantiate the provision of various services claimed by the assessee. - The leave and license agreements did not mention the claimed services. - The assessee's wealth tax returns showed the flats as capital assets, not stock-in-trade. However, the Tribunal found that the income from composite letting had been consistently assessed as "business income" in previous years and no new facts emerged to justify a departure from this view. The Tribunal emphasized the rule of consistency, citing the Supreme Court’s judgment in Radhsoami Satsang v. CIT and the Delhi High Court’s judgment in CIT v. Neo Poly Pack (P) Ltd. The Tribunal concluded that the composite rental receipts should be assessed as "business income". Issue 2: Depreciation Disallowance The assessee argued that once the flats are used for business purposes, they form part of the block of assets, and depreciation should be allowed as per Explanation 5 to Section 32 of the Income Tax Act. The A.O. and CIT(A) disallowed the depreciation claim, treating the income as "Income from House Property". The Tribunal, having decided that the income should be assessed as "business income", directed the A.O. to allow the depreciation claim. Issue 3: Alternative Classification of Income The assessee argued that if the income could not be assessed under "Profits and Gains of Business or Profession", it should be taxed under "Income from Other Sources" as per Section 56(2)(iii) of the Act. The A.O. and CIT(A) rejected this claim, stating that the predominant object was to earn income from letting out buildings, not from plant, machinery, or furniture. The Tribunal did not need to address this issue separately, as it had already classified the income as "business income". Issue 4: Deductions in Computing Annual Letting Value The assessee contended that if the income was treated as "Income from House Property", eligible deductions in computing Annual Letting Value should be allowed. The A.O. and CIT(A) did not allow these deductions. The Tribunal’s decision to classify the income as "business income" rendered this issue infructuous. Conclusion: The Tribunal allowed the appeals for all three assessment years (2009-10, 2010-11, and 2011-12), holding that the composite rental receipts should be assessed as "business income" and directed the A.O. to allow the depreciation claim. The other grounds of appeal were dismissed as infructuous or not pressed.
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