2017 (1) TMI 1755 - AT - Income Tax

Correct head income - Classification of rental income received by the assessee from the commercial complex - Charging of rental income as Business income and allow the expenditure - HELD THAT - As relying on M/S KEYARAM HOTEL PVT. LTD. AND VICE-VERSA 2016 (6) TMI 427 - ITAT CHENNAI direct the Assessing Officer to assess 75% of the income of the assessee as income from house property and 25% as income from Business and allow the related expenditure and partly allowed the ground of the assessee. Disallowance u/s 14A of the Act r.w.r. 8D - HELD THAT - AO made disallowance u/s. 14A of the Act by fixed percentage 0.5%. Whereas, the Ld. CIT(A) considered these facts and Directed the Assessing Officer to re-calculate based on the provisions of section 14A r.w.r. 8D as they are mandatorily applicable. Therefore, we are not in inclined to interfere with the order of the CIT(A) and upheld the same and allow the ground of the assessee for statistical purpose

Summary

Issues: Appeal against order assessing income from letting of commercial space and maintenance charges under income from house property, and disallowance under section 14A of the Income Tax Act.

Analysis:
1. Income from Letting of Commercial Space: The assessee, engaged in hotel and commercial complex business, claimed income from letting as business income. However, the Assessing Officer (AO) treated it as income from house property based on rental agreements and activities. The assessee argued citing jurisdictional High Court cases, but the AO relied on a Madras High Court decision. The Tribunal, following a co-ordinate bench decision, directed 75% of rental income to be classified as income from house property and 25% as business income, allowing related expenditure.

2. Disallowance under Section 14A: The AO disallowed expenses under section 14A at a fixed percentage, which the CIT(A) found incorrect. The CIT(A) directed a recalculation based on section 14A read with Rule 8D. The Tribunal upheld the CIT(A)'s decision, stating the mandatory application of Rule 8D, and allowed the assessee's ground for statistical purposes.

In conclusion, the Tribunal partly allowed the appeal, directing the assessment of 75% of income as income from house property and 25% as business income for the letting of commercial space. Additionally, the Tribunal upheld the CIT(A)'s decision on the disallowance under section 14A, emphasizing the need for calculation based on Rule 8D. The appeal was partly allowed for statistical purposes.