2017 (3) TMI 660 - AT - Income Tax

Rental income from the property - income from other sources OR income from house property - CIT(Appeals) has accepted the fact that property must have been constructed in the year 2007-08 thus in a way he confirmed that the property consisting of building came into existence and the assessee fulfill both the conditions for assessing the rental income from the property under the head income from house property - Held that - The reasoning for assessing the income under the head income from other sources given by the learned Commissioner of Income Tax (Appeals) is not justified because if the cost of construction is not shown in books of account the Assessing Officer is free to take necessary action for evasion of tax if any in that regard. However construction expenses not recorded in books of account cannot be a ground for assessing the rental income under the head income from other sources when the conditions of Section 22 of the Act for assessing the annual value of the property have been fulfilled by the assessee. By not recording construction expenses in books of account the rights of ownership of the assessee over the property cannot be taken away and it remains the owner of the property. In view of the above discussion we therefore direct the Assessing Officer to assess the rental income from the property under the head income from house property - Decided in favour of assessee

Summary

Issues involved:
1. Assessment of rental income under the head "income from house property" or "income from other sources."

Analysis:
1. The appellant received rent during the relevant year and declared it under "income from house property." However, the Assessing Officer taxed the rent under "income from other sources" due to lack of proof of property ownership.
2. The Commissioner of Income Tax (Appeals) upheld the assessment under "income from other sources" based on the absence of construction expenses in the books of account.
3. The appellant argued that since the property was constructed in the year 2007-08, it should be assessed under "income from house property."
4. The Tribunal noted that for rental income to be assessed under "income from house property," two conditions must be met: the existence of a property and ownership by the assessee.
5. The appellant provided evidence such as house tax receipts, electricity bills, sale deed, and lease deed to establish ownership and property existence.
6. Despite the lack of evidence for construction costs, the Commissioner accepted that the property was built in 2007-08, fulfilling the conditions for assessment under "income from house property."
7. The Tribunal held that not recording construction expenses in the books does not justify assessing rental income under "income from other sources" when ownership conditions are met.
8. Consequently, the Tribunal directed the Assessing Officer to assess the rental income under "income from house property" and allow deductions as per the law.
9. The appeal of the assessee was allowed, and the decision was pronounced on February 17, 2017.