2017 (8) TMI 1290 - AT - Income Tax

Compensation received for providing amenities to the tenant - Income to be taxed under which head Whether Income from house property or Income from business - providing furniture and other facilities including car parking, benefit of sanitary fittings, water supply, additional electricity supply for which separate agreement has been entered into - Held that - Compensation received for providing amenities is also to be assessable under the head Income from house property , more particularly, when the building is let out to the tenant to whom amenities are also provided by way of separate agreement which is inseparable from the leave and licence agreement entered into with the tenant for letting out premises. Also TDS is deducted under The head TDS on rent as per 194I. Similar decision is taken by CIT(A) in assessee s own case for AY 2008-09 and taxed the whole Income under the Head House Property. The CIT(A), after considering relevant facts, has rightly upheld the action of the AO. We do not find any error in the order of the CIT(A); hence we reject the ground raised by the assessee. Disallowance of total expenditure claimed by the assessee against business receipts as the same are treated as compensation receipts and are taxed under the Head Income from House Property - standard deduction provided u/s 24 - Held that - On perusal of the details filed by the assessee, we find that the assessee has incurred an amount of ₹ 44,44,226 towards electricity expenses and claims that the same has been reimbursed by the service receiver which is included in the compensation provided for amenities. Therefore, we are of the view that any amount paid towards reimbursement of electricity charges needs to be excluded for the purpose of compensation received from providing amenities for the purpose of computation of Income from house property . Accordingly, we set aside the issue to the file of the AO and direct the AO to examine the claim of the assessee in regards to the details furnished. In case it is found that electricity charges incurred and reimbursed is included in compensation payments, then the AO is directed to exclude such charges for the purpose of computation of gross receipts under the head Income from house property . We further direct the AO to consider reimbursement of electricity charges and allow expenditure incurred by the assessee for providing such services separately under the head Income from other sources . Accordingly, the ground raised by the assessee is partly allowed, for statistical purposes.

Summary

Issues Involved:
1. Classification of income from amenities as "Income from house property" or "Income from business".
2. Deductibility of expenses claimed against compensation receipts.

Issue-wise Detailed Analysis:

1. Classification of Income from Amenities:

The primary issue revolves around whether the compensation received by the assessee for providing amenities should be classified under "Income from house property" or "Income from business". The assessee argued that the compensation for amenities, such as security services, additional electricity supply, and parking services, should be treated as business income. The AO, however, contended that these amenities were inseparable from the rental agreement and should be taxed as part of the rental income under "Income from house property". The AO's stance was supported by the fact that the tenant deducted tax at source under section 194-I, treating the entire amount as rent.

The CIT(A) upheld the AO's decision, referencing a similar ruling in the assessee's case for AY 2008-09, where amenity charges were considered part of rental income. The Tribunal agreed with the lower authorities, emphasizing that the agreements for amenities and rental were inseparable and that the compensation for amenities was inherently part of the rental income. The Tribunal also noted that the assessee failed to provide evidence differentiating the current facts from those in the previous assessment year. The Tribunal dismissed the assessee's reliance on the Supreme Court's decision in Rayala Corporation Ltd, citing differing facts.

2. Deductibility of Expenses Claimed Against Compensation Receipts:

The second issue concerns the deductibility of expenses claimed by the assessee against compensation receipts. The AO disallowed these expenses, arguing that since the compensation was classified under "Income from house property", only standard deduction under section 24 was permissible. The assessee contended that significant expenses, especially for electricity, were incurred and reimbursed by the tenant, thus should be excluded from the gross receipts for computing "Income from house property".

The Tribunal found merit in the assessee's argument regarding the exclusion of electricity charges from gross receipts. It directed the AO to verify the details and exclude any reimbursed electricity charges from the compensation received for amenities. The Tribunal also instructed the AO to consider these reimbursements and allow the corresponding expenses under "Income from other sources".

Conclusion:

The Tribunal upheld the classification of compensation for amenities as "Income from house property", consistent with previous rulings in the assessee's case. However, it allowed for the exclusion of reimbursed electricity charges from the gross receipts and directed the AO to allow expenses related to these reimbursements under "Income from other sources". The appeal was thus partly allowed for statistical purposes.

Order Pronouncement:

The order was pronounced in the open court on 30th June, 2017.