2018 (4) TMI 1349 - AT - Income Tax

Taxation income from letting of flats - income from business income or income from house property - assessee agreed to be assessed under the head Income of house property with respect to the letting of the flats instead of its earlier claim as filed in return of income to have earned income from business - AO did not gave full effect to the assessee on having himself assessed such income under the head Income from house property from letting out of flats because the income came down below the returned income due to statutory deduction allowable to the assessee u/s. 24(a) - Held that - Assessee in the assessee s own case for 2010-11 and 2011-12 allowing the full effect to the decision of the AO to assess the said income from letting of the flats under the head Income from House Property‟. Assessing Officer is bound to compute the tax payable by the assessee on the income computed by him even if it is at a lesser figure than the income returned by the assessee. This ground is allowed.

Issues Involved:
1. 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".
2. Disallowance of depreciation on fully furnished flats.
3. Whether the license fees for composite letting should be taxed under "Income from Other Sources".
4. Non-adjudication of the claim of maintenance charges while computing the "Annual Value" of let-out flats.
5. Whether the returned income should be held as total income merely because it is greater than the income computed by the Assessing Officer.

Detailed Analysis:

1. License Fees Assessment:
The assessee contended that the license fees received from the composite letting of property, including furniture and fixtures, should be assessed under "Profits and Gains of Business or Profession" rather than "Income from House Property". The assessee argued that the property had been assessed under the business income head in previous years without any change in activity. However, the CIT(A) upheld the AO's decision to assess the income under "Income from House Property" following the Supreme Court's decision in Shambhu Investment P. Ltd v. CIT (2003) 263 ITR 143(SC). The assessee did not press this ground before the tribunal, leading to its dismissal.

2. Depreciation Disallowance:
The assessee claimed depreciation on fully furnished flats, arguing that once the flats are used for the business of composite letting, they form part of the block of assets, and depreciation is mandatory under Explanation 5 to Section 32 of the Act. However, the CIT(A) upheld the AO's disallowance of the depreciation claim. This ground was also not pressed by the assessee before the tribunal and was dismissed.

3. License Fees Taxation under "Income from Other Sources":
As an alternative to the first ground, the assessee argued that if the license fees are not taxed under "Profits and Gains of Business or Profession", they should be taxed under "Income from Other Sources" as per Section 56 of the Act. This ground was similarly not pressed and dismissed by the tribunal.

4. Maintenance Charges Deduction:
The assessee claimed that the CIT(A) erred in not adjudicating the ground related to the disallowance of maintenance charges while computing the annual value of let-out flats. The CIT(A) reasoned that the issue was of academic interest since the assessed income was below the returned income even without considering the deduction. The tribunal dismissed this ground as it was not pressed by the assessee.

5. Returned Income as Total Income:
The primary issue contested by the assessee was that the CIT(A) erred in confirming the AO's action of assessing the total income to be the returned income solely because it was greater than the income computed by the AO. The tribunal noted that the AO assessed the income from letting of flats as "Income from House Property" but did not give full effect to this decision, retaining the assessed income equivalent to the returned income due to statutory deductions under Section 24(a). The tribunal referred to its own previous decisions in the assessee's case for AY 2010-11 and 2011-12, where it held that the AO must compute the tax payable on the income computed by him, even if it results in a lower figure than the returned income. The tribunal allowed this ground, directing the AO to give full effect to the assessment under "Income from House Property".

Conclusion:
The tribunal dismissed grounds I to IV as not pressed and allowed ground V, directing the AO to compute the tax payable on the income assessed under "Income from House Property", even if it is lower than the returned income. The appeal was thus partly allowed.

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