2019 (7) TMI 800 - AT - Income Tax

Rental income - Amenity charges received by the assessee in terms of the Amenities agreement - income from house property or income from other sources - HELD THAT - We find that the Hon ble High Court of Calcutta in the case of CIT Vs. Sambhu Investments Pvt. ltd. 2001 (3) TMI 77 - CALCUTTA HIGH COURT had observed that where the prime object of the assessee was to let out the portion of the property to various occupants by giving them additional right of using the furniture fixtures and other common facilities for which rent was being paid, the income derived therefrom would be assessable under the head house property . Also confirmed by SC 2003 (1) TMI 99 - SC ORDER . Accordingly, on the basis of our aforesaid observations, we are of the considered view that the amount received by the assessee for providing the amenities/facilities to the licensee as per the Amenities agreement , dated 07.08.2012 was rightly shown by the assessee as its income under the head house property . At the same time, we may herein observe that the assessee had claimed to have received gross rent of ₹ 2,17,21,200/- on letting out of the aforesaid property. However, we find that the receipts from the letting out of the aforesaid property and provision of amenities as per the respective Agreements works out to an aggregate of ₹ 1,79,26,200/- viz. (i) rental receips ₹ 67,62,000/- (i.e @ ₹ 5,63,500/- per month); and (ii) compensation/amenity charges ₹ 1,11,64,200/- (i.e @ ₹ 9,30,350/- per month). We thus in terms of our aforesaid observations restore the matter to the file of the A.O, with a direction to assess the amenity charges received by the assessee in terms of the Amenities agreement , dated 07.08.2012 under the the head house property . Also, the A.O in the course of the set aside proceedings shall verify the reason for the discrepancy in the amount of the gross rental shown - Ground of Appeal No. 1 is allowed for statistical purposes Disallowance u/s 14A r.w.r. 8D - suo motto disallowance shown by the assessee - HELD THAT - In case the self owned funds of the assessee viz. profit, reserves, surplus and current account deposits are found higher than the investments made in the exempt income yielding assets, then no disallowance under Sec.14A r.w. Rule 8D(2)(ii) would be called for in the hands of the assessee. Our aforesaid observation is fortified by the judgement of CIT Vs. HDFC Bank Ltd. 2014 (8) TMI 119 - BOMBAY HIGH COURT Accordingly, in terms of our aforesaid observations, we direct the A.O to readjudicate the issue pertaining to disallowance under Sec.14A r.w. Rule 8D(2)(ii), keeping in view the judgment of the Hon ble High Court of Bombay in the case of HDFC Bank Ltd.(supra). A.O shall in the course of the set aside proceedings afford a reasonable opportunity of being heard to the assessee.- Ground of appeal No. 2 is allowed for statistical purposes.

Summary

Issues Involved:
1. Taxing amenity charges as "Income from Other Sources" versus "Income from House Property."
2. Disallowance under Section 14A read with Rule 8D.

Detailed Analysis:

1. Taxing Amenity Charges as Income from Other Sources versus Income from House Property:

The assessee contested the classification of ?1,29,58,200/- received as amenity charges as "Income from Other Sources" instead of "Income from House Property." The Assessing Officer (A.O) had restricted the rental receipts under "Income from House Property" to ?67,62,000/- and classified the balance amount of ?1,49,59,200/- as "Income from Other Sources." This re-characterization resulted in the disallowance of the assessee's claim for deduction under Section 24 to the extent of ?44,87,760/-.

The CIT(A) upheld the A.O's decision but agreed that the disallowance under Section 24 should be restricted to the amenity charges of ?1,29,58,200/-. The assessee argued that the amenities provided were inextricably linked to the usage of the property and should be taxed under "Income from House Property." The ITAT found merit in the assessee's argument, noting that the amenities facilitated effective usage of the property and were inseparable from the letting of the property. Citing precedents, the ITAT directed the A.O to assess the amenity charges under "Income from House Property" and verify the discrepancy in the gross rental amount shown by the assessee.

2. Disallowance under Section 14A read with Rule 8D:

The assessee challenged the A.O's disallowance of ?10,13,864/- under Section 14A read with Rule 8D, arguing that it had sufficient self-owned funds to make the investments and thus no disallowance under Rule 8D(2)(ii) was warranted. The ITAT agreed with the assessee, referencing the Bombay High Court's judgment in CIT vs. HDFC Bank Ltd., which stated that if self-owned funds exceed the investments, no disallowance under Rule 8D(2)(ii) is required. The ITAT directed the A.O to re-adjudicate the issue in light of this judgment and provide the assessee a reasonable opportunity to be heard.

Conclusion:

The appeal was allowed for statistical purposes, with directions for the A.O to reassess the classification of amenity charges and the disallowance under Section 14A, ensuring the assessee's right to a fair hearing. The general ground of appeal was dismissed as not pressed.