2020 (4) TMI 582 - AT - Income Tax

Correct head of income - rental income - assessment as income from house property or income from other sources - rental income received in terms of the leave and license agreements alongwith the maintenance charges received under the head income from house property - HELD THAT - Maintenance charges claimed by the assessee can only be treated as separate source of income and it can be charged as a separate head under income from other sources as claimed by the assessee and if there is any expenditure in connection with the above income, can only be allowed to be claimed by the assessee against the maintenance receipts. It is not relevant, how the assessee has declared previously over the years and what is relevant the lawful claim of the assessee and whether the claim of the assessee is legally tenable. The Hon ble Courts have held that the maintenance charges collections are different from the rental income considering the purpose and expressions contained in the agreements. Accordingly, grounds raised by the assessee are allowed in this regard. Therefore, we direct the AO to compute the income of the assessee under the head income from house property and income from other sources and complete the assessment after duly accepting the revised return of income and complete the assessment as per law. Disallowance u/s 14A - HELD THAT - We notice from the records that assessee has no dividend income, therefore when there is no exempt income, AO cannot invoke the disallowance u/s 14A of the Act. See Cheminvest Ltd. 2015 (9) TMI 238 - DELHI HIGH COURT and Pr.CIT vs Ballarpur Industries Limited 2016 (10) TMI 1039 - BOMBAY HIGH COURT - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of income from maintenance charges.
2. Allowance of expenses for business purposes.
3. Disallowance under section 14A of the Act.

Detailed Analysis:
1. The main issue in this case is the interpretation of income from maintenance charges. The assessee, engaged in property development, initially declared maintenance charges as part of rental income under the head "Income from House Property." However, in a revised return, the assessee separated maintenance charges as income from other sources. The Assessing Officer (AO) added back the maintenance charges to rental income. The Appellate Tribunal considered case laws and held that maintenance charges should be treated separately as income from other sources if supported by relevant expenditure. The Tribunal allowed the assessee's claim, directing the AO to compute income under both heads and complete the assessment accordingly.

2. Another issue raised was the allowance of expenses incurred for business purposes. The assessee sought to set off business losses against other income under Section 71 of the Act. The Tribunal considered the submissions and directed the AO to allow expenses incurred for business purposes, including maintenance charges, against the relevant income.

3. The final issue pertained to the disallowance under section 14A of the Act. The assessee had no exempt income during the year, and the AO invoked section 14A. The Tribunal referred to case law and held that since no exempt income was earned, disallowance under section 14A was not applicable. Citing relevant judgments, the Tribunal dismissed the disallowance and allowed the assessee's appeal on this ground.

In conclusion, the Appellate Tribunal allowed all appeals filed by the assessee, directing the AO to compute income under different heads, allow business expenses, and dismiss disallowance under section 14A due to the absence of exempt income. The judgment emphasized the importance of correctly categorizing income sources and allowing legitimate business expenses while adhering to relevant legal provisions.