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2020 (7) TMI 537 - AT - Income TaxIncome of lease rental earned from property along with facilities - rental income from letting of workstation i.e. machinery, plant or furniture - Income from house property or income from other source - Whether leasing of plant, machinery furniture was incidental to the letting of the building ? - HELD THAT - Use of the building is incidental to the main object of leasing of workstation by the assessee. As noted from the brief facts of the case that the assessee has given ground and first floor of the building on the rent to another party separately and income from which has been offered by the assessee under the head income from the house property and which has not been disturbed by the Assessing Officer. Thus, in the instant lease under reference, the prime objective is exploitation of asset in the form of workstations installed by the assessee and not the building or any part thereof. The use of easement and common areas by the second party is incidental to the lease of exploitation of workstation. The workstation in the form of plant and machinery are inseparable from the building and for exploitation or use of the workstation, the use of the building is incidental. We find that Ld. CIT(A) has also relied on the decision of Garg Dyeing and Processing Industries 2012 (12) TMI 191 - DELHI HIGH COURT wherein as held that where the letting was inseparable, section 56(2)(iii) was rightly invoked. In the case of Shambhu Investment 2003 (1) TMI 99 - SC ORDER the issue of taxability of the rental income under the head income from house property vis- -vis income under the head profit and gains of business and profession , whereas in the present case dispute between the parties regarding the lease rental income should be taxed under the head income from house property or under the head income from other sources . - Decided against assessee.
Issues Involved:
1. Disallowance of ?6,75,000 claimed under section 24(a) of the Income-tax Act. 2. Classification of rental income under the appropriate head: "income from house property" vs. "income from other sources." Issue-Wise Detailed Analysis: 1. Disallowance of ?6,75,000 Claimed Under Section 24(a) of the Income-tax Act: The assessee's appeal is against the order confirming the disallowance of ?6,75,000 made by the Assessing Officer (AO). The AO had disallowed the standard deduction claimed by the assessee under section 24(a) of the Income-tax Act, 1961, which allows a deduction of 30% of the annual value of the property. The AO classified the rental income as "income from other sources" rather than "income from house property," thereby disallowing the standard deduction. 2. Classification of Rental Income: The core issue is whether the rental income should be classified under "income from house property" or "income from other sources." The AO found that the rental income from M/s Professional Management Consultant Ltd. involved leasing of workstations, which included machinery, plant, or furniture inseparable from the building. Citing the Supreme Court decision in Sultan Brothers (P) Ltd. vs. CIT, the AO concluded that the letting of workstations was inseparable from the letting of the building, thus classifying the income under "income from other sources." The CIT(A) upheld this view, relying on the jurisdictional High Court's decision in Garg Dyeing and Processing Industries vs. ACIT. Arguments by the Assessee: The assessee argued that the primary object of the lease agreement was to rent out the building, with the workstations being incidental. The assessee relied on the Supreme Court decision in M/s Shambhu Investment Pvt. Ltd. vs. CIT, which emphasized the primary intention behind letting the property. The assessee contended that the rental income should be classified under "income from house property," allowing the deduction under section 24(a). Arguments by the Department: The Department argued that the primary intention was to lease the workstations, as evidenced by the lease agreement. The CIT(A) supported this view, noting that the lease agreement specified the demised premises as workstations and not the building itself. Tribunal's Findings: The Tribunal analyzed the lease agreement and found that the demised premises were defined as workstations within the building, with the rent fixed per workstation. The Tribunal noted that the use of the building was incidental to the leasing of workstations, aligning with the Supreme Court's interpretation of "inseparable letting" in Sultan Brothers P. Ltd. The Tribunal further observed that the assessee had separately leased other parts of the building, declaring that income under "income from house property," which was not contested by the AO. This indicated that the primary objective of the disputed lease was the exploitation of workstations, not the building itself. Conclusion: The Tribunal upheld the CIT(A)'s decision, confirming that the rental income should be classified under "income from other sources" due to the inseparable nature of the letting. Consequently, the standard deduction under section 24(a) was not allowable. The sole ground of appeal by the assessee was dismissed. Result: The appeal of the assessee was dismissed, and the order was pronounced in the open court on 21st July 2020.
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