2022 (6) TMI 1022 - AT - Income Tax

Income from house property - ALV of property - amounts received under the maintenance agreement - CIT(A) upheld the contention of the assessee that the service charges constitute a separate source of income, though the income from house property taxes into its fold the letting out the tenant which includes the services like providing fans, bulbs, air conditions and lift etc. - DR submits that all the amenities now the assessee enumerates under the maintenance agreement are the factors which have a bearing on the quantum of rent and, therefore, they are relevant for fixation of the fair rent but they do not constitute distinct services from the letting out activity - HELD THAT - There is an overlap in the services provided in the rental agreement and maintenance agreement and when a service is covered by rental agreement, even if an additional accommodation is provided by way of car parking, certainly it would be an activity covered by the income from house property only. There are certain services provided by the assessee which are common for tenants and non-tenants and have nothing to do with the letting out activity like cleaning and housekeeping etc., and such services could be secured by the occupants of the premises even by the third parties and, therefore, merely because they are provided by the land lord alone, it cannot be said that they are part of letting out activity. For the AY.2012-13, the Ld. CIT (A) directed the learned Assessing Officer to adopt the annual value of the premises as shown by the assessee and compute the income from house property accordingly by disallowing the repair and maintenance services of the premises. Having regard to this direction given in the earlier assessment year, we are of the considered opinion that for this year also the very same course could be followed. As a matter of fact, learned AR pleaded for the same during the course of arguments. Having considered the totality of circumstances, as analysed above, we are of the considered opinion that best course open in this matter is to direct the learned Assessing Officer to adopt the annual value of the premises as shown by the assessee and compute the income from house property accordingly, as was followed in this case by the Ld. CIT(A) for the AY.2012-13. We order so and accordingly allow the grounds of appeal for statistical purposes. Exemption claimed by the assessee u/s. 54EC - Conflicting decisions - HELD THAT - Though the learned DR submitted that inasmuch as there is no reasonable nexus between the object of the provision and the need to create any classification amongst the assessees deriving long term capital gains prior to and after the months of September in any particular year, the provision cannot be read to have been creating any unreasonable classification amongst the assessees deriving long term capital gains since such classification would result in undesired discrimination, the judicial opinion of the Hon'ble Madras High Court C. JAICHANDER 2014 (11) TMI 54 - MADRAS HIGH COURT is that there is ambiguity in the legislative language giving rise to the opinion that the deduction u/s. 54EC of the Act is not transaction base but assessment year base. Such situation is covered by the decision of the Hon'ble Apex Court in the case of CIT vs. Vegetable Products Ltd., 1973 (1) TMI 1 - SUPREME COURT wherein it was held that If court finds that language to be ambiguous or capable of more meanings than one, then the court has to adopt that interpretation which favours the assessee. We, therefore, while respectfully following the decision of the Hon'ble Apex Court supra are inclined to allow benefit of the ambiguity to the assessee. Findings of the Ld. CIT(A) on this aspect are reversed and the addition made on this count is directed to be deleted.

Summary

Issues:
1. Treatment of maintenance service charges as part of income from house property.
2. Eligibility of the assessee to claim exemption u/s. 54EC of the Income Tax Act.

Issue 1: Treatment of Maintenance Service Charges:

The case involved the treatment of maintenance service charges as part of income from house property. The assessee derived income from house property, other sources, and long-term capital gains for the AY.2013-14. The Assessing Officer treated the maintenance charges as part of the income from house property, leading to additions and assessment of total income. The CIT(A) held that maintenance service charges were part of the rent and not independent services, relying on precedents. The AR argued that the services provided were beyond the scope of the rental agreement and constituted business income. The DR contended that the amenities affected the rent amount but did not constitute separate services. The ITAT analyzed rental and maintenance agreements, concluding that services overlapped and certain services were not related to letting out activity. The ITAT directed the AO to compute income from house property based on annual value, following the approach taken in the AY.2012-13.

Issue 2: Eligibility for Exemption u/s. 54EC:

Regarding the exemption claimed under section 54EC of the Act, the CIT(A) limited the exemption to Rs.50 Lakhs invested during the AY.2013-14, not considering the second investment made in the following AY. The AR argued that the investment made after the transfer of shares was valid, citing ambiguity in the legislative language. The DR contended that the section did not create classifications among assessees and emphasized the purpose of the provision. The ITAT noted conflicting decisions among High Courts on the issue and referred to the latest Rajasthan High Court judgment. Considering the ambiguity in the legislative language, the ITAT favored the interpretation that benefits the assessee, following the principle laid down by the Supreme Court. Consequently, the ITAT reversed the CIT(A)'s decision and directed the deletion of the addition made on this ground.

In conclusion, the ITAT partially allowed the appeal for statistical purposes, directing the AO to compute income from house property based on annual value and allowing the benefit of ambiguity to the assessee for claiming exemption under section 54EC of the Income Tax Act.