2022 (8) TMI 624 - AT - Income Tax

Correct head of income - rental income earned by the assessee - assessable as income from house property or income from other sources claimed by the assessee - HELD THAT - It is not in dispute that in preceding years the assessee has been claiming that the rental income earned by it from let out building space along with inbuilt infrastructure and other amenities is taxable as income from other sources and not as income from house property. The Revenue has been rejecting the assessee s claim on the flimsy ground that claim has not been made in the returns but the claim is made during the course of assessment proceedings. With a view to satisfy the Revenue and to overcome the above disability, the assessee after having filed the original return for AY 2013-14 filed revised return claiming therein that the rental income is assessable under the head income from other sources . Adopting the reasons given in earlier years, analyzing the nature of lease agreement, holding that the assessee is not receiving composite rent as recommended by the Hon ble Supreme Court in Sultan Brothers Pvt. Ltd. 1963 (12) TMI 4 - SUPREME COURT and that the lease deed is between related parties, the Ld. AO made the impugned disallowance which is confirmed by the Hon ble DRP. Testing the facts of the assessee s case on the touchstone of the various quoted decisions Tribunal recorded its unequivocal finding that the lease deed under consideration was composite one and that it answered the description under section 56(2)(iii) of the Act. Another objection of the Revenue that it is related party transaction has also been rejected by the Tribunal by saying that no adverse view has been taken in determination of ALP with AE by the Ld. TPO nor provisions of Section 40A(2) have ever been invoked. Admittedly, as Ld. AO says in para 4.3 of his order, in AY 2013-14 2021 (6) TMI 538 - ITAT DELHI also the facts of the case are similar to that of the earlier years. On such admitted fact situation, the co-ordinate benches of the Tribunal have decided this issue in earlier years as also in subsequent years in favour of the assessee. Therefore, there is no reason for us to deviate from the same in the absence of any fresh adverse material in the records. Accordingly the modified ground No.1, 2.1 and 2.2 are decided in favour of the assessee with the direction to the Ld. AO to follow the decision of the Hon ble Delhi High Court in Jay Metals 2017 (7) TMI 618 - DELHI HIGH COURT in respect of the assessee s claim of expenses and depreciation under section 57 of the Act extracted by the Tribunal in para 22 of its order 2021 (1) TMI 537 - DELHI HIGH COURT for AY 2011-12 and 2012-13. We order accordingly.

Summary

Issues Involved
1. Validity of Transfer Pricing Adjustments.
2. Classification of Rental Income.
3. Denial of Tax Deducted at Source (TDS) Credit.
4. Consequential Adjustments.
5. Initiation of Penalty under Section 271(1)(c).

Detailed Analysis

1. Validity of Transfer Pricing Adjustments
The assessee contested the transfer pricing adjustments made by the Assessing Officer (AO) and Transfer Pricing Officer (TPO) on international transactions related to contract software development services and IT-enabled services. The grounds included errors in functional profile assessment, economic analysis, and the selection of comparable companies. However, the assessee later sought to withdraw these grounds as the issues were resolved under the Mutual Agreement Procedure (MAP) between the assessee's Associated Enterprise (AE) and the USA Competent Authority. The Tribunal allowed the withdrawal and dismissed these grounds as withdrawn.

2. Classification of Rental Income
The primary issue was whether the rental income from let-out building space with inbuilt infrastructure should be taxed under "Income from House Property" or "Income from Other Sources." The AO and Dispute Resolution Panel (DRP) classified it under "Income from House Property," rejecting the assessee's claim for "Income from Other Sources." The Tribunal noted that similar issues were previously decided in favor of the assessee for AY 2011-12 and 2012-13, where it was held that the lease agreement was composite and the rental income should be classified under "Income from Other Sources." The Tribunal followed its earlier decisions and directed the AO to treat the rental income as "Income from Other Sources" and allow the corresponding deductions under Section 57 of the Income Tax Act.

3. Denial of Tax Deducted at Source (TDS) Credit
The assessee claimed that the AO denied credit for TDS amounting to Rs. 3,11,749. The Tribunal directed the AO to verify the claim and allow the credit if found correct upon verification.

4. Consequential Adjustments
The assessee requested necessary adjustments in computing total income, tax, and interest based on the Tribunal's decision. The Tribunal directed the AO to make the necessary adjustments while giving effect to the appeal.

5. Initiation of Penalty under Section 271(1)(c)
The assessee contested the initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act. However, the Tribunal noted that this issue was not the subject matter of the current appeal and did not adjudicate on it.

Conclusion
The appeal was partly allowed for statistical purposes, with the Tribunal directing the AO to reclassify the rental income under "Income from Other Sources," verify and allow the TDS credit claim, and make necessary consequential adjustments. The initiation of penalty under Section 271(1)(c) was not addressed in this appeal.