2022 (9) TMI 237 - AT - Income Tax

Deemed income from house property - farm house - whether land was used for the agriculture/horticulture business and hence, it shall be treated as an exempted income u/s 10(1)? - HELD THAT - For year under appeal is concerned against NIL income from horticulture is incurred, which includes electricity expenses, Municipal Tax, Horticultural expenses, Repairs and depreciation on plant machinery. The details of the expenses incurred at the said farm house and the horticulture income, which is NIL for the year under appeal, it prima facie suggests that the primary activity of the said farm house is not of the nature of agricultural activity, rather it seems to be a place used as farm house and the expenses incurred are for the maintenance of the said farm house. It is not the case that the assessee has carried out agricultural activity and for earning income from agriculture some expenses have been incurred rather situation is inverse. The expenses incurred are much higher and does not match with the agricultural activity. All the grounds raised by the assessee are dismissed.

Issues:
1. Addition of deemed income under the head House Property for agricultural land usage.
2. Consistency in treatment of income and expenses for agricultural activities.
3. Interpretation of provisions of Section 10(1) and Section 2(1A) of the Income Tax Act, 1961.
4. Consideration of actual building usage over nomenclature for assessment purposes.

Issue 1: Addition of Deemed Income under House Property:
The appeal challenged the addition of Rs 4,62,792 as deemed income under House Property. The appellant argued that the land was used for agriculture/horticulture, qualifying as exempt income under Section 10(1) of the Income Tax Act, 1961. The appellant emphasized past consistent treatment of income and expenses from horticulture activities, which were accepted by the department. However, the tribunal observed that the primary activity seemed to be maintaining a farm house rather than agricultural activity, as expenses exceeded income. The tribunal upheld the CIT(A)'s decision to treat the property as a farmhouse for taxation purposes.

Issue 2: Consistency in Treatment of Income and Expenses:
The appellant contended that past treatment of horticulture income and expenses should apply for the current assessment year. The tribunal noted the appellant's claim of regular agricultural income but highlighted the significant expenses incurred, suggesting the property was primarily a farm house. The tribunal found no merit in the appellant's argument due to the disproportionate expenses compared to agricultural income, supporting the CIT(A)'s decision.

Issue 3: Interpretation of Provisions of Section 10(1) and Section 2(1A):
The appellant argued that the Assessing Officer disregarded Section 10(1) and Section 2(1A) of the Income Tax Act, 1961, which define agricultural income. However, the tribunal found that the property was classified as a farmhouse by the Municipal Corporation, indicating it fell under the house property category for taxation. The tribunal upheld the AO's decision based on the property's classification and the admitted deemed income by the appellant's representative.

Issue 4: Consideration of Actual Building Usage:
The appellant raised concerns regarding the actual usage of the building, emphasizing the agricultural nature of the land. The tribunal acknowledged the appellant's claim of agricultural activities but noted the high expenses relative to income, indicating a focus on maintaining the farm house. The tribunal supported the AO's decision to tax the deemed income from the property under the house property category, dismissing all grounds raised by the appellant.

In conclusion, the tribunal upheld the CIT(A)'s decision to treat the property as a farmhouse for taxation purposes, dismissing the appellant's appeal and affirming the addition of deemed income under the head House Property. The tribunal found no basis to interfere with the lower authorities' findings, resulting in the dismissal of the appeal.

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