1990 (10) TMI 133 - AT - Income Tax

Summary

Issues:
1. Disallowance of depreciation on a building used for letting out as a guest house.
2. Disallowance of depreciation for the assessment year 1983-84.
3. Estimation of income from property under the head 'income from house property'.
4. Applicability of Section 22 of the Income-tax Act for estimating notional income from a property.

Analysis:
1. The assessee, a private limited company, claimed depreciation on a building used for letting out as a guest house. The ITO disallowed the claim without providing reasons. On appeal, the CIT(Appeals) found that the building was not used for any business purposes during the year and disallowed the depreciation claim. The Tribunal upheld the decision, stating that depreciation is only allowable on buildings used for business or profession purposes under Section 32 of the Income-tax Act. Since the building was not used for business purposes, the depreciation claim was rightfully disallowed.

2. For the assessment year 1983-84, the Department disallowed the depreciation claim on another property. The ITO treated the property as one whose income falls under 'income from house property' and estimated its notional value. The Tribunal disagreed with the Revenue's view, noting that the property had been used as a guest house in previous years, generating business income. As such, the Tribunal held that notional income should not be estimated under Section 22 of the Income-tax Act, as the property was meant for commercial exploitation. The disallowance of depreciation was confirmed.

3. The Tribunal referenced the case of Liquidator of Mahamudabad Properties (P.) Ltd. v. CIT [1980] 124 ITR 31 (SC), where the Supreme Court ruled that Section 22 of the Income-tax Act applies to buildings meant to be let out, not those used for commercial exploitation. In this case, the Tribunal found that the property in question was intended for commercial use, despite a temporary lull in commercial activity. Therefore, the Department was unjustified in estimating notional income under Section 22. The appeals were partly allowed based on this reasoning.