1996 (12) TMI 106 - AT - Income Tax

Assessment Year Ground Rent Income From House Property Let Out Property Tax Rental Income Trading Receipt

Summary

Issues Involved:
1. Addition of Rs. 1,10,923 on account of ground rent and Rs. 19,662 on account of property tax as trading receipts.
2. Assessment of rent from flat No. 1309 as business income instead of income from house property.

Detailed Analysis:

1. Addition of Rs. 1,10,923 on account of ground rent and Rs. 19,662 on account of property tax as trading receipts:

The assessee, a builder and promoter, acquired a plot from D.D.A. and constructed a multi-storeyed building named Pragati Tower. The terms of the lease required the assessee to pay ground rent to D.D.A. and property tax on the constructed property. The assessee collected these amounts from flat owners but did not treat them as income. The Assessing Officer considered these collections as trading receipts based on Supreme Court decisions in Chowringhee Sales Bureau P. Ltd. v. CIT and Sinclair Murray & Co. P. Ltd.

The assessee argued that these amounts were collected in a fiduciary capacity for payment to government agencies, not as trading receipts. The CIT(A) rejected this argument, stating that the amounts collected were liabilities of the assessee passed on to the buyers and thus were trading receipts.

Upon appeal, the Appellate Tribunal examined the agreements and found that the ground rent and property tax were indeed liabilities transferred to the flat owners along with the property. The Tribunal noted that the amounts were collected for payment to D.D.A. and the Municipal Corporation of Delhi, held in a fiduciary capacity, and not to be pocketed by the assessee. The Tribunal referenced Supreme Court decisions in Sitaldas Tirathdas, Tollygunge Club Ltd, and Bijli Cotton Mills (P.) Ltd., and the ITAT Pune Bench decision in Sharma Associates, supporting the view that such collections are not trading receipts.

The Tribunal concluded that the amounts collected for ground rent and property tax were not trading receipts and directed their deletion from the taxable income.

2. Assessment of rent from flat No. 1309 as business income instead of income from house property:

The assessee had an agreement to sell flat No. 1309 to a non-resident, Mr. H.S. Mangat, who could not obtain permission from the Reserve Bank of India to make the payment. Consequently, the assessee let out the flat and collected rent, which was shown as income under the head 'House property'. The Assessing Officer assessed this rent as business income, a decision upheld by the CIT(A).

The Tribunal found that the ownership of the flat remained with the assessee and the rental income was realized in the capacity of an owner, not as part of a systematic business activity. Therefore, the rental income should be assessed under the head 'House property'.

Conclusion:

The Tribunal allowed the assessee's appeal, directing the deletion of additions on account of ground rent and property tax collections and confirming that the rental income from flat No. 1309 should be assessed under the head 'House property'.