2002 (7) TMI 231 - AT - Income Tax

Summary

Issues Involved:
1. Classification of income from storage charges.
2. Allowance of interest payable to M/s Debidutt Poddar & Sons.
3. Deletion of addition of gross house property income.
4. Deduction of advertisement expenses in Rotary Club Souvenir.

Detailed Analysis:

1. Classification of Income from Storage Charges:
The primary issue was whether the income from storage charges should be classified under "income from house property," "income from other sources," or "income from business or profession." The assessee owned a commercial property and received storage charges from letting out the basement. The Assessing Officer (AO) assessed this income under "income from house property," estimating the annual rateable value at Rs. 1,20,000. The CIT(A) directed the AO to assess it under "income from other sources." However, the Tribunal concluded that the assessee's activity of allowing others to store goods in the premises was a systematic and regular business activity, similar to running a warehouse. Therefore, the income should be classified under "income from business or profession."

2. Allowance of Interest Payable to M/s Debidutt Poddar & Sons:
The second issue was whether the interest payable to M/s Debidutt Poddar & Sons should be allowed as a deduction. The AO allowed interest only on the original loan amount of Rs. 1,50,000, disallowing the portion that included interest on interest. The CIT(A) directed the AO to allow the full interest claimed by the assessee. The Tribunal held that since the income from storage charges is to be assessed as business income, the interest and other relevant expenses should be allowed as business deductions. The matter was remanded back to the AO for verification and allowance of these expenses in accordance with the law.

3. Deletion of Addition of Gross House Property Income:
For the assessment year 1993-94, the AO computed notional income from house property at Rs. 69,000, taking the annual rateable value at Rs. 1,20,000. The CIT(A) deleted this addition, accepting the assessee's explanation that the property was used as a Delhi Branch office due to bad law and order in Gauhati. The Tribunal upheld the CIT(A)'s decision, finding the explanation plausible and noting that the AO rejected it without relevant material evidence.

4. Deduction of Advertisement Expenses in Rotary Club Souvenir:
The AO disallowed Rs. 1,500 spent on advertisement in the Rotary Club Souvenir without providing any reason. The CIT(A) allowed this expense, considering it incurred for business purposes. The Tribunal found no material evidence from the Revenue to counter this finding and dismissed the appeal on this ground.

Conclusion:
- I.T.A. No. 239 (Gau.) of 1997 (Assessment Year 1992-93): The appeal by the Revenue was allowed. The matter was remanded back to the AO for fresh assessment under "income from business or profession" and verification of allowable expenses.
- I.T.A. No. 240 (Gau.) of 1997 (Assessment Year 1993-94): The appeal by the Revenue was dismissed. The CIT(A)'s deletion of notional house property income and allowance of interest and advertisement expenses were upheld.
- I.T.A. No. 241 (Gau.) of 1997 (Assessment Year 1994-95): The appeal by the Revenue was allowed. The matter was remanded back to the AO for fresh assessment in line with the decision in I.T.A. No. 239 (Gau.) of 1997.