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Issues Involved:
1. Classification of income from leasing out property as business income or income from house property. 2. Disallowance of depreciation. 3. Disallowance of expenses for maintaining lift and generator. 4. Disallowance of director's remuneration. Issue-wise Detailed Analysis: 1. Classification of Income from Leasing Out Property: The primary issue was whether the income received by the assessee from leasing out its building to Deva Nursing Home (P.) Ltd. should be classified as business income or income from house property. The assessee argued that the income should be treated as business income, citing the commercial use of the property and the intention to exploit the asset for gainful purposes due to the infeasibility of running a hotel. The Assessing Officer initially treated the income as income from other sources, while the CIT(A) classified it as income from house property, referencing the Supreme Court decision in Sultan Bros. (P.) Ltd. v. CIT [1964] 51 ITR 353. The Tribunal, after considering the facts and circumstances, held that the income was indeed business income, as the property was leased out as a commercial asset for running a nursing home, which was a substituted commercial use of the asset. The Tribunal emphasized that the company remained in business and temporarily leased out the property to avoid losses, thus the income should be treated as business income. 2. Disallowance of Depreciation: The Tribunal noted that the Assessing Officer had allowed unabsorbed depreciation to be carried forward for set-off against profits of subsequent years in the assessment year 1998-99. Given that the income was classified as business income, the Tribunal concluded that the appellant-assessee was entitled to deductions, including depreciation, while computing business income. 3. Disallowance of Expenses for Maintaining Lift and Generator: The Tribunal upheld the CIT(A)'s decision to disallow Rs. 5,000 out of the expenses claimed for maintaining the lift and generator, citing unverifiable expenses. The Tribunal found no infirmity in this part of the CIT(A)'s order and rejected the ground against the disallowance. 4. Disallowance of Director's Remuneration: The Tribunal addressed the disallowance of director's remuneration, noting that the business was being carried on by its Directors, who were responsible for the upkeep and maintenance of the assets. Given that the company continued to enjoy substantial income and the directors devoted sufficient time to the business, the Tribunal found the remuneration of Rs. 36,000 to be reasonable and directed it to be allowed as a deduction. Separate Judgments: The Tribunal's decision included a dissenting opinion by the Judicial Member, who believed that the income should be classified as income from house property, emphasizing that the building was let out as a simple property and not as a commercial asset. The Judicial Member referenced the decision in Shambhu Investment (P.) Ltd. v. CIT [2001] 249 ITR 47, which was upheld by the Supreme Court, and the criteria laid down in Sultan Bros. (P.) Ltd. v. CIT [1964] 51 ITR 353. The Judicial Member concluded that the intention was to lease out the building, and thus, the income should be assessed as income from house property. The matter was referred to a Third Member, who agreed with the Judicial Member's view, concluding that the income was derived from the ownership of the building and should be assessed under the head 'House property'. The Third Member emphasized that at the relevant time, the building was let out as a simple property and not as a commercial asset, and thus, the rental income was attributable to the ownership rights of the assessee. Conclusion: The appeal was treated as partly allowed, with the income from leasing out the property being classified as business income, allowing depreciation and director's remuneration, but upholding the disallowance of unverifiable expenses for maintaining the lift and generator. The dissenting opinion and the Third Member's agreement highlighted the complexity and differing interpretations of the classification of income from leasing out property.
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