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2025 (3) TMI 796 - AT - Income TaxCorrect head of income - income from car parking facilities - income from other sources OR income from business - HELD THAT - As no new facts have been brought on record by the AO and the law has not changed therefore following the ratio laid down in the case of Radhasoami Satsang 1991 (11) TMI 2 - SUPREME COURT and National Leasing Limited Ors 2024 (10) TMI 1209 - BOMBAY HIGH COURT we direct the AO to treat the parking receipts as business income. Depreciation claimed u/s 32 on the building used for car parking - We are of the considered view that the assessee is entitled for depreciation even on part of the building mentioned hereinabove which was used as a parking facility to the adjoining hotel and in our understanding of the facts the parking facility is part and parcel of the business of hotel and such facilities are incidental to the carrying on of the main business of the assessee. Therefore the assessee is very much entitled for the depreciation on the same and the AO is directed to allow the depreciation. Denial of the claim of depreciation on plant and machinery used for maintaining the garden and club house - A conjoint reading of both the provisions show that the income should be chargeable under the head income from other sources for the claim of depreciation. Since no income has been shown by the assessee the assessee has not fulfilled the mandatory condition of Section 56(2)(ii) (iii) and Section 57(ii). Therefore the action of the AO cannot be faulted with. This Ground is accordingly dismissed. Disallowance of the claim of expenditure which are legal and professional fees repairs and maintenance of building repairs and maintenance of plant and machinery landscaping and corresponding expenses - AO has denied the expenses because according to the AO all the expenses have to be borne by the lessee i.e. Mars Enterprises and not the assessee - HELD THAT - We do not concur with this view of the AO since the assessee has been showing the income from royalty as business income and also parking receipts are directed to be taxed under the head profits and gains from business or profession. The expenses incurred by the assessee have to be allowed. Merely because Mars Enterprise has to incur the expenses cannot be a reason to deny the claim u/s 37(1) of the Act to the expenses incurred by the assessee. We accordingly direct the AO to allow the claim of expenses.
ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment include:
ISSUE-WISE DETAILED ANALYSIS 1. Income from Car Parking Facilities The relevant legal framework involves the principle of consistency in tax treatment, as established in precedents like Radhasoami Satsang v. Commissioner of Income-tax and the Bombay High Court's decision in National Leasing Limited. The Court emphasized that the Assessing Officer (AO) had previously treated the parking income as business income for several years, and without any new facts or changes in law, this treatment should continue. The Court directed the AO to treat parking receipts as business income, following the principle of consistency. 2. Depreciation on Building Used for Car Parking The legal framework for this issue is Section 32 of the Income Tax Act, which allows depreciation on buildings used for business purposes. The Court found that the parking facility, although part of an incomplete building, was incidental to the hotel business and thus eligible for depreciation. The AO's denial of depreciation was overturned, and the Court directed the AO to allow the claim. 3. Depreciation on Plant and Machinery for Garden and Club House The Court examined Sections 56 and 57 of the Income Tax Act, which govern income from other sources and related deductions. The assessee failed to show any income from the plant and machinery, a requirement under Section 56(2)(ii) & (iii) and Section 57(ii). Thus, the Court upheld the AO's decision to deny depreciation, as the mandatory conditions were unmet. 4. Disallowance of Expenses The legal question involved the applicability of Section 37(1) of the Income Tax Act, which allows deductions for business expenses. The AO disallowed expenses on the basis that they should be borne by the lessee, Mars Enterprises. However, the Court found that since the assessee's income from royalty and parking was treated as business income, the expenses were legitimate business expenses. The Court directed the AO to allow these expenses. SIGNIFICANT HOLDINGS The Court's significant holdings include:
The final determination was that the appeals were partly allowed, with directions to treat parking income as business income, allow depreciation on the parking facility, deny depreciation on plant and machinery for the garden and club house, and allow the disallowed expenses.
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