2016 (2) TMI 34 - AT - Income Tax

Assessment of income from house property - actual rent received by the assessee - Held that - The annual value of the property is required to be determined u/s 23(c) of the Act, since the property was let out in the preceding year as well as for a part of the year. It is seen that the actual rent received by the assessee for the year under consideration is less than the municipal rateable value as shown by the Ld A.R. In the case laws relied upon by the assessee, it has been held that the municipal rateable value should be adopted as the fair rental value u/s 23(a) of the Act. Accordingly, we agree with the submissions made by Ld A.R that the actual rent received by the assessee should be taken as annual value u/s 23(c) of the Act. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO to adopt the actual rent received by the assessee as annual value for the year under consideration. - Decided in favour of assessee Clubbing of income - Rent received by the assessee whereas service charges received by wife and daughter of the assessee in relation to same property - Held that - Considering the assessee s submissions that the two ladies cited have only received the payments, from which TDS was deducted by M/s Talwalkar. Further, it is not the case of the AO that the wife of the assessee and daughter-in-law did not provide any service to M/s Talwalkar Better Value Fitness Pvt. Ltd. The ld. AR also submitted that two ladies have declared the income received from M/s Talwalkar Better Value Fitness Pvt. Ltd in their respective hands and TDS deducted by M/s Talwalkar Better Value Fitness Pvt. Ltd from the same was also claimed by them we are of the view that the purpose of payment has clearly been demarked and there is no material on record to suspect the same. Accordingly, we are of the view that there is no reason to assess the income received by the assessee s wife and daughter-in-law in the hands of assessee. Since the assessee has not received any income and paid any payment to assessee s wife and daughter-in-law, the question of deduction of TDS and application of the provisions of section 40(a)(ia) of the Act also does not arise. In view of the above, we set aside the order of ld. CIT(A) on this issue and direct the AO to delete the addition - Decided in favour of assessee

Summary

Issues Involved:
1. Assessment of income from house property
2. Assessment of income belonging to assessee's spouse and daughter

Assessment of income from house property:
The appeal challenged the order regarding the assessment of income from a property in Mumbai for the year 2008-09. The property was declared vacant for most of the year, resulting in a significant difference in rental income compared to the previous year. The Assessing Officer (AO) determined the annual value of the property based on certain calculations, which was confirmed by the Ld CIT(A). However, the appellant argued that the municipal rateable value should be considered for determining the annual value. The tribunal noted that as per the Act, the annual value should be the actual rent received or receivable, even if it is lower than the value determined under the Act. Relying on previous court decisions, the tribunal agreed with the appellant's argument and directed the AO to adopt the actual rent received as the annual value for the property.

Assessment of income belonging to assessee's spouse and daughter:
The second issue involved the assessment of income received by the assessee's wife and daughter-in-law from a company to which the assessee had rented out a premises. The AO considered this income as belonging to the assessee, alleging diversion of income and failure to deduct tax at source. The appellant contended that separate agreements were made for renting the premises and providing services, with the wife and daughter-in-law directly receiving payments from the company. The tribunal observed that there was no evidence to support the AO's presumption of income diversion. The wife and daughter-in-law had declared the income in their tax returns, and TDS was deducted by the company. Therefore, the tribunal concluded that the income did not belong to the assessee, and there was no basis for assessing it in the assessee's hands. Consequently, the tribunal directed the AO to delete the addition of the income in question.

In conclusion, the tribunal allowed the appeal filed by the assessee, setting aside the orders of the lower authorities on both issues and providing specific directions to the Assessing Officer for each matter.