2016 (9) TMI 803 - AT - Income Tax

Status of AOP - property purchased by the husband and wife in the joint names - Held that - There is no dispute that the property in question was purchased by the husband and wife in the joint names and no specific share of the husband and wife is mentioned in the purchase document. However, the assessee has filed the additional evidence showing the independent source of the husband and wife for purchase of the property which was pooled into joint account in USA and transferred to India from where the payment was made in the property. Thus the assesses have claimed that when the husband and wife both have contributed their share of purchase consideration then the share in the property is in the ratio of contribution in the purchase consideration. As per the provisions of Section 45 of the Transfer of Property Act in case of joint ownership of property the share of the co-owner shall be determined as per the ratio of their contribution in the purchase consideration. Since the assesses have filed additional evidence in support of the independent source of income and contribution in the purchase consideration which is required to be examined and verified. Accordingly in the facts and circumstances of the case this issue is set aside to the record of the Assessing Officer to examine and verify the additional evidence filed by the assessee and then decide the issue. Taxing the rental income as income from other sources - Held that - The predominant purpose was letting out the commercial building/property in question and not the lift or air-conditioners fixed in the building. Therefore the charges for common lift and air condition would partake the character of the main purpose of letting out which is the building and accordingly the rental income will be assessed as income from house property . Hence the orders of the authorities below for this issue was set aside and the claim of the assessee is allowed.

Summary

Issues:
1. Dispute over total income and tax liability computation.
2. Assessment made in the status of Association of Persons (AOP).
3. Taxing rental income as 'income from other sources'.
4. Allowance of depreciation.

Analysis:

Issue 1: The husband and wife, as assesses, challenged the assessment order for the Assessment Year 2008-09, contending that it was against various legal principles. They disputed the total income and tax liability computed.

Issue 2: The assesses were treated as an Association of Persons (AOP) by the Assessing Officer during assessment, which was challenged by the assesses. The husband and wife, both Non-Resident Indians, jointly purchased a commercial property, contributing equally to the purchase from their individual incomes. The assesses argued that the rental income and service charges from the property should be taxed as 'income from house property' based on their individual contributions, not as AOP. The Tribunal directed the Assessing Officer to verify the evidence provided by the assesses regarding their individual contributions as per the Transfer of Property Act.

Issue 3: The dispute arose regarding the treatment of rental income as 'income from other sources.' The assesses argued that the property was let out under separate rental and service agreements, with the rental income being from the property itself and the service charges for amenities. The Tribunal held that since the assesses owned only one property jointly and the purpose was primarily letting out the property, the income should be classified as 'income from house property' and not 'income from other sources.' Citing relevant case law, the Tribunal allowed the assesses' claim.

Issue 4: The issue of depreciation allowance became irrelevant based on the Tribunal's decision regarding the treatment of rental income. The Tribunal allowed the appeals in part for statistical purposes, setting aside the orders of the lower authorities on the treatment of rental income and directing the examination of additional evidence regarding individual contributions to the property purchase.