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2017 (7) TMI 618 - HC - Income TaxIncome received by the Assessee from letting of the premises - assessed as income from other sources u/s 56 (2) (iii) OR income from house property - Held that - In the present case, as already discussed, it is plain that letting is not merely of the building but a composite letting of both, the building as well as the equipment, furniture etc. and thereby Section 56 (2) (iii) was attracted. Applying the test laid down in Sultan Bros. (1963 (12) TMI 4 - SUPREME Court) the income from the letting in the hands of the Assessee was a new kind of income which could be considered to be income from house property since the income not from the ownership of the building alone but an income which though arising from a building would not have arisen if the plant, machinery and furniture had not also been let along with it. The Court is, therefore, not persuaded to take a view different from that by the ITAT in the present matter. Consequently, the question urged, viz., whether the ITAT erred in holding that the rental income should be treated as income from other sources , is answered in the negative i.e., in favour of the Revenue and against the Assessee. Assessee said that in the event the entire income from the letting is treated as income from source sources it cannot be deprived of the corresponding deduction in terms of Section 57 (iii) of the Act. The Revenue too has not disputed the fact that the Assessee has not claimed depreciation. Accordingly, it is directed that while giving the appeal effect, the AO will grant the Assessee the benefit of Section 57 (iii) of the Act.
Issues Involved:
1. Whether the income received from letting out the premises should be assessed as 'income from other sources' under Section 56 (2) (iii) of the Income Tax Act, 1961, or as 'income from house property'. 2. Whether the matter should be remanded to the Assessing Officer (AO) for separate valuation of the building and the amenities. 3. Whether the Assessee is entitled to the benefit of depreciation under Section 57 (iii) of the Act if the income is treated as 'income from other sources'. Issue-wise Detailed Analysis: 1. Classification of Rental Income: The primary issue was whether the income from letting out the premises, which included furniture, fixtures, air-conditioning, and power backup, should be classified as 'income from other sources' or 'income from house property'. The Assessee argued that the lease was primarily for the building, with the amenities being incidental and inseparable. The AO, however, treated the rental income as composite rent under Section 56 (2) (iii) of the Act, disallowing the deduction under Section 24 (a). The CIT(A) initially sided with the Assessee, but the ITAT reversed this decision, relying on the precedent set by Garg Dyeing & Processing Industries v. ACIT, which held that such composite rentals should be treated as 'income from other sources'. The High Court upheld the ITAT's decision, applying the test from Sultan Bros. (P) Limited v. CIT, which considers the inseparability of the letting as arising from the intention of the parties. 2. Remand to the AO: The Assessee proposed that if the entire rental income could not be treated as 'income from house property', then the case should be remanded to the AO to determine the portion of income attributable to the building and the amenities separately. The Court rejected this plea, noting that it was raised for the first time as an alternative argument and was not part of the Assessee's initial submissions before the ITAT. 3. Entitlement to Depreciation: The Assessee contended that if the rental income is treated as 'income from other sources', they should be allowed the corresponding deduction under Section 57 (iii) of the Act. The Revenue did not dispute the Assessee's entitlement to depreciation. Consequently, the Court directed the AO to grant the Assessee the benefit of Section 57 (iii) while giving effect to the appeal. Conclusion: The High Court affirmed the ITAT's order, holding that the rental income should be treated as 'income from other sources'. The Court did not remand the matter to the AO for separate valuation but directed that the Assessee be granted the benefit of depreciation under Section 57 (iii) of the Act.
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