2017 (12) TMI 876 - AT - Income Tax

Assessment of the rental income - agreement of renting and hiring terrace - income from house property OR income from other sources - Held that - It is noticed that the issue under consideration now has been settled by the Hon ble Jurisdictional High Court in assessee s own case 2015 (4) TMI 625 - DELHI HIGH COURT held that the building the top terrace of which is the subject of focal attention here has been developed for its various portions to be sold or let out with no possibility of the terrace floor being subjected to such utilization. The assessee continues to be the owner of the terrace floor. It has conceivably no other purpose to be served by such property as is held on the terrace floor, except the exploitation of the licensed space for gaining the income that cannot be treated as either income from business or income from other sources. The income was thus rightly returned as income from house property. No logic employed by ITAT in rejecting the claim of it being income from house property. The terrace floor cannot exist in the air. It is part of the building which has been constructed on the land beneath the super-structure. It is, therefore, not correct to hold that the terrace does not have any appurtenant land. Thus decide the issue in favour of the assessee. Disallowance of construction expenses of Vikram Tower - Held that - In the present case, while deciding the first issue relating to the income received by the assessee from the rent of the same building for which the impugned expenses were incurred on account of repair, we have held in the former part of this order by following the judgment of the Hon ble Jurisdictional High Court that the income to be held under the head house property and deduction u/s 24(a) of the Act for repairs to be allowed. Since, the repairs & maintenance has already been allowed as per the provision contained in Section 24(a) of the Act. Therefore, no separate deduction can be allowed for repairs & maintenance. Accordingly, we do not see any merit in this ground of the assessee s appeal. Disallowance of expenditure u/s 14A - Held that - In the present case, it appears that the calculations made by the assessee for making the disallowance u/s 14A of the Act r.w. Rule 8D of the Income Tax Rules, 1962 were furnished first time before the ld. CIT(A) and not before the AO. We, therefore, deem it appropriate to set aside this issue back to the file of the AO to be adjudicated afresh in accordance with law after providing due and reasonable opportunity of being heard to the assessee.

Summary

Issues Involved:
1. Classification of rental income from letting out terrace floor/roof.
2. Disallowance of construction expenses of Vikram Tower.
3. Levy of interest under section 234B.
4. Disallowance of expenditure under section 14A read with Rule 8D.

Detailed Analysis:

1. Classification of Rental Income:
The primary issue was whether the rental income of ?36,80,802 from letting out the terrace floor/roof should be classified under "Income from house property" or "Income from other sources". The assessee had classified this income under "Income from house property" and claimed a deduction under section 24(a) amounting to ?11,04,250. The Assessing Officer (AO) reclassified it under "Income from other sources" based on a prior ITAT decision. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision. However, the Tribunal referred to a subsequent decision by the Hon'ble Jurisdictional High Court in the assessee's own case, which held that the income should indeed be classified as "Income from house property." Consequently, the Tribunal set aside the CIT(A)'s order and ruled in favor of the assessee.

2. Disallowance of Construction Expenses:
The second issue was the disallowance of ?2,27,379 on account of construction expenses at Vikram Tower, which the AO treated as capital in nature since the First Floor of Vikram Tower was let out to Bank of Baroda and the income was declared under "Income from house property," making it ineligible for depreciation. The CIT(A) upheld this disallowance. The Tribunal noted that since the repair and maintenance expenses were already covered under the deduction allowed by section 24(a) of the Act, no separate deduction could be claimed. Thus, the Tribunal found no merit in the assessee's appeal on this ground.

3. Levy of Interest under Section 234B:
For the assessment years 2004-05 and 2009-10, the issue of levy of interest under section 234B was raised. Both parties agreed that this issue was consequential in nature, and the Tribunal ordered accordingly.

4. Disallowance of Expenditure under Section 14A read with Rule 8D:
The final issue pertained to the disallowance of ?82,750 under section 14A read with Rule 8D, related to the expenditure incurred in relation to exempt dividend income of ?3,07,924. The AO computed the disallowance based on Rule 8D. The CIT(A) upheld this disallowance, noting that the method used by the AO was in line with Rule 8D and that res judicata does not apply to income tax proceedings. The assessee argued that the AO had incorrectly considered all investments instead of only those yielding exempt income, and provided revised calculations. The Tribunal found that these calculations were first submitted to the CIT(A) and not the AO. Therefore, the Tribunal set aside this issue and remanded it back to the AO for fresh adjudication in accordance with the law, after providing the assessee with a reasonable opportunity to be heard.

Conclusion:
The Tribunal partly allowed the appeals, ruling in favor of the assessee on the classification of rental income and remanding the issue of disallowance under section 14A back to the AO for fresh consideration. The disallowance of construction expenses was upheld, and the issue of interest under section 234B was deemed consequential.