9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2021 (6) TMI 538 - AT - Income TaxIncome received from letting of the premises - 'income from other sources' u/s 56 (2) (iii) or 'income from house property' - HELD THAT - There is no dispute that the lease agreement is a composite lease agreement which included the inbuilt infrastructural facilities provided which included central air conditions with ducting, DG power supply, net work equipments, access control equipments, electrical equipments, VAVs and controllers, smoke detectors and occupancy sensors. The agreement also included other amenities, namely installation of dish antenna/satellite, parking space, repair and maintenance which includes repairs, interior or exterior, electrical and plumbing work, repair and maintenance of common and open areas and facilities provided at the building like compounds, gardens, passage, elevators, lifts, terrace, DG sets etc and also 100% power backup and centralised air conditioning. For similar set of amenities/facilities in the case of Sultan Brothers 1963 (12) TMI 4 - SUPREME COURT has laid down certain tests which have been followed in the case of Garg Dyeing Processing Industries 2012 (12) TMI 191 - DELHI HIGH COURT and later on in the case of Jay Metals 2017 (7) TMI 618 - DELHI HIGH COURT . We are of the considered view that in light of the facts discussed hereinabove, there can be no doubt that lease deed was composite one and rental receipt thereunder answered the description u/s 56(2)(iii) of the Income tax Act, 1961. Main thrust in rejecting the claim of the assessee by the Assessing Officer is that it is a related party transaction - The undisputed fact is that the assessment was subject to transfer pricing assessment for determination of ALP with AE and no such determination has been done by the TPO. We further find that though the Assessing Officer has discarded the claim of the assessee stating that it is a related party transaction, but the provisions of section 40A(2) of the Act have never been invoked. Assessing Officer himself has extracted the relevant clauses of lease deed himself showing that the lessor has agreed to provide services which have been enumerated hereinabove elsewhere. Therefore, considering the facts of the case in hand, we find that letting is not merely of the building but a composite let out of both the building as well as equipment/furniture etc and thereby section 56(2)(iii) of the Act is attracted. Respectfully following the ratio laiddown by the Hon'ble Supreme Court in the case of Sultan Brothers supra and the Hon'ble High Court of Delhi in the case of Jay Metals supra , we direct the Assessing Officer to treat the income from letting out of the building as income under the head Income from other sources . Claim of expenses and depreciation u/s 57 has already been answered by the Hon'ble High Court of Delhi in the case of Jay Metals supra as under - Last plea made by the Assessee is that in that 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. Determination of Arm's Length Price (ALP) in Transfer Pricing. 2. Classification of Software Development Services. 3. Comparability of Companies for ALP Determination. 4. Taxability of Composite Rental Income. Detailed Analysis: 1. Determination of Arm's Length Price (ALP) in Transfer Pricing: The Tribunal's decision was challenged on grounds that it upheld substantial variations to the determination of ALP despite the Transfer Pricing Officer's (TPO) finding that the Transfer Pricing study was not rejected. The High Court did not press this issue further as the Assessee chose not to pursue it unless the Revenue challenged the dismissal order. 2. Classification of Software Development Services: The Tribunal classified the software development services rendered by the Assessee as "High end" for the purposes of Chapter X of the Act. The Assessee argued that this classification was contrary to facts and law, perverse, and arose from a gross misinterpretation of facts, law, and agreement between parties. However, this issue was also not pressed further by the Assessee before the High Court. 3. Comparability of Companies for ALP Determination: The Tribunal upheld the rejection of several companies as being not comparable to the Assessee for the determination of ALP. The Assessee contended that this conclusion was unjust and unsustainable as it arose from a misinterpretation of facts and law, including the relevance of patents and R&D activities of such companies. This issue was similarly not pursued further by the Assessee before the High Court. 4. Taxability of Composite Rental Income: The primary issue that was adjudicated involved the taxability of composite rental income under the heads 'Income from house property' or 'Income from other sources'. The High Court agreed with the Assessee that the Tribunal erred in restoring the issue to the file of the Assessing Officer (AO) instead of deciding it conclusively. The High Court directed the ITAT to decide the corporate tax grounds urged by the Assessee, particularly the taxability of composite rental income. The Tribunal, following the High Court's direction, considered the facts of the case and relevant judicial precedents. The Tribunal noted that the lease agreement was a composite one, including inbuilt infrastructural facilities and other amenities. Citing the Supreme Court's decision in Sultan Brothers and the High Court's decision in Jay Metal Industries, the Tribunal concluded that the rental income should be taxed under 'Income from other sources' as per Section 56(2)(iii) of the Act. Conclusion: The Tribunal directed the AO to treat the income from letting out of the building as 'Income from other sources'. Additionally, the Tribunal allowed the Assessee's claim for expenses and depreciation under Section 57 of the Act, following the High Court's decision in Jay Metal Industries. The grounds restored to the Tribunal by the High Court were decided in favor of the Assessee and against the Revenue.
|
