2023 (6) TMI 211 - AT - Income Tax

Correct head of income - lease rental income received from letting out of school building along with infrastructure and other amenities - income from other source or income from house property - HELD THAT - The issue involved in this appeal is, the assessee declared the income earned from letting of school building with amenities under the Head income from House Properties from A.Y. 2009-10. This issue was decided by the Ld.CIT(A) and ITAT in favour of the assessee till A.Y.2012-13. We decidethe issue of taxability of income under the Head Income from House property .

Summary

Issues Involved:
1. Classification of rental income from letting out a school building with infrastructure and amenities.
2. Allowability of deductions for interest on loans and depreciation.

Summary:

Issue 1: Classification of Rental Income
The assessee, engaged in real estate development, filed a return declaring a loss. During scrutiny, the Assessing Officer (AO) noted that the assessee had shown rental income from a school building and questioned its classification. The AO treated the rental income of Rs. 4,16,04,080/- as "Income from Other Sources" u/s 56(2)(ii) instead of "Income from House Property." The assessee contended that the rental income should be classified under "Income from House Property," citing previous favorable decisions by the Ld.CIT(A) and ITAT for earlier assessment years. The Ld.CIT(A) dismissed the appeal, sustaining the AO's action. However, the ITAT, considering the consistency of past rulings, decided in favor of the assessee, holding that the rental income should be treated as "Income from House Property."

Issue 2: Allowability of Deductions
The AO disallowed the assessee's claim for deductions on interest paid on loans and depreciation, arguing that the rental income was classified under "Income from Other Sources." The assessee argued that if the rental income is treated as "Income from House Property," interest paid should be allowed u/s 24(b) and depreciation on the school building and infrastructure should be allowed u/s 57. The ITAT, having decided that the rental income should be classified under "Income from House Property," rendered the issue of deductions moot. Consequently, the ITAT allowed the deductions as claimed by the assessee.

Conclusion:
The ITAT ruled in favor of the assessee, classifying the rental income from the school building as "Income from House Property" and allowing the associated deductions for interest and depreciation. The appeal was partly allowed, with consequential grounds also being addressed.