2024 (9) TMI 198 - AT - Income Tax

Addition as deemed Rental income - flats owned by assessee, these flats were allotted to assessee as a result of joint development agreement - CIT(A) deleted addition as there was no addition made in the case of other two co-owners of the same property for the same assessment year - HELD THAT - We observe that it is settled position of law as propounded in the case of Union of India v. Kaumudini Narayan Dalal 2000 (12) TMI 101 - SC ORDER that the approach of the Revenue in respect of the assessees, who are party to same transaction should be uniform. It has been held by the Hon'ble Supreme Court that the Revenue cannot adopt the tactics of pick and choose while assessing the citizens of India, otherwise it would be violation of Article 14 of the Constitution of India. Therefore, we are of the view that the ld. CIT(A) is correct in deleting the addition of deemed rental income applying the rule of equality before law. Notwithstanding to this on merits also we observe that, whether deemed rental annual value is assessable in respect of the flats which were not acquired for self-occupation rather kept as investment for sale, we find tha in the case of Sachin R Tendulkar 2018 (8) TMI 847 - ITAT MUMBAI has decided the issue in favour of assessee. Whether the gain arose to the assessee on sale of flats would be long term capital gain or short term capital gain - Undisputed facts are that assessee has acquired the land somewhere in 1960 and the rights in flats, allotted to assessee has been accrued on 15-12- 2010 and other was entered on 19.06.2013, when the Joint Development agreements were entered into by the assessee. No material has been brought on record by the AO or by DR before us to refute these factual observations made by the NAFC. Further in AYs 2014-15 and 2015-16. The gain attributable to this land was earlier assessed by the department as long term capital gain. D.R. failed to point out any change in the facts and circumstances even this impugned year. Therefore, applying the principle of consistency as formulated in the case of Radhasoami Satsang 1991 (11) TMI 2 - SUPREME COURT we are of the view that the CIT(A) is correct in allowing the appeal of the assessee. Taxability of income from alleged plant and machinery - We observe that there is no clear finding of the AO or CIT(A) on this issue as to what was the monthly rent and how much TDS was deducted by the payee because if we multiply 1,58,590/- by 12(1,58,590X12) then the amount would come Rs19,02,360/- and not 12,52,387/- as considered by the CIT(A). AO has to re-examine the issue a fresh. We made it clear that in case the payee has deducted TDS @ 10% and assessee would be able to reconcile the correct amount of rent with 26AS then certainly the income to be taxed as Income form House property and addition is required to be made. With this observation we deem it necessary to remit this issue to the file of AO for examination. We direct the AO that he will confine the fresh proceedings to this issue only.

Summary

Issues Involved:
1. Deletion of addition on account of deemed rental income.
2. Classification of capital gains as Long Term Capital Gain (LTCG) instead of Short Term Capital Gain (STCG).
3. Taxability of rental income from plant and machinery.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Deemed Rental Income:

The Revenue challenged the deletion of Rs. 1,18,01,752 as deemed rental income by the National Faceless Appeal Centre (NFAC). The Revenue argued that the NFAC erred in deleting the addition solely because no addition was made in the cases of the other two co-owners of the same property. The Revenue contended that the assessments of the three co-owners were completed in a faceless manner, and the omission of addition in the other cases could be due to lack of proper care and diligence, which cannot justify the deletion of the addition.

The assessee argued that the flats were acquired under a Joint Development Agreement (JDA) for sale and not for self-occupation, and the deemed rental income should not be assessed. The CIT(A) accepted the assessee's contention, stating that the flats were held for sale and not for self-occupation, and no material was brought on record by the AO to conclude otherwise. The CIT(A) relied on the judgment of the Hon'ble Mumbai Bench of the Tribunal in the case of Sachin R. Tendulkar v. DCIT [2018] 172 ITD 266 (Bom).

The Tribunal upheld the CIT(A)'s decision, noting that the Revenue cannot adopt a pick-and-choose approach while assessing citizens, as it would violate Article 14 of the Constitution of India. The Tribunal also observed that the deemed rental annual value is not assessable for flats acquired for sale rather than self-occupation.

2. Classification of Capital Gains as Long Term Capital Gain (LTCG) Instead of Short Term Capital Gain (STCG):

The Revenue contended that the NFAC erred in treating the capital gains as LTCG instead of STCG. The AO had observed that the flats, which were claimed to be sold and on which the assessee offered LTCG, came into existence during the year when the occupancy certificate was received on 25.06.2019. Therefore, the AO treated the gain as STCG.

The assessee argued that the land component was acquired in 1960, and the rights in flats were accrued when the JDA was entered into on 15-12-2010 and 19.06.2013. The CIT(A) accepted the assessee's contention, stating that the land component was acquired long ago, and the rights in flats were accrued earlier. The CIT(A) also noted that in AYs 2014-15 and 2015-16, the department treated the gain as LTCG under similar facts, and therefore, the principle of consistency should apply.

The Tribunal upheld the CIT(A)'s decision, applying the principle of consistency as formulated by the Hon'ble Supreme Court in the case of Radhasoami Satsang v. CIT [1992] 193 ITR 321.

3. Taxability of Rental Income from Plant and Machinery:

The AO had added Rs. 4,75,590 as rental income from plant and machinery under the head 'income from other sources' (IOS), based on the TDS deducted u/s 194I(a). The assessee clarified that the amount was for the rent of a flat, not plant and machinery, and was already included in the rental income declared. The CIT(A) accepted the assessee's contention, stating that the income should be taxed under the head 'income from house property,' and no separate addition was required.

The Tribunal observed discrepancies in the monthly rent and the total rent considered by the CIT(A). The Tribunal remitted the issue to the AO for re-examination, directing the AO to verify the correct amount of rent and the TDS deducted. If the TDS was deducted at 10% and the correct amount of rent is reconciled with Form 26AS, the income should be taxed as 'income from house property,' and no separate addition should be made.

Conclusion:

The Tribunal partly allowed the Revenue's appeal for statistical purposes, upholding the CIT(A)'s decisions on deemed rental income and classification of capital gains, while remitting the issue of rental income from plant and machinery to the AO for re-examination. The order was pronounced in the open Court on 30th July, 2024.