2024 (11) TMI 1265 - HC - Income Tax

Assess the income of rent received by co-owners as income of A.O.P. (Association of Persons) - appellant and co-owners purchased property jointly and rented out godowns and plinths - HELD THAT - The rent was being paid by the Government Companies jointly in the hands of co-owners treating them as a single landlord and the amount was also being deposited in the single account. The loans were also raised for construction of the godowns in the name of M/s Y.S. Co-owners. In view thereof, it is factually not disputed that the action was to be taken by the Revenue against the assessee as an AOP. The order passed by the CIT (Appeals) treating the same to be the income received individually on the specified shares is solely based on the sale deed regarding purchase of land. There is no defined share to the rental income and AOP has jointly received the income. There is no division in terms of the law and all of them were co-landlords of each rented out property. In ITO vs Ch. Atchaiah 1995 (12) TMI 1 - SUPREME COURT the Apex Court held that merely if the members of an AOP have been assessed individually, the revenue would not be barred to assess such income in the hands of AOP if the income relates to AOP. The decision taken by the ITAT, therefore, on the issue of the rental income being that of AOP does not warrant any interference and question no.(i) is, accordingly, answered in favour of the Revenue. Income from house property - Plinth constructed would be treated as a building or not? - income received for letting out the plinth to be treated as a house property - Plinth level as per P. Ramanatha Aiyar s Advanced Law Laxicon, 5 th Edition (2017) means the level of the floor of building just above the surrounding ground. Thus, if a land where construction has been made upto plinth level, cannot be treated to be a house property and is open land with the outlining construction on which further walls and columns would be constructed and thereafter a roof shall be constructed on the said columns and walls to complete a building. Construction of plinth, therefore, can in no manner be said to be construction of a building. In fact a plinth and an area surrounded by the plinth, where no construction has been done would be a land not appurtenant to the building because construction on the plinth can be done separately. In no circumstances, it can be treated a plinth, therefore, to be falling within the definition of a building. The depreciation, therefore, could not have been allowed and would not be entitled for treating as building within the meaning of Section 26 of the Act. The said question is, therefore, answered in favour of the Revenue. We, accordingly, set aside the observations of the ITAT on this aspect.

Summary

Issues:
1. Whether rental income received by the appellant and co-owners is considered income of the AOP?
2. Whether plinths constructed by the appellant are classified as buildings for income tax assessment purposes?

Analysis:

Issue 1:
The appellant and co-owners purchased property jointly and rented out godowns and plinths. The income tax authority treated the rental income as that of the AOP. The CIT (Appeals) partly allowed the appeal, directing assessment of income in the hands of co-owners based on Section 26 of the Income Tax Act. However, the CIT upheld treating income from open plinths as AOP income. The ITAT held the rental income as AOP income but allowed depreciation on plinths at 10%. The appellant argued that individual reflection of income in ITRs should preclude AOP treatment. The court referred to Ch. Atchaiah case, stating that the AOP can be taxed for income related to it, regardless of individual assessments. The court upheld the ITAT decision on AOP income, favoring the Revenue.

Issue 2:
The question arose whether plinths constructed by the appellant qualify as buildings for income assessment. The court defined plinths as slablike members beneath columns or piers. It was clarified that a plinth alone does not constitute a building; further construction is required. The court concluded that plinths, without additional construction, do not meet the definition of a building under Section 26 of the Act. Therefore, depreciation on plinths was disallowed. The ITAT's observations on this matter were set aside, favoring the Revenue. The cross-objections of the appellant were also rejected, and the appeal was dismissed without costs.

This detailed analysis of the judgment highlights the key legal issues, arguments presented, relevant legal principles applied, and the court's final decision on each issue.