Rental Income from letting out of terrace is to considered as income from house property subject to deduction under sec 24

IN THE INCOME TAX APPELLATE TRIBUNAL

MUMBAI BENCHES “B”, MUMBAI

BEFORE SHRI G.E. VEERABHADRAPPA, HON'BLE PRESIDENT

AND SHRI AMIT SHUKLA, JUDICIAL MEMBER

ITA No.2102 /Mum/2010

Assessment Year: 2007-2008

M/s Mahalaxmi Sheela Premises CHS Ltd.,

2, Bhulabhai Desai Rd, Mahalaxmi, Mumbai-26

PAN NO.AAABM0285F

Appellant

Vs.

ITO WD 16(2)(1), Matru Mandir, Mumbai-400 034.

Respondent

Appellant by: Mr. Hiro Rai

Respondent by: Mr. P.C.Maurya

Date of hearing: 11th April 2012

Date of pronouncement: 11th May 2012

O R D E R

PER AMIT SHUKLA (J.M.) :

The present appeal is arising out of the order dated 11-2-2011, passed by CIT(A)-28, Mumbai for the quantum of assessment determined under Section 143(3) for the assessment year 2007-2008 on the following grounds of appeal :-

“1. The learned Commissioner of Income Tax and learned assessing officer erred in assessing the Total Income of assessee at Rs.29,65,410/- instead of 16,28,150/-.

2. The learned Commissioner of Income Tax erred in passing an ex-parte order and mentioning incorrect facts. The authorised representative had sought an adjournment which was granted by the office of the commissioner. It was only on the last date in 10th February 2011 that the AR cold not attend due to ill health.

3. The learned Commissioner of Income Tax and learned assessing officer erred in arriving at the receipts from Smt. Sudha Vora at Rs.29,67,394/- instead of Rs.23,97,356/- (Rs.24,29,296/-) less 32,606/- (Municipal Taxes) without giving any reasons in assessment order although the ledger copy was on record of the assessing officer.

4. The learned Commissioner of Income Tax and learned assessing officer erred in treating receipt from Smt. Sudha Vora as income from other sources instead of income from House Property.

5. The learned assessing officer erred in taxing Rs.17,101/- received by way of miscellaneous income from the sale of scrap as business income and learned Commissioner of Income Tax appeal erred in confirming the same.

6. The learned assessing officer erred in treating Rs.30914/- being non occupancy charges as income from Business and Profession and learned Commissioner of Income Tax appeal erred in confirming the same.

7. Without prejudice to the other grounds raised, the Learned Commissioner of Income Tax Appeal failed to consider the alternative arguments of the assessee for granting deduction u/s 57(iii) of Rs.6,15,846/-.”

2. At the outset, learned AR on behalf of the assessee did not press the grounds No.1 & 2. Accordingly, grounds No.1 & 2 are dismissed as not pressed.

3. With regard to grounds No.3 & 4, learned AR submitted that the same issue is covered by the decision of ITAT in the case of assessee itself vide order dated 30-8-2011 passed in ITA No.784, 785 &786/mum/2010 for the assessment years 2000-2001, 2001-2002 & 2002-2003. Learned Senior DR relied upon the findings of the Assessing Officer as well as the CIT(A).

4. We have heard the rival parties and also considered the orders of the Assessing Officer as well as of the CIT(A). The assessee is a cooperative housing society. The issue involved is the receipt of Rs.29,67,394/- from leasing out the portion of terrace of the building and the wall to one Smt. Sudha Vora for the purpose of fixing of hoarding, neon sign, etc. would be treated as Income from house property” or it should be taxed under the head “income from other sources”.

4.2. The Assessing Officer after referring to various clauses of the agreement entered into by the assessee and Smt. Sudha Vora, came to the conclusion that it is “income from other sources”.

The CIT(A) too has confirmed the finding of the Assessing Officer, though in an ex-parte order. However, this issue has come up for consideration in the earlier years also, wherein the ITAT Mumbai Bench after referring and relying upon several decisions has held the receipts to be taxed under “income from house property”. The relevant finding as a whole as given by the ITAT are reproduced herein below:-

 “3. In the appeal for assessment year 2000-01, the sole issue raised by the assessee is, whether the income received by the assessee on lease of a portion of terrace of the building and a wall of the building to one Mrs. Sudha Vora, for the purpose of fixing of hoarding, neon sign, etc., is assessable under the head “Income From Business or Profession” or under the head “Income From Other Sources”. The Assessing Officer assessed the income under the head “Income From Other Sources” on the ground that the amount received by the assessee is not for letting of a building or terrace or any land appurtenant thereto but on account of allowing to display the advertisement of neon sign, illuminated hoarding, of a size of 60’ x 20’ on the terrace and also illuminated hoarding of size of 20’ x 50’ on a vertical wall of the building are facing Padder Road.

4. On appeal, the Commissioner (Appeals) rejected the contention of the assessee on the ground that the terrace is not let out to Mr. Sudha Vora, and she has been allowed to use the terrace only to set-up the hoarding and to display the hoarding. He also commented that she could use only a portion of the terrace and that the purpose of utilization is not for stay, etc. The Commissioner (Appeals) distinguished the decision of the Delhi Bench of this Tribunal relied upon by the assessee. Aggrieved, the assessee is in further appeal before the Tribunal.

5. Before us, the learned Counsel relied on the following case laws:-

􀂾 ITO v/s Cuffe Parade Sainara Premises Co. Op. Society Ltd., ITA no.7225/Mum./2005, order dated 28.4.2008;

􀂾 Dalamal House Commercial Complex Premises Co. Op. Society Ltd. v/s ITO, ITA no.2286/Mum./2008, 29.5.2009;

􀂾 Sharda Chambers Premises Co. Op. Society Ltd. v/s ITO, ITA no.1234/Mum./2008, order dated 1.9.2009;

􀂾 Matru Ashish CHS Ltd. v/s ITO, ITA no.316/Mum./2010, order dated 27.8.2010;

􀂾 S. Sohan Singh v/s ITO, 16 ITD 272 (Del.); and

􀂾 CIT v/s Bajaj Bhavan Owners Premises Co. Op. Society Ltd., Income Tax Appeal no.3183 of 2010 (Bom.)

6. In Bajaj Bhavan Owners Premises Co. Op. Society Ltd. v/s ITO, Mumbai “B” Bench of the Tribunal in ITA no.5048/Mum./2004, assessment year 2001-02 and ITA no.1433/Mum./2007, for assessment year 2002-03 and ITA no.1434/Mum./2007, for assessment year 2003-04, order dated 4th November 2009, has, at Page-16 / Para-36, brought out the facts as follows:-

“36. The brief facts of the above issue are that it was found by the Assessing Officer that the assessee has allowed M/s. Hutchison Max Telecom Ltd. to erect the tower on their terrace in consideration of an amount of ` 5,93,700 and claimed as income from house property subject to deduction under section 24 of the Act. However, the Assessing Officer while observing that the assessee’s society has not provided any house property to the company and it is only the open terrace which has been let out, treated the same as assessable under the head income from other sources without allowing any expenditure in this regard. On appeal, the learned CIT(A) while confirming the Assessing Officer’s action treating the income from other sources directed the Assessing Officer to allow 20% of the gross receipts as expenses to earn such income.”

7. The Tribunal, after considering rival submissions, at Pages-17 & 18, Para-39, held as follows:-

“39. After carefully hearing the submissions of the rival parties and perusing the material available on record, we find that the facts are not in dispute. We further find that in the case of Sharda Chamber Premises v/s ITO, in ITA no.1234/Mum./2008, dated 1.9.2009, for A.Y. 2003-04, in which JM was one of the party, on the similar facts, the Tribunal after considering the decision in ITO v/s Cuffe Parade Sainara Premises Co. Op. Society Ltd., ITA no.7225/Mum./2005, dated 28th April 2008, for A.Y. 2002-03 and also the decision in the case of S. Sohan v/s ITO (1986) 16 ITD 272 supra, has held vide Para-6 and 7 of its order dated 1.9.2009, as under:-

6. We have carefully considered the submissions of the rival parties and perused the material available on record. We find merit in the plea of the ld. counsel for the assessee that in the case of M/s. Dalamal House Commercial Complex Premises Co. Op. Society Ltd., the Tribunal while admitting the additional ground being a legal issue has also held that the letting out of the terrace erection of antenna and income derived from letting out has to be taxed as “income from house property” and not as “income from other sources”. The Tribunal while deciding the issue has followed the order of the Tribunal in the case of M/s. Cuffe Parade Sainara Premises Co. Op. Society Ltd. supra.

7. In the absence of any distinguishing feature brought on record by the revenue, we respectfully following the order of the Tribunal (supra) and keeping in view the consistency while admitting the additional ground taken by the assessee hold that the letting out of terrace has to be assessed under the head “Income From House Property” as against “Income From Other Sources” assessed by the Assessing Officer and also allow deduction provided under section 24 of the Act and accordingly the additional ground taken by the assessee is allowed.

Respectfully following the order of the Tribunal supra, we are of the view that the letting out of the terrace has to be assessed under the head income from house property subject to deduction u/s 24 of the Act as against income from other sources assessed by the Assessing Officer. We hold and order accordingly. The grounds taken by the assessee are therefore allowed.”

8. The Hon'ble Jurisdictional High Court in Income Tax Appeal no.3183 of 2010, vide judgment dated 16th August 2011, confirmed the aforesaid findings of the Tribunal vide Para3, which reads as follows:-

“3. As regards question (c) is concerned, counsel for the revenue states that the ITAT has allowed the claim of the assessee by following its decisions in the case of Sharda Chamber Premises v/s ITO and ITO v/s Cuffee Parade Sainara Premises Co. Op. Society Ltd. Counsel for the revenue fairly states that the appeals against the said decisions have not been filed by the Revenue in view of the smallness of the tax effect. However, the counsel for the revenue is not in a position to point out any error in the orders passed by the ITAT. In this view of the matter, we see no reason to entertain the appeal on question (c). In the result, the appeal is dismissed with no order as to costs.”

9. Keeping in view of the aforesaid binding judgment of the Hon'ble Jurisdictional High Court, we set aside the impugned order passed by the Commissioner (Appeals) and allow this ground raised by the assessee directing the Assessing Officer to assess the income in question under the head “Income From House Property”

4.3 Thus, the finding has already been given by the ITAT in the earlier year, therefore, respectfully following the same, it is held that income in question is to be taxed under the head “income from house property” and accordingly the Assessing Officer is directed to compute the income under the head “ income from house property “. In the result, grounds No.3 & 4 are allowed.

5. In ground No.5, the assessee has challenged the taxing of the sum of Rs.17,101/- from sale of scrap as business income. The Assessing Officer has treated the sale of scrap as business income on the ground that it was with the intention of making gain and is not covered by the principle of “mutuality”. The learned AR submitted that the assessee is not engaged in any kind of business as it is a cooperative housing society and in any way such a miscellaneous income will go to reduce the cost of renovation which the assessee was carrying out during the relevant year. Learned Senior DR strongly relied on the finding of the CIT(A) and the Assessing Officer.

6. After carefully considering the finding of the Assessing Officer as well as the contention of the parties, we are of the opinion that miscellaneous income by way of sales scrap cannot be treated as business income of the assessee as it is not carrying on any business activities of sale of scrap. The scrap has been generated on account of repairs and renovation which will go to reduce the cost of renovation as has been done by the assessee. Therefore, such a miscellaneous income cannot be treated as business income of the assessee. Accordingly, ground No.5 is treated as allowed.

7. So far as ground No.6 is concerned, the assessee has challenged the addition of Rs.30,914/- made by the Assessing Officer on account of non-occupancy charges as income from the business not covered under the principles of “mutuality”. Learned AR submitted that the assessee’s case is covered by the decision of the ITAT Mumbai Bench passed in ITA No.6325/Mum/06 for the assessment year 2003-2004 vide order dated 14-5-2009 in the case of the assessee itself. On the other hand, the learned Senior DR relied upon the findings of the Assessing Officer.

8. We find that this issue is already covered by the decision of the ITAT in ITA NO.6325/Mum/06 for the assessment year 2003-2004 and also by the decision of the Hon’ble Jurisdictional High Court in the case of Mittal Court Premises Cooperative Society Limited Vs. ITO, reported in (2010) 320 ITR 414 (Bom), holding that non-occupancy charges will not be taxable on the ground of principle of “mutuality”. Accordingly, ground No.6 raised by the assessee is treated as allowed.

9. Both the parties have fairly agreed that ground No.7 will be rendered infructuous if the grounds No.3 & 4 are decided by holding that the income should be charged under the head “income from house property”. Since, we have already held that income from hoarding should be treated as “income from house property”. The alternative claim for deduction under Section 57(iii) will become purely academic and, therefore, ground No.7 is dismissed as having been rendered infructuous.

10. Resultantly, the appeal filed by the assessee is partly allowed.

Order pronounced on this 11th day of May, 2012.

                                                    Sd/-                                    Sd/-

                              (G.E. VEERABHADRAPPA)     (AMIT SHUKLA)

                                          PRESIDENT                  JUDICIAL MEMBER

MUMBAI, Dt: 11th May, 2012

Copy forwarded to:

1. The Appellant,

2. The Respondent,

3. The C.I.T.

4. CIT (A)

5. The DR, B - Bench, ITAT, Mumbai

//True Copy//

BY ORDER

ASSISTANT REGISTRAR

ITAT, Mumbai Benches, Mumbai

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