2011 (4) TMI 1386 - AT - Income Tax

Tribunal ruling on income classification and deductions in property and share transactions

Kamlesh Real Estates Pvt. Ltd. Versus ACIT (OSD) -2, Mumbai

The tribunal classified the income received from letting out a terrace for mobile towers as 'income from house property' rather than 'income from other ... Nature of income received from letting out the terrace for putting up mobile towers by the telecom companies - HELD THAT:- In present case the assessee has only let out the terrace and the hoarding have been put up by the telecom companies and therefore rental income has arisen from letting out of the terrace and not from letting out of hoarding or towers. The case of the assessee is covered by the decision of the tribunal in case of M/s.Pinto’S Park View Premises Co.op. Housing Society Ltd and in case of Satyam Shivam Sundaram CHS Ltd. Therefore respectfully following the said decisions we set aside the order of CIT(A) and allow the claim of the assessee. Deduction of maintenance charges paid - HELD THAT:- In the present case, it is not clear whether the rent fixed by the assessee was inclusive of any charges payable for common serviced provided by the society. We therefore restore the issue to the file of AO for passing a fresh order after necessary examination in the light of observations made above and after allowing opportunity of hearing to the assessee. Nature of income from share transactions - HELD THAT:- In the present case the assessee has been frequently purchasing and selling shares and the sales in all cases have been made after holding the shares for less than 3 months and the overall profit earned has also been small clearly suggesting that the assessee had been selling the shares motivated by profit. In our view, on the facts of the case, the income arising from sale and purchase of shares within the three months period has to be treated as business income and the balance as capital gain. Hence, we confirm the order of CIT(A). Issues Involved:1. Nature of income from letting out terrace for mobile towers.2. Deduction of maintenance charges while computing income from house property.3. Nature of income from share transactions.Issue-wise Detailed Analysis:1. Nature of Income from Letting Out Terrace for Mobile Towers:The primary dispute concerns whether the income of Rs. 4,89,637/- received from letting out the terrace for mobile towers should be classified as 'income from house property' or 'income from other sources.' The assessee declared it as income from house property, but the AO treated it as income from other sources, arguing that rental income from a terrace or parapet walls cannot be considered part of the building. The assessee relied on tribunal decisions in the cases of Satyam Shivam Sundaram Cooperative Society Ltd. and Pinto Park View Cooperative Housing Society Ltd., which supported their claim. However, the CIT(A) upheld the AO's view, citing the Kolkata High Court judgment in Mukherjee Estate P. Ltd. vs. CIT, which held that income from letting out floor space and wall space for hoardings should be assessed as income from other sources. The tribunal, after considering the rival contentions and the cited judgments, concluded that the income arose from letting out the terrace, not from hoardings or towers, and thus should be classified as income from house property. The tribunal set aside the CIT(A)'s order and allowed the assessee's claim.2. Deduction of Maintenance Charges While Computing Income from House Property:The second issue involves the deduction of Rs. 44,544/- in maintenance charges, which included expenses like electricity, lift maintenance, watch and ward, and cleaning charges. The AO disallowed the deduction without providing reasons. The CIT(A) upheld the disallowance, stating that deductions are only permissible for items listed under section 24(1) and maintenance charges are not included. The assessee argued, citing tribunal decisions in Sharmila Tagore vs. DCIT and Verma Family Trust, that such charges should be deductible. The tribunal noted that if the rent includes charges for common services provided by the society, these should be excluded from the gross rent. However, if the rental income pertains solely to property letting and the assessee incurs common service expenses, such expenses are not deductible under section 24(1). The tribunal restored the issue to the AO for re-examination, allowing the opportunity for the assessee to be heard.3. Nature of Income from Share Transactions:The third dispute pertains to whether the income of Rs. 14,47,865/- from share transactions should be treated as short-term capital gain or business income. The assessee claimed it as short-term capital gain, asserting that the shares were investments funded from surplus funds, not borrowed money, and were declared as investments in the balance sheet. The AO classified the income as business income, citing the number of transactions and the profit motive. The CIT(A) partially agreed, treating gains from shares held for more than 90 days as capital gains and those held for less than 90 days as business income. The tribunal emphasized that the nature of share transactions depends on various factors, including the intention at purchase, subsequent conduct, and whether the transactions were funded from own or borrowed funds. The tribunal upheld the CIT(A)'s decision, specifying that gains from shares held for less than three months should be treated as business income unless they were part of the opening balance treated as investments in the previous year.Conclusion:The appeal was partly allowed, with the tribunal setting aside the CIT(A)'s order on the first issue, restoring the second issue to the AO for further examination, and confirming the CIT(A)'s decision on the third issue, subject to specific clarifications. The order was pronounced in open court on 20.04.2011.