2012 (9) TMI 61 - AT - Income Tax

ITAT upholds CIT(A) on rental & agriculture income assessability, exemptions.

The ITAT affirmed the decisions of the ld. CIT(A) regarding the assessability of rental income as 'income from house property' and the exemption of ... Rental Income from complex - Revenue contending the same to be 'business income’ and consequential dis-allowance of interest, house tax, statutory allowance of 30% on ground that main object of company was to deal with the real estate, and assessee was not a simplister owner of a property, which has been given on rent - Held that:- Once assessee is owner of a building and has earned rental income, the same has to be treated as income from house property because specific head, dealing with income on house property is available. As far as the deduction on account of house tax and interest is concerned, the same are deductible even under the head ‘income from business or profession’. Order of CIT(A) confirmed - Decided in favor of assessee Agricultural Income - Revenue contending the same to be 'Income from other sources' and denied exemption u/s 10(1) on ground that land was basically purchased for real estate activities and was given on lease to various parties - Held that:- Lands in question have been used for the purposes of agricultural operations and these lands are owned by the assessee company. It is also a matter of record that assessee is in receipt of lease/rent charges from the persons who have carried out the agricultural operations on the land. As such, the amounts received by the assessee are squarely covered under the definition of agricultural income as defined in S.1(1A)(a). The said agricultural income is exempt in view of S.10(1) - Decided in favor of assessee Issues:1. Assessability of rental income under the head 'business income' and consequential disallowance of interest, house tax, statutory allowance of 30%.2. Relief granted by ld. CIT(A) in respect of agriculture income assessed by AO as 'income from other sources'.Analysis:Issue 1:The AO questioned the assessability of rental income as 'business income' due to the nature of the assessee's activities in real estate. The AO disallowed various deductions claimed by the assessee related to the rental income, arguing that the main object of the company was to deal with real estate, making the income assessable under 'income from business or profession.' However, the assessee contended that the income should be assessed as 'income from house property' based on consistency in previous assessments and the absence of depreciation claims. The ld. CIT(A) agreed with the assessee, citing legal precedents that house owning, no matter how profitable, does not constitute a business for income tax purposes. The ITAT upheld the CIT(A)'s decision, emphasizing that rental income from owning a building should be treated as 'income from house property,' confirming the deductions allowed.Issue 2:The AO disputed the treatment of agriculture income by the assessee, arguing that the land was primarily purchased for real estate activities and leased to various parties, making the income ineligible for exemption as agriculture income. The assessee defended the treatment of income as agriculture income under Section 10(1) based on lease agreements with agriculturists. The ld. CIT(A) accepted the assessee's arguments, stating that income received from agricultural operations on owned land qualifies as agriculture income under the law. The ITAT concurred with the CIT(A), emphasizing that revenue from leasing land for agricultural purposes falls within the definition of agriculture income, leading to the dismissal of the revenue's appeal.In conclusion, the ITAT affirmed the decisions of the ld. CIT(A) on both issues, upholding the treatment of rental income as 'income from house property' and confirming the exemption of agriculture income, resulting in the dismissal of the revenue's appeal.