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of <h1>Tribunal Rules Rental Income as Composite, Excludes Deduction</h1> The Tribunal upheld the Assessing Officer's decision, ruling that the rental income from the letting of the building with amenities should be classified ... Rent received - Income from other sources vs Income from house property - whether the letting is a composite or inseparable letting? - entitlement to claim of deduction u/s 24(a) - Held that:- Respectfully following the dicta laid down by Hon'ble High Court of Delhi in the case of Garg Dying and Processing Industries vs ACIT (2012 (12) TMI 191 - DELHI HIGH COURT ), we decline to accept the view taken by the CIT(A) in the impugned order and we uphold the view taken by the AO that the rental income of the assessee from letting out building along with said amenities is a 'composite rental income' assessable under the head 'income from other sources' u/s 56(2)(iii) of the Act and thus, the assessee is not entitled for claim of deduction u/s 24(a) of the Act. - Decided in favour of revenue Issues Involved:1. Deletion of addition under Section 24(a) of the Income Tax Act.2. Interpretation of composite rent under Section 56(2)(iii) of the Income Tax Act.Issue-wise Detailed Analysis:1. Deletion of Addition under Section 24(a) of the Income Tax Act:The revenue appealed against the order of the CIT(A) which deleted the addition of Rs. 32,76,000 under Section 24(a) of the Income Tax Act. The Assessing Officer (AO) had disallowed this deduction, treating the rental income as composite rent under Section 56(2)(iii) of the Act. The AO's decision was based on the fact that the rented premises included amenities such as air conditioning, furniture, and power backup, which were considered inseparable from the building itself.The CIT(A) granted relief to the assessee by following the order of his predecessor for AY 2008-09, which held that the amenities provided (wooden cabins, air conditioning, power backup) were essential for the tenant's use and did not constitute separate assets like plant and machinery. Therefore, the income should be treated as 'Income from House Property' and not 'Income from Other Sources.'2. Interpretation of Composite Rent under Section 56(2)(iii) of the Income Tax Act:The main controversy revolved around whether the rental income should be classified as composite rent under Section 56(2)(iii) of the Act. The AO treated the rental income as composite due to the inseparability of the building and the amenities provided. The CIT(A) disagreed, stating that the amenities were integral to the property's use and thus the income should be considered under 'Income from House Property.'The Tribunal examined the provisions of Section 24(a) and Section 56(2)(iii) of the Act. Section 24(a) allows a deduction of 30% of the annual value for income from house property. Section 56(2)(iii) states that if an assessee lets out a building along with machinery, plant, or furniture, and the letting of the building is inseparable from the letting of the machinery, plant, or furniture, the income should be taxed under 'Income from Other Sources.'The Tribunal referred to the decision of the Hon'ble Jurisdictional High Court of Delhi in the case of Garg Dyeing & Processing Industries vs ACIT, which held that if the letting of the building and fixtures, fittings, air conditioning plant, furniture, etc., were inseparable, the rental income should be assessed as 'Income from Other Sources.'The Tribunal found that the CIT(A) had incorrectly interpreted the provisions and the facts of the case. The Tribunal concluded that the rental income from the composite letting of the building and amenities should be taxed under 'Income from Other Sources' as per Section 56(2)(iii) of the Act, and thus, the assessee was not entitled to the deduction under Section 24(a).Conclusion:The Tribunal upheld the AO's decision, stating that the rental income from the letting of the building along with amenities like wooden cabins, central air conditioning, and power backup was composite rental income. Therefore, it should be assessed under 'Income from Other Sources' as per Section 56(2)(iii) of the Act, and the deduction under Section 24(a) was rightly disallowed. The appeal of the revenue was allowed.
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