2016 (8) TMI 367 - AT - Income Tax

Tribunal: Assessee wins on rental income; Revenue prevails on interest expenses.

The Tribunal ruled in favor of the assessee regarding the treatment of rental income from properties leased for more than 12 years as 'Income from House ... Deemed owner - income from house property - application of section 27(iiib) read with section 269UA(f) - leases of twelve years or more treated as transfer for deeming purpose - standard deduction under section 24 - natural justice - interest under sections 234A/234B/234C - non-pressing of groundsDeemed owner - income from house property - application of section 27(iiib) read with section 269UA(f) - standard deduction under section 24 - leases of twelve years or more treated as transfer for deeming purpose - Rental receipts from three properties are taxable under the head Income from House Property. - HELD THAT: - The Tribunal accepted the assessee's contention that leases exceeding twelve years attract the deeming fiction in section 27(iiib) read with clause (f) of section 269UA, making the lessee a 'deemed owner' for the purposes of chapters dealing with house property. The CIT(A)'s reasoning, supported by precedent in the assessee's own case for A.Y.2007-08, that the assessee held the properties on leases/sub-leases of not less than twelve years and was receiving rental income under those agreements, was found to be acceptable. Consequently, the amounts declared as rent fall to be assessed as Income from House Property and the standard deduction under section 24( a ) is allowable; the disallowance made by the Assessing Officer was deleted. [Paras 4]Rental income from the specified properties is to be taxed as Income from House Property for the assessment years in question and the disallowance of standard deduction is deleted.Non-pressing of grounds - natural justice - interest under sections 234A/234B/234C - Grounds relating to disallowance of expenses, alleged violation of natural justice and levy of interest were not pressed and are decided against the assessee. - HELD THAT: - The assessee did not press issues concerning the disallowance of expenses claimed against interest income, alleged breaches of natural justice in assessment, and the levy of interest under the stated provisions. In the absence of contention before the Tribunal, these grounds were not pursued and accordingly the Tribunal disposed of them in favour of the revenue. [Paras 5, 9]Issues not pressed by the assessee are held for the revenue and decided against the assessee.Final Conclusion: Both appeals are partly allowed: the Tribunal held that the rental receipts are taxable as Income from House Property (with consequential allowance of standard deduction) for A.Y.2005-06 and A.Y.2006-07; the remaining grounds not pressed by the assessee are decided in favour of the revenue. Issues Involved:1. Treatment of Income from House Property as Income from Other Sources.2. Disallowance of Expenses against Interest Income.3. Violation of Natural Justice.4. Levy of Interest under Sections 234A, 234B, and 234C.Issue-wise Detailed Analysis:1. Treatment of Income from House Property as Income from Other Sources:The primary issue was whether the income derived from sub-letting properties should be treated as 'Income from House Property' or 'Income from Other Sources.' The Assessing Officer (AO) treated the income as 'Income from Other Sources' on the grounds that the assessee was not the owner but a tenant sub-letting the properties. The assessee contended that they were deemed owners under section 27(iiib) read with section 269UA(f) of the Income Tax Act, as the properties were leased for more than 12 years.The CIT(A) had previously ruled in favor of the assessee for AY 2007-08, accepting the rental income as 'Income from House Property.' This decision was not appealed by the department, making it final. The Tribunal upheld this view, citing the Mumbai ITAT judgment in the case of DCIT Vs. D.B.S. Financial Services Limited, which supported the assessee's position that rental income from properties leased for more than 12 years should be treated as 'Income from House Property.' Consequently, the Tribunal allowed the assessee's appeal on this issue, entitling them to the standard deduction under section 24(a).2. Disallowance of Expenses against Interest Income:The AO disallowed business expenses of Rs. 10,088/- claimed against interest income of Rs. 94,233/-, arguing that the assessee was not engaged in money lending during the year as no new loans were advanced. The CIT(A) upheld this view, noting that the interest income was from money lent in earlier years and treated it as 'Income from Other Sources.'The assessee did not press this issue further during the appeal, leading the Tribunal to decide in favor of the revenue, upholding the disallowance of expenses.3. Violation of Natural Justice:The assessee argued that there was a serious violation of natural justice as the CIT(A) did not provide a specific opportunity to prove the deemed ownership of the properties and the continuation of the money lending business. The assessee claimed that the AO ignored evidence and explanations provided, making additions based on conjectures without material evidence.However, the assessee did not press this issue further during the appeal. Consequently, the Tribunal decided in favor of the revenue, dismissing the claim of violation of natural justice.4. Levy of Interest under Sections 234A, 234B, and 234C:The assessee challenged the levy of interest under sections 234A, 234B, and 234C, arguing errors in calculations and a lack of opportunity for a hearing. The CIT(A) confirmed the levy without providing a speaking order or an opportunity for the assessee to contest the calculations.The Tribunal did not specifically address this issue in detail, as the assessee did not press it further. The Tribunal's decision favored the revenue, upholding the levy of interest.Conclusion:The appeals were partly allowed, with the Tribunal ruling in favor of the assessee on the primary issue of treating rental income as 'Income from House Property,' while the other issues were decided in favor of the revenue. The order was pronounced in the open court on 29th June 2016.