2017 (3) TMI 660 - AT - Income Tax

Tribunal directs rental income assessment under 'income from house property'

The Tribunal ruled in favor of the appellant, directing the Assessing Officer to assess the rental income under 'income from house property' instead of ... Income from house property - income from other sources - ownership of property - annual value of property under Section 22 - classification of receipts - effect of non recording of construction expenditure in booksIncome from house property - income from other sources - ownership of property - annual value of property under Section 22 - effect of non recording of construction expenditure in books - Whether rental receipts of the assessee are assessable under the head income from house property or under income from other sources, and whether non reflection of construction expenditure in books justifies classification as income from other sources. - HELD THAT: - The Tribunal examined whether both conditions for assessment under the head income from house property-existence of a property consisting of a building and ownership of that property-were satisfied. The assessee produced house tax receipts, an electricity bill/connection in its name, a sale deed conveying roof/terrace and construction rights, and a lease with the tenant. The Tribunal accepted the findings of the lower authority that the property was constructed in 2007 08, and held that these materials establish the existence of the building and the assessee's ownership rights. The Tribunal rejected the reasoning that the rental receipts should be taxed as income from other sources merely because construction expenditure was not recorded in the books. While the Assessing Officer remains free to investigate or take action for any tax evasion arising from non recordal of construction costs, absence of construction expenditure in the books does not divest the assessee of ownership or prevent the receipts from being classified as income from house property when the conditions for determining the annual value under Section 22 are otherwise fulfilled. Accordingly, the Tribunal directed assessment of the rental income under the head income from house property and allowance of deductions as per law.Rental income is to be assessed under the head income from house property (not income from other sources); non recording of construction expenditure in books is not a ground to reclassify such receipts, and the Assessing Officer may investigate any evasion separately.Final Conclusion: Appeal allowed; rental income shall be assessed as income from house property for Assessment Year 2009-10 and deductions permitted in accordance with law. Issues involved:1. Assessment of rental income under the head 'income from house property' or 'income from other sources.'Analysis:1. The appellant received rent during the relevant year and declared it under 'income from house property.' However, the Assessing Officer taxed the rent under 'income from other sources' due to lack of proof of property ownership.2. The Commissioner of Income Tax (Appeals) upheld the assessment under 'income from other sources' based on the absence of construction expenses in the books of account.3. The appellant argued that since the property was constructed in the year 2007-08, it should be assessed under 'income from house property.'4. The Tribunal noted that for rental income to be assessed under 'income from house property,' two conditions must be met: the existence of a property and ownership by the assessee.5. The appellant provided evidence such as house tax receipts, electricity bills, sale deed, and lease deed to establish ownership and property existence.6. Despite the lack of evidence for construction costs, the Commissioner accepted that the property was built in 2007-08, fulfilling the conditions for assessment under 'income from house property.'7. The Tribunal held that not recording construction expenses in the books does not justify assessing rental income under 'income from other sources' when ownership conditions are met.8. Consequently, the Tribunal directed the Assessing Officer to assess the rental income under 'income from house property' and allow deductions as per the law.9. The appeal of the assessee was allowed, and the decision was pronounced on February 17, 2017.