2020 (4) TMI 585 - AT - Income Tax

ITAT classifies rental income as 'Income from House Property' under new policy, assesses possible double benefits. Remanded to AO for asset verification.

The ITAT classified the rental income as 'Income from House Property' due to a change in government policy. However, concerns were raised about potential ... Deduction claimed u/s 24(a) disallowed - Rent income should be treated as income from house property OR Business income - HELD THAT:- Assessee had a facility and which assessee cannot utilize the same for its business purposes. It is forced on the assessee to transfer the same to a non-profit organization. In this situation, assessee can only sell the same or let the facility be given on rent. It has selected the second option. As per the nature of transaction, it falls under the head income from house property. The tax authorities have apprehension that assessee may claim additional benefit by claiming regular depreciation for the same assets under block of assets and also deduction u/s 24(a) - We do agree with the tax authorities considering the fact that assessee could not bring on record the details of assets, which are given on rent. It comes down to find the same. Assessee should be given one more opportunity to substantiate and submit the details of assets, which was given on rent and a declaration that it is not claiming any additional depreciation. - ground raised by the assessee is allowed for statistical purposes. Issues Involved:1. Classification of rental income as either 'Business Income' or 'Income from House Property'.2. Eligibility for deduction under Section 24(a) of the Income Tax Act.3. Submission and verification of asset details and depreciation claims.Detailed Analysis:Issue 1: Classification of Rental IncomeThe primary issue in this case is whether the rental income earned by the assessee should be classified as 'Business Income' or 'Income from House Property'. The assessee had been showing rental income as 'Business Income' until AY 2009-10. However, due to a change in government policy in 2003-2004, which restricted commercial entities from conducting maritime training courses, the assessee let out its property and facilities to a non-profit company, Sea Scan Marine Foundation (SSMF), and started showing the rental income as 'Income from House Property' from AY 2010-11.The AO rejected this classification and assessed the income under the head 'Business Income', disallowing the deduction claimed under Section 24(a). The CIT(A) upheld the AO's decision, noting that the assessee continued to claim depreciation on the assets and had not excluded any assets now claimed to be generating 'Income from House Property'.Issue 2: Eligibility for Deduction under Section 24(a)The assessee claimed a deduction of Rs. 43,20,030/- under Section 24(a) of the Income Tax Act, which allows a standard deduction of 30% on the income from house property. The AO disallowed this deduction, and the CIT(A) upheld the disallowance, reasoning that the assessee was attempting to claim a higher deduction under Section 24(a) compared to the depreciation and maintenance expenses allowable under 'Business Income'.Issue 3: Submission and Verification of Asset Details and Depreciation ClaimsThe CIT(A) and the ITAT noted that the assessee failed to provide clear and verifiable details of the assets leased out and the corresponding depreciation claims. The CIT(A) observed discrepancies in the asset details and depreciation schedules, which led to the conclusion that the assessee was trying to benefit from both depreciation and the standard deduction under Section 24(a).Judgment:The ITAT considered the rival submissions and material on record. It acknowledged that due to the change in government policy, the assessee could no longer use its facility for business purposes and was compelled to lease it out. The ITAT agreed that the nature of the transaction should be classified under 'Income from House Property'.However, the ITAT also recognized the tax authorities' concern that the assessee might be claiming additional benefits by simultaneously claiming depreciation and the standard deduction under Section 24(a). Therefore, the ITAT remitted the issue back to the AO to verify the details of the assets leased out and ensure that no additional depreciation was claimed. The AO was directed to allow the claim under Section 24(a) if the assessee substantiated the details. The assessee was to be given a proper opportunity of being heard.The ITAT allowed the appeals filed by the assessee for statistical purposes, directing the AO to re-examine the asset details and depreciation claims.Conclusion:The ITAT's judgment provided a balanced approach by recognizing the assessee's right to classify the rental income under 'Income from House Property' while ensuring that the tax authorities verify the asset details and prevent any undue tax benefits. The appeals were allowed for statistical purposes, with directions for re-examination by the AO.