ITAT directs correct computation of income from house property, allows exemption under section 54EC

The ITAT partially allowed the appeal, directing the AO to compute income from house property based on annual value. It ruled in favor of the assessee, allowing the exemption under section 54EC of the Income Tax Act for investments made after the transfer of shares, citing ambiguity in legislative language and following the principle benefiting the assessee. The ITAT overturned the CIT(A)'s decision and ordered the deletion of the addition based on this ground.

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Issues:
1. Treatment of maintenance service charges as part of income from house property.
2. Eligibility of the assessee to claim exemption u/s. 54EC of the Income Tax Act.

Issue 1: Treatment of Maintenance Service Charges:

The case involved the treatment of maintenance service charges as part of income from house property. The assessee derived income from house property, other sources, and long-term capital gains for the AY.2013-14. The Assessing Officer treated the maintenance charges as part of the income from house property, leading to additions and assessment of total income. The CIT(A) held that maintenance service charges were part of the rent and not independent services, relying on precedents. The AR argued that the services provided were beyond the scope of the rental agreement and constituted business income. The DR contended that the amenities affected the rent amount but did not constitute separate services. The ITAT analyzed rental and maintenance agreements, concluding that services overlapped and certain services were not related to letting out activity. The ITAT directed the AO to compute income from house property based on annual value, following the approach taken in the AY.2012-13.

Issue 2: Eligibility for Exemption u/s. 54EC:

Regarding the exemption claimed under section 54EC of the Act, the CIT(A) limited the exemption to Rs.50 Lakhs invested during the AY.2013-14, not considering the second investment made in the following AY. The AR argued that the investment made after the transfer of shares was valid, citing ambiguity in the legislative language. The DR contended that the section did not create classifications among assessees and emphasized the purpose of the provision. The ITAT noted conflicting decisions among High Courts on the issue and referred to the latest Rajasthan High Court judgment. Considering the ambiguity in the legislative language, the ITAT favored the interpretation that benefits the assessee, following the principle laid down by the Supreme Court. Consequently, the ITAT reversed the CIT(A)'s decision and directed the deletion of the addition made on this ground.

In conclusion, the ITAT partially allowed the appeal for statistical purposes, directing the AO to compute income from house property based on annual value and allowing the benefit of ambiguity to the assessee for claiming exemption under section 54EC of the Income Tax Act.

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