Tribunal confirms "Honest House" income as property, dismisses appeals, upholds tax treatment.

The Tribunal upheld the assessment of income from "Honest House" as income from property rather than business income. The determination of income assessable in the hands of the assessee-company was also confirmed, with the Tribunal finding the ALV assessment based on 8% return on cost to be fair and reasonable. The appeals were ultimately dismissed, affirming the tax treatment of the income from the property under the head "income from house property."

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Issues Involved:
1. Nature and quantum of income from "Honest House."
2. Determination of income assessable in the hands of the assessee-company.

Summary:

Issue 1: Nature and Quantum of Income from "Honest House"
The first grievance of the assessee is that the learned CIT(A) ought to have held that income from 'Honest House' is taxable as business income of the assessee-company and not income from house property. This issue stands covered against the assessee and in favour of the Revenue by the order of the Tribunal, Ahmedabad Bench in ITA Nos. 98 to 101/Ahd/1988 relating to asst. yrs. 1978-79 to 1981-82 vide order dt. 5th Jan., 1995. Respectfully following the aforesaid order of the Tribunal, we decline to interfere and hold that the action of the AO in assessing the income under the head "income from property" is justified.

Issue 2: Determination of Income Assessable in the Hands of the Assessee-Company
The next grievance relates to the determination of income assessable in the hands of the assessee-company. According to the assessee, the actual rent received should be treated as income and not the rent estimated by the Asstt. CIT, Baroda. The AO in his order for asst. yr. 1978-79 has given the detailed description of the property as also the details of the investments made therein right from its purchase in 1977 for Rs. 7 lakhs. The AO has dealt with the question of determination of ALV in para 6 of this order where he has noted that the property has been constructed as per the liking and convenience of occupants, and there is no other property of such huge investment and description which can be compared to Honest House in the area. The AO further noted that since the expenses on electricity, maintenance, and depreciation, etc., were disallowed, these were also to be taken note of in determining the ALV of the property.

The AO rejected the civil Court's order mainly because it was applicable from 1986 onwards and not for the prior period and also because the civil Court's order was amongst interested parties. The AO, therefore, taking note of the Supreme Court decisions in the cases of Dewan Daulatrai Kapoor vs. New Delhi Municipal Committee (1980) 122 ITR 700 (SC) and Mrs. Shiela Kaushish vs. CIT (1981) 24 CTR (SC) 351 : (1981) 131 ITR 435 (SC) held that in view of cl. (b) in sub-s. (1) of s. 23, w.e.f. 1976 the Department was to take note of the actual rent even if the standard rent was lower. The AO concluded that 8 per cent return on the cost as reasonable rent and took ALV at Rs. 7,280 for asst. yr. 1978-79, for one month and 12 days; Rs. 79,725 for asst. yr. 1979-80; Rs. 97,520 for asst. yr. 1980-81 and Rs. 1,32,928 for asst. yr. 1983-84 and accordingly computed the income under the head "income from house property."

On appeal, the learned CIT(A) confirmed the action of the AO observing that income from house property owned by an assessee is to be taxed under the head 'income from house property' and not under the head "profits and gains of business and profession". The CIT(A) held that in absence of any better way of estimating rent, the rate of interest on cost of building and land may provide a reasonable basis for determining the ALV, more particularly when the property is occupied by the owner.

The Tribunal, after considering the rival submissions and perusing the facts on record, held that the property under consideration is no ordinary property befitting a village. The Tribunal noted that the property was originally built in accordance with the requirements and tastes of the family of Shri P.B. Patel, and the letting out of the property was only a device to reduce the incidence of tax by showing a nominal ALV. The Tribunal upheld the action of the authorities below fixing the ALV at 8 per cent return on the cost as fair and reasonable.

In the result, the appeals are dismissed.

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