2003 (11) TMI 284 - AT - Income Tax

Assessee's Rental Income Classified as 'Income from House Property' Not 'Business'

Deputy Commissioner Of Income-Tax. Versus Godrej Properties & Investments Ltd.

The Tribunal ruled that the rental income received by the assessee-company should be assessed under the head 'Income from House Property' rather than ... Income From House Property Issues Involved:1. Head of income under which rental income should be assessed.2. Allowance of depreciation under section 32 of the Income-tax Act.3. Entitlement to statutory deduction for repairs under section 24(1)(i) of the Income-tax Act.Issue-wise Detailed Analysis:1. Head of Income Under Which Rental Income Should Be Assessed:The primary issue was whether the rental income received by the assessee-company should be assessed under the head 'Business' or 'Income from House Property.' The Assessing Officer classified the rental income under 'Income from House Property,' while the CIT(A) ruled it should be under 'Business' due to the company's objective to construct and let out properties.The Tribunal referred to several judgments, including *United Commercial Bank Ltd. v. CIT* and *East India Housing & Land Development Trust Ltd. v. CIT*, which established that the heads of income under the Income-tax Act are mutually exclusive. Therefore, income falling under a specific head must be assessed under that head alone. The Tribunal concluded that since the assessee is the owner of the property, the rental income should be assessed under 'Income from House Property,' not 'Business.'2. Allowance of Depreciation Under Section 32 of the Income-tax Act:The assessee argued that even if the rental income is assessed under 'Income from House Property,' depreciation under section 32 should be allowed, citing several rulings. However, the Tribunal noted that the computation provisions for different heads of income are mutually exclusive, as established in *P.V.G. Raju, Rajah of Vizianagram v. CIT* and other cases. The Tribunal emphasized that sections 30 to 43D, which include section 32, apply only when income is charged under the head 'Business.'The Tribunal rejected the assessee's argument, stating that since the income is assessed under 'Income from House Property,' only deductions specified under sections 22 to 27 are permissible, which do not include depreciation.3. Entitlement to Statutory Deduction for Repairs Under Section 24(1)(i) of the Income-tax Act:The assessee claimed the statutory deduction for repairs under section 24(1)(i), which was denied by the department based on clauses in the leave and license agreement obliging the licensee to maintain the premises. The Tribunal found these clauses to be routine and not indicative of the tenant undertaking repairs. Therefore, the assessee was entitled to the allowance under section 24(1)(i).Conclusion:The Tribunal allowed the Department's appeal, confirming that the rental income should be assessed under 'Income from House Property' and disallowing the depreciation claim under section 32. However, it partly allowed the assessee's cross-objection by granting the statutory deduction for repairs under section 24(1)(i).