Rental Income Split for Deductions: Depreciation Disallowed for Building, Allowed for Furniture

The Tribunal held that the rent should be split into components for the building and furniture/fixtures, allowing deductions for electrical expenses and depreciation on furniture/fixtures despite disallowing depreciation on the building. The CIT(A)'s decision in favor of the assessee was set aside, and the case was remanded to the AO for separate computation of income from house property and other sources after fair apportionment of the gross rental. The Departmental appeal was partially allowed on the issue of deductions for electrical expenses and depreciation on furniture/fixtures.

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Issues:
1. Allowance of depreciation and electrical expenses from house property income.

Analysis:
In this case, the Assessing Officer (AO) assessed the rental income as income from house property and disallowed the deduction of depreciation and electrical expenses, stating there was no provision for such allowance. The assessee argued before the Commissioner of Income Tax Appeals (CIT(A)) that the rent received was a composite rent for accommodation, furniture, and fixtures, and that electrical expenses were also borne by the assessee. The CIT(A) allowed the claim of the appellant for depreciation and electrical expenses, directing the AO to provide relief accordingly.

The Departmental appeal contended that there is no provision in the Income Tax Act for allowing electrical expenses and depreciation. The Departmental Representative relied on judgments to support this argument. On the contrary, the assessee's counsel argued that the claims were made under section 23 of the IT Act for determining the annual letting value of the property. Citing various judgments, the counsel emphasized that when a fully furnished house is let out, the rent should be apportioned, with necessary deductions allowed for electrical expenses and depreciation on furniture and fixtures.

The Tribunal held that the rent received should be split into components for the building and furniture/fixtures, with deductions allowed as per the provisions of the Act. While depreciation on the building was not allowed, deductions for electrical expenses and even depreciation on furniture/fixtures were permitted. The impugned order of the CIT(A) was set aside, and the issue was remanded to the AO for separate computation of income from house property and other sources after fair apportionment of the gross rental. The Departmental appeal was partially allowed to the extent mentioned above.

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