2015 (2) TMI 1305 - AT - Income Tax

Income from House Property OR busniss income - rental income from let out of premises only - HELD THAT - A bare reading of the lease agreement between the assessee-firm and VCPL shows that the rent was charged by the assessee-firm only for the premises as provided in the lease agreement. Providing of electrical panel and space for generator could not be said to be a separate service or asset and in fact no separate rent is charged for the same. We find that there was no provision of any services to be provided by the assessee to the VCPL or to the partner of the assessee-firm in the upper floor. CIT(A) has recorded in his appellate order that the value of the building was shown at Rs. 3.86 crores whereas the value of the furniture and fixtures is of Rs. 87, 226/- only which are of insignificant value vis- -vis value of the building. We are of the view that in the absence of any facilities or business infrastructure provided by the assessee-firm to its lessee rental income from let out of premises only was rightly taxed by the department under the head Income from House Property and no interference in the order of the CIT(A) on this issue is called for which is confirmed and the ground of the appeal on this issue is dismissed. Determination of the notional value of the second floor to fifth floor of the building let out to one of the partners of the assessee-firm who runs a hotel business - HELD THAT - Allowance of deduction at 10% per higher floor from the bottom ground and first floor of the property was on the lower side and that upper second floor to fifth floor not having any hall type construction to suit for commercial use for any departmental stores etc. and construction of building consisted of small rooms only and the claim of the assessee that covered area on the higher floors were less as compared to the ground and first floor of the property and also considering the undisputed fact that the partner of the assessee-firm who is running a hotel Sudarshan Palace business has advanced deposit of Rs. 1.63 crores to the assessee-firm without charging any interest we are of the view that the ends of justice shall be met if the rental value of second floor to fifth floor of the property used for hotel business is determined at Rs. 30.00 lakhs per annum for the relevant year as against Rs. 49.95 lakhs determined by the AO and after allowing Rs. 2 lakhs for municipal tax paid by the assessee and also 30% of the annual value of the property the income from second floor to fifth floor of the property let out to M/s.Sudarshan Palace should be assessed at Rs. 19.00 lakhs as against Rs. 32, 96, 882/- assessed by the AO and the grounds of the appeal of the assessee on this issue are partly allowed.

Summary

Issues:
1. Assessment of rental value under "Income from House Property" instead of "Business Income"
2. Determination of notional value for upper floors of the property let out to a partner

Issue 1: Assessment of rental value under "Income from House Property" instead of "Business Income"

The appellant contested the CIT(A)'s decision to tax the rental income from letting out parts of the property under the head "Income from House Property" instead of "Business Income." The appellant argued that the rental income should be considered as "Business Income" as it was earned from letting out premises along with furniture and fixtures. The lease agreement with the lessee mentioned a rent inclusive of certain facilities provided by the lessor. However, the department contended that no evidence was presented to prove the provision of additional services or assets beyond the premises. The Tribunal upheld the department's decision, stating that in the absence of evidence of business infrastructure or services provided, the rental income was rightly taxed under "Income from House Property."

Issue 2: Determination of notional value for upper floors of the property let out to a partner

The second issue involved the determination of the notional value for the upper floors of the property let out to a partner, which was assessed as "Income from House Property." The appellant argued that the second to fifth floors were not suitable for commercial use due to their condition and size, and the rent charged was significantly lower compared to the lower floors. The AO estimated the notional rent based on a percentage deduction from the lower floors. The Tribunal found discrepancies in the rent charged to related and unrelated parties for different parts of the property. After considering various factors, including the condition of the floors and the deposit made by the partner without interest, the Tribunal determined a lower rental value for the upper floors, resulting in a revised assessment. The Tribunal partially allowed the appeal on this issue.

In conclusion, the Tribunal upheld the assessment of rental income under "Income from House Property" for the premises without additional services or infrastructure provided. Additionally, the Tribunal adjusted the notional value for the upper floors of the property based on various considerations, resulting in a revised assessment for the income derived from those floors.