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2016 (2) TMI 160 - ITAT DELHI

2016 (2) TMI 160 - ITAT DELHI - TMI - Rent received - Income from other sources vs Income from house property - whether the letting is a composite or inseparable letting? - entitlement to claim of deduction u/s 24(a) - Held that:- Respectfully following the dicta laid down by Hon'ble High Court of Delhi in the case of Garg Dying and Processing Industries vs ACIT (2012 (12) TMI 191 - DELHI HIGH COURT ), we decline to accept the view taken by the CIT(A) in the impugned order and we uphold the view .....

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Kapoor, Sanat Kapoor, Adv ORDER Per Chandra Mohan Garg, JM This appeal by the revenue has been preferred against the order of CIT(A)-VIII, New Delhi dated 27.07.2012 passed in Appeal No. 402/2011-12 for AY 2009-10. 2. Ground No. 1 and 3 of the revenue are general in nature which need no adjudication. Remaining grounds of the Revenue containing sole issue/controversy read as under:- "2. On the facts and circumstances of the case, the ld. CIT(A) has erred in deleting the addition of ₹ 3 .....

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took us through the provisions of section 56(2)(iii) and section 24(a) of the Income Tax Act, 1961 (for short the Act). Ld. DR further submitted that the rented premises in question is furnished and centrally airconditioned with power back up which is an integral and inseparable part of the rented building, therefore, the AO was correct and justified in treating the rental receipts of the assessee as composite rent as per provisions of section 56(2)(iii) of the Act. Ld. DR further submitted tha .....

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CIT(A) has reproduced relevant part of the order of his predecessor for AY 2008-09 at page 3 wherein it has been held that the premises was leased out with the amenities like wooden cabins, wooden empanelling, central airconditioning plant, adequate power back up through 200 KVA diesel generator etc. and without these amenities, the bare building is of no use which is a common feature of any property. Ld. DR further contended that the CIT(A) was not logical in comparing the kitchen ventilaton a .....

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the provisions of the Act, therefore, the same may be set aside by restoring that of the AO. 5. Replying to the above, ld. Counsel of the assessee reiterating its submission before authorities below submitted that said premises is furnished and centrally air-conditioned with power back up and furnishing of building is just ordinary and comprises minor part of value of the whole property. He further contended that central air-conditioning and wooden cabins and wooden empanelment are an integral .....

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and wooden empanelling are common in nature which are to be provided to the tenants/lessees to carry out their day to day work by the landlord and without those the tenant cannot function. Ld. Counsel supporting the conclusion of the CIT(A) further submitted that the amenities are provided by the assessee to exploit the property in most profitable manner. Therefore, the rental income of the assessee cannot be held as composite rent only because some necessary amenities have been provided by the .....

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itioning plant, furniture and generator set etc. were inseparable part of the rented premises, then the rental income is composite rent which should be assessed as income from other sources and CIT(A) was not correct in treating the same as income from house property. 7. On careful consideration of above submissions of both the sides, at the very outset, we find it appropriate to reproduce provisions of section 24(a) and section 56(2)(iii) of the Act which red as under:- "24. Deduction from .....

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b) xxxxxxx [(ic) xxxxxxxx [(id) xxxxxxxx (ii) xxxxxxxxxx (iii) where an assessee lets on hire machinery, plant or furniture belonging to him and also buildings, and the letting of the buildings is inseparable from the letting of the said machinery, plant or furniture, the income from such letting, if it is not chargeable to income-tax under the head "Profits and gains of business or profession" ; 8. On careful consideration of above relevant provisions of the Act in the context of cont .....

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; 2nd Floor of the building situated at 811, Udyog Vihar, Phase -V, Gurgaon, Haryana has been rented to M/s. Feed Back Venture (P) Ltd. in terms of Lease Deed dated 05.10.2007 on a monthly rent of ₹ 9,10,000/-. The said premises are furnished and centrally air conditioned with power backup. The furnishing of building is just ordinary and comprises of minor part of the whole value of the property. Similarly, centrally air conditioning is also an integral part of building. Since, the said pr .....

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section 24(a) of the Income Tax Act is disallowed and added back to the net taxable income of the assessee. I am satisfied that the assessee filed inaccurate particulars of its income and thereby concealed its income to the tune of ₹ 24,73,500/-. Penalty proceedin.9s under section 271 (1)(c) are initiated separately for furnishing inaccurate particulars of income. (Addition of ₹ 24,73,500/-)" 9. From the vigilant reading of the impugned order, we note that the CIT(A) has grante .....

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hile deciding the issue in favour of the appellant the CIT(A)-VII, had held as under:- "3.1 I have considered the written submission on behalf of the appellant, the findings of the Assessing Officer and the facts on record. In the present case, the assessee made a lease agreement for letting out of the property and for providing amenities and there is a doubt in the mind of the Assessing Officer regarding the correctness of the income declared by the assessee as income from house property&# .....

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s/lessees, the amenities are provided by the assessee to exploit the property in most profitable manner. In the present case, the assessee made a lease agreement on 5/10/2007 with M/s Feedback Ventures Private Limited in respect of the premises situated at building No. 811 comprising of basement, ground floor, first floor and second floor which was leased out during the year under consideration on monthly rent of ₹ 9,10,000/- with the amenities like wooden cabins and wooden empanelling, ce .....

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e useful for any purposes. Therefore, just because there is something beyond the bare structure that is being provided, it cannot be said that these amenities are not part of the property itself. However, since these amenities are not separate assets such as Plant and Machinery, the provisions of Section 56(2) do not apply here. Further, in the case of letting of the machinery, plant or furniture, Section 56(2) (iii) of the Act is applicable, but only letting of building with certain amenities, .....

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income and denied the deduction u/s 24(a) of the Act as per provisions of section 56(2)(iii) of the Act. During first appellate proceedings, the CIT(A) allowed the claim of the assessee following the order of his predecessor for AY 2008-09 as per conclusion in para 3.1 as reproduced hereinabove. For AY 2009-10, the AO made similar disallowance and addition by following the assessment order of AY 2008-09 and in the similar fashion, the CIT(A) granted relief to the assessee following the order of .....

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ower back up through 200KVA diesel generator. From para 3 of the assessment order for the year under consideration i.e. 2009-10, it is vivid that the assessee submitted rent agreement with M/s Feedback Ventures (P) Ltd. vide its letter dated 29.10.11 which was considered while disallowing the claim of the assessee u/s 24(a) of the Act. 10. At this juncture, we respectfully took cognizance of the decision of Hon'ble Jurisdictional High Court of Delhi in the case of Garg Dyeing & Processin .....

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were installed only at the desire of the lessee and in such circumstances, the income should properly be assessed under the head "income from house property" as mandated by Section 22 of the Act. The relevant portions of the lease documents were read out to us to drive home the point. We do not think that anything turns on the fact as to at whose instance the machinery, plant or furniture were installed in the leased premises. The real test which has been applied by the Tribunal, and r .....

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pra). Sarkar, J, speaking for the Court set out the principles that are applicable for deciding whether the letting is an inseparable letting in the following words: "What, then, is inseparable letting? It was suggested on behalf of the respondent Commissioner that the sub-section contemplates a case where the machinery, plant or furniture are by their nature inseparable from a building so that if the machinery, plant or furniture are let, the building has also necessarily to be let along w .....

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e that we can conceive of, it may be possible to dismantle the machinery or plant or fixtures from where it was implanted or fixed and set it up in a new building. As regards furniture, of course, they simply rest on the floor of the building in which it lies and the two indeed are always separable. We are unable, therefore, to accept the contention that inseparable in the subsection means that the plant, machinery or furniture are affixed to a building. It seems to us that the inseparability re .....

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ed without the other? If the answers to the first two questions are in the affirmative, and the last in the negative then, in our view, it has to be held that it was intended that the lettings would be inseparable. This view also provides a justification for taking the case of the income from the lease of a building out of section 9 and putting it under section 12 as a residuary head of income. It then becomes a new kind of income, not covered by section 9, that is, income not from the ownership .....

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was the bare space with only a right given to the lessee to use the common facilities such as lift, lobby, staircases, corridors etc. in order that the property can be enjoyed effectively; there was no letting out of machinery; plant or furniture to Haldirams. However, in the disputed cases there was a letting of the fixtures, fittings, air-conditioning plant, furniture etc. together with the building and both were inseparable. This is what the Tribunal has found. It further found that the inten .....

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y ITAT Mumbai 'I' Bench in the case of AIPITA Marketing Pvt. Ltd. vs ITO (2008) 21 SOT 0302 (Mumbai Trib), as relied by the learned counsel of the assessee. Learned counsel of the assessee reiterating assessee's submissions before the CIT(A) dated 16.2.2010 and submissions before us (supra) pointed out that the earlier tenant M/s ISMART PANACHE (India) got the said premises centrally airconditioned and created wooden cabins and installed other furniture and fixtures. The said tenant .....

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0 sq. ft approx and the market value of said property was more, between 7-8 crores at that time and in comparison, the value of said facilities were to the tune of 7-8 lakh only which is insignificant in front of the market value of the property i.e. land and building which is given on rent. 12. Learned counsel of the assessee vehemently contended that the assessee has not claimed any depreciation which again shows that the assessee's intention was to earn rental income from said building. L .....

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the case of Garg Dyeing & Processing Industries vs ACIT (supra) is entirely on different facts as in the said case, finding of fact had been arrived by the ITAT, that depreciation had been claimed by the assessee. The assessee wanted to use the assets as business assets. It was also contended by the learned counsel of the assessee that in the case of Garg Dyeing (supra), the issue of applicability of section 56(2)(iii) of the Act was not considered. Learned Departmental Representative also .....

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the Act. Learned Departmental Representative submitted that the dicta laid down by ITAT Mumbai order in AIPITA (supra) case is not applicable to the present case. 13. On careful consideration of above, at the very outset, we note that the Tribunal order in AIPITA (supra) was rendered on 24.8.2007 whereas the order of Jurisdictional High Court in the case of Garg Dyeing (supra) was rendered on 22.11.12. In this order, the Hon'ble High Court considered following question of law:- "was the .....

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lordships in para 7 extensively and chronologically referred to dicta of Hon'ble Calcutta High Court in the case of Shambhu Investments (P) Ltd. and they also considered provision of section 56(2)(iii) of the Act, thus, we have no hesitation to hold that the contentions of ld. Counsel are misplaced and the facts of the case of Garg Dyeing (supra) are similar to the extant case as in the present case, the assessee earned rental income from composite letting of building along with wooden cabin .....

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he decision of Hon'ble High Court of Delhi in the case of Garg Dyeing & Processing Industries vs ACIT (supra), we observe that in the cases where there was a let out of furniture, fixtures etc. together with the building and both were inseparable, then the intention of the parties viz. landlord and tenant was that there was to be a single inseparable letting as evidenced by the composite lease deed for which a consolidated lease rent was fixed. Then in these circumstances, the rental inc .....

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because the essential ventilators and electric fitting in a kitchen cannot be compared with the amenities of wooden cabins and empanelment, central air-conditioning facility supported by power back up through 200 KVA generator set which is inseparable from the letting of the building and the income from such letting of building shall be chargeable to income tax under the head "income from other sources". Thus, as per facts and circumstances of the present case, as noted above, the obs .....

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or and second floor which was leased out during AY 2008-09 on monthly amount of ₹ 9,10,000 with the amenities like wooden cabins, central airconditioning, power back up through 200KVA diesel generator set. These facts have not been disputed by either of the parties. As per letter and spirit of provision of section 56(2)(iii) of the Act where the letting of building is inseparable from the letting of the machinery, plant or furniture, the income of such letting, if not chargeable to tax und .....

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ightly held that the letting of building with the aforesaid amenities was a conscious act of the letting of the building which was inseparable from the letting of said amenities viz. wooden cabins, central air-conditioning plant supported by adequate power back up through 200 KVA diesel generator and thus the income from such letting, if it is not chargeable to income tax under the head of "profits and gains of business or profession", then the same shall be chargeable to tax under the .....

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