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TMI Blog2018 (4) TMI 378X X X X Extracts X X X X X X X X Extracts X X X X ..... /- c) Motor car insurance Rs. 1,13,847/- d) Depreciation on motor car Rs. 5,83,233/- 3. Your appellant craves leave to add, alter, amend or furnish fresh and detailed grounds of appeals." 3. The assessee has also filed a petition for admission of additional grounds on 26.09.17 by raising the following additional grounds of appeal. The additional grounds raised by the assessee are reproduced as below: "On the facts and circumstances of the case and as per the provision of law, the learned Assessing Officer has erred in assessing the compensation / rental income of Rs. 1,89,70,520/- under the head income for house property as against declared and claimed under the head business income. Further while allowing the aforesaid income under the head business the disallowance of various expenses related to income from house property amounting to Rs. 32,05,660/-, entire remuneration paid to directors Rs. 72,00,000/- and entire expenses incurred in relation to the motor car Rs. 15,83,596/- may please be allowed as business expenses as the same was incurred for the purpose of such business." 4. The Ld. A.R. for the assessee submitted that the additional grounds raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om house property and also interest earned from loans and advances shall not be assessed under the head "Income from other sources". In response to show cause notice, the assessee vide its submission dated 25.11.13 submitted that it has earned rental income from letting out of properties which were once used by themselves for the business purpose in the past. However, as the business of manufacturing tiles is closed down, they have given the premises on lease to others so as to earn rental income and accordingly it is termed rent under the head "Income from business or profession", which is in accordance with law and also supported by its main objective clause in memorandum of association. The assessee, in so far as interest receipts is concerned, no specific reply has been furnished to justify interest income as it is business receipts. 8. The AO after considering rival submissions of both the parties and also relying upon the decision of Hon'ble Supreme Court in the case of Shambhu Investment P. Ltd. vs. CIT (SC) 263 ITR 143, observed that rental income received from letting out of properties is assessable under the head "Income from house property", but not under the head "Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss of the company and hence rightly claimed motor car expenses and depreciation. Therefore, the AO was incorrect in disallowing the motor car expenses only on the ground that car is in the name of the director of the company. The Ld. CIT(A), after considering the relevant submissions of the assessee and also relying upon certain judicial precedents observed that once the rental receipts have been treated under the head "Income from house property" consequent deductions towards expenses have been allowed under section 24(a) of the Act @ 30% of rental value and hence, further deductions towards directors' remunerations which is not incurred wholly and exclusively for the purpose of business cannot be allowed. In so far as disallowance of motor car expenses including depreciation, the assessee has failed to justify expenses incurred towards maintenance of motor car and payment of interest on loan borrowed including depreciation with necessary evidences, when the AO specifically asked to produce log book etc. the assessee failed to file any evidences. Therefore, the AO was right in disallowing motor car expenses including depreciation. With these observations, the Ld. CIT(A) dismissed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontinued the activity of letting out its properties and derived rental income. The activity of assessee is also supported by main objects clause in memorandum of association. We further noticed that except letting out properties the assessee has not carried out any other business activity. Once the assessee has carried out its main activity of letting out properties to derive rental income, such rental income should be considered under the head "Income from house property". This legal proposition is further supported by the decision of Hon'ble Supreme Court in the case of Rayala Corporation Pvt. Ltd. vs. ACIT (supra), wherein under similar circumstances the Hon'ble Supreme Court observed that once the assessee had only one business that was of leasing its property and earning rent there from, the income so earned should be treated as business income and such income was to be subjected to tax under the head "Profit and gains of the business or profession". This legal proposition is further supported by the decision of ITAT Mumbai SMC Bench, in the case of Distinct Developers Pvt. Ltd. (supra) wherein under similar circumstances the co-ordinate Bench by following the decision of Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X
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