Rent received from letting of terrace of building is income from House property or Income from other sources

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Rent received from letting of terrace of building is income from House property or Income from other sources

Overview:

In view of decision given by Tribunal in case of Matru Ashish Co-operative Housing Society Ltd. v. ITO (2012) 27 taxmann.com 169 (Mumbai-Trib) : 2011 TaxPub(DT) 2180 (Mum-Trib), the income from letting out of terrace had to be assessed under the head ‘Income from house property’, subject to deduction under section 24.

Assessee co-operative society had received rent for letting out terrace of building to telecom company and claimed deduction under section 24(a) under the head “Income from house property”. AO disallowed the rent received by assessee from Telecom by holding that income was liable to be taxed as income from other sources and not under the head Income from House Property.

Order :  Income from letting out of the terrace had to be assessed under the head ‘income from house property’ subject to deduction under section 24 as against income from other sources as assessed by AO as decided by Tribunal in case of Matru Ashish Co-operative Housing Society Ltd. v. ITO (2012) 27 taxmann.com 169 (Mumbai-Trib) : 2011 TaxPub(DT) 2180 (Mum-Trib).

Decision: In assessee’s favour.

Followed: Matru Ashish Co-operative Housing Society Ltd. v. ITO (2012) 27 taxmann.com 169 (Mumbai-Trib) : 2011 TaxPub(DT) 2180 (Mum-Trib), S. Sohan Singh v. ITO (1986) 16 ITD 272 (Del-Trib) : 1986 TaxPub(DT) 1078 (Del-Trib).

IN THE ITAT, MUMBAI BENCH

A.K. GARODIA, A.M.

Citi Centre Premises Co-op. Society Ltd. v. ITO

ITA No. 3029/Mum/18 and ITA No. 3030/Mum/18

1 February, 2019

Appellant by: Lalchand Choudhary, AR

Respondent by: Vijay Kumar Soni, DR

ORDER

Both these appeals are filed by the assessee, which are directed against the combined order of the learned Commissioner (Appeals)-42, Mumbai, dated 28-2-2018, for the assessment years 2013-14 & 2014-15. Since the facts and issues involved in these appeals are common and identical, both these appeals were heard together and are being disposed by way of this common order for the sake of convenience.

  1. The grounds raised by the assessee for the assessment year 2013-14 are as under :–

“The appellant prefers the following Appeal against the order dated 28-2-2018 of the Commissioner (Appeals)-42, Mumbai, (hereinafter referred to as “The CIT(A)”) passed under section 250(6) of the income Tax Act, 1961 (“The Act”). Each of the grounds is in alternative and without prejudice to other.

1.0: On facts and in law and in the circumstances of the case. Hon’ble Commissioner (Appeals) erred in confirming the disallowance of deduction of Rs. 641,749 (correct amount – Rs. 652,712) under section 24(a) of the Income Tax Act, 1961 by disregarding the fact that rental income received by a co-operative society for letting out the building terrace and permitting erection and installing of cell phone towers thereon in the building owned by the society is properly assessable only under the heading ‘Income from House Property’ and as such statutory deduction under section 24(a) is legitimately permissible.

1.1: On facts and in law, Hon’ble Commissioner (Appeals) failed to appreciate that the assesses society being owner of the building, rental income received by the assessee-society for letting out the building terrace and permitting erection and installing of cell phone towers thereon in the building cannot be assessed as Income from other sources.

The Appellant craves leave to add to, alter, amend or delete all or any of the aforesaid grounds of appeal.”

  1. The grounds raised by the assessee for the assessment year 2014-15 are as under :–

“The appellant prefers the following Appeal against the order dated 28-2-2018 of the Commissioner (Appeals)-42, Mumbai, (hereinafter referred to as “The CIT(A)”) passed under section 250(6) of the Income Tax Act, 1961 (“The Act”). Each of the grounds is in alternative and without prejudice to other.

1.0: On facts and in law and in the circumstances of the case, Hon’ble Commissioner (Appeals) was not justified in confirming the disallowance of deduction of Rs. 497,730 (in fact correct amount of disallowance is only Rs. 497,730 being the amount of deduction under section 24(a) claimed by the appellant and not Rs. 641,749 as erroneously recorded by the Commissioner (Appeals)) claimed by the appellant under section 24(a) of the Income Tax Act, 1961 by disregarding the fact that rental income received by a cooperative society for letting out the building terrace and permitting erection and installing of cell phone towers thereon in the building owned by the society is properly assessable only under the heading ‘Income from House Property’ and as such statutory deduction under section 24(a) is legitimately permissible,

1.1: On facts and in law, Hon’ble Commissioner (Appeals) failed to appreciate that the assesses society being owner of the building, rental income received by the assessee-society for letting out the building terrace and permitting erection and installing of cell phone towers thereon in the building cannot be assessed as Income from other sources.

The Appellant craves leave to add to, alter, amend or delete all or any of the aforesaid grounds of appeal.”

  1. At the outset, it was submitted by the learned AR of the assessee that in Para 4.2 of the assessment order for the assessment year 2013-14, it is noted by the assessing officer that for assessing an income earned in respect of a property as an income from house property, the property in question should be fit for habitation. He also observed that an open plot/terrace cannot be termed as house property as it is the common amenity for use of Members of society and cannot be used for habitation. He submitted that on this basis, assessing officer held that the income from letting out the terrace is not assessable under the head ‘income from house property’ and he taxed the same as ‘income from other sources’ and disallowed the claim for deduction under section 24(a) of the Income Tax Act (Act) in both the years. He submitted that this issue is squarely covered in favour of the assessee by the order of the Tribunal in the case of Matru Ashish Co-operative Housing Society Ltd. v. ITO (2012) 27 taxmann.com169 (Mumbai-Trib) : 2011 TaxPub(DT) 2180 (Mum-Trib). He submitted a copy of the Tribunal order.
  2. Learned DR for the Revenue supported the order(s) of the learned Commissioner (Appeals).
  3. I have considered the rival submissions. First of all, I reproduce the relevant Para of the Tribunal’s order rendered in the case of Matru Ashish Co-operative Housing Society Ltd. v. ITO (supra), herein below for ready reference :–

“3. Briefly stated facts of the case are that the assessee is a Cooperative housing society, filed return declaring an income of Rs. 6,53,990. During the course of assessment it was inter alia observed by the assessing officer that the assessee has shown an amount of Rs. 5.50 lacs as rent received from Reliance Telecom and after deducting an amount of Rs. 1.65 lacs being deduction under section 24(a) of the Income Tax Act, 1961(the Act) @ 30% from the above amount, the assessee has shown an amount of Rs. 3,85,000 as income from house property. On being asked it was submitted by the assessee that since the above amount represented rent received for allowing Reliance Telecom to use portion of the terrace, the same was rent received from letting out property, and hence, the same was liable to be taxed as income from house property under section 22 of the Act as terrace constitutes an integral part of the building as referred to under section 22 of the Act. However, the assessing officer following the appellate order for the assessment year 2003-04 treated the receipt of Rs. 5.50 lacs as income from other sources and disallowed the claim of Rs. 1.65 lacs under section 24(a) of the Act and accordingly completed the assessment at an income of Rs. 25,21,440, vide order dated 22-11-2006 passed under section 143(3) of the Act. On appeal, the learned Commissioner (Appeals) for the same reasons while following the appellate order for the assessment year 2003-04, upheld the addition made by the assessing officer.

  1. Being aggrieved by the order of the learned Commissioner (Appeals) the assessee is in appeal before us taking following sole ground of appeal :–

“1. The Commissioner (Appeals) has erred in confirming that the rent received for allowing the use of terrace area under the head ‘Income from other sources’ instead of under the head ‘Income from house property’ and accordingly disallowed Rs. 1,65,000 being 30% of rent received as expenses under section 24(a) of the Income Tax Act, 1961.”

  1. At the time of hearing the learned DR supports the order of the assessing officer and the learned Commissioner (Appeals).
  2. Having carefully heard the submission of the learned DR and perusing the material available on record we find that the facts are not in dispute. We further find that the issue is covered against the revenue and in favour of the assessee by the orders of the Tribunal. In the case of Sharda Chamber Premises v. ITO in ITA No. 1234/M/08, dt. 1-9-2009for assessment year 2003-04 in which JM was one of the party, on the similar facts, the Tribunal after considering the decision in ITO v. Cuffe Parade Sainara Premises Co-operative Society Ltd. [ITA No. 7225/Mum/05, dt. 28-4-2008]for assessment year 2002-03 and also the decision in the case of S. Sohan v. ITO (1986) 16 ITD 272 (Del-Trib) : 1986 TaxPub(DT) 1078 (Del-Trib) supra has held vide Para 6 and 7 of its order dated 1-9-2009 as under :–

“6. We have carefully considered the submissions of the rival parties and perused the material available on record. We find merit in the plea of the learned Counsel for the assessee that in the case of M/s. Dalamal House Commercial Complex-Premises Co-operative Society Ltd., the Tribunal while admitting the additional ground being a legal issue has also held that the letting out of the terrace, erection of antenna and income derived from letting out has to be taxed as ‘income from house property’ and not as ‘income from other sources’. The Tribunal while deciding the issue has followed the order of the Tribunal in the case of M/s. Cuffe Parade Sainara Premises Co-op. Society Ltd. supra.

  1. In the absence of any distinguishing feature brought on record by the revenue we, respectfully following the order of the Tribunal (supra), and keeping in view the consistency while admitting the additional ground taken by the assessee hold that the letting out of terrace has to be assessed under the head ‘income from house property’ as against ‘income from other sources’ assessed by the assessing officer and also allow deduction provided under section 24 of the Act and accordingly the additional ground taken by the assessee is allowed.”

Respectfully following the order of the Tribunal supra, we are of the view that the letting out of the terrace has to be assessed under the head income from house property subject to deduction under section 24 of the Act as against income from other sources assessed by the assessing officer. We hold and order accordingly. The ground taken by the assessee is, therefore, allowed.”

6.1. The issue in dispute in that case as per the Para reproduced from the Tribunal’s order above is regarding rent received from Reliance Telecom and in that case also, the assessee claimed a deduction under section 24(a) of Rs. 1.65 Lakhs being 30% of such rental amount of Rs. 5.50 Lakhs. Assessing officer disallowed the same by holding that if income is liable to be taxed as income from other sources and not under the head Income from House Property. He made disallowance of the claim for deduction under section 24(a) of the Act. Aggrieved, assessee carried the matter in appeal before the Commissioner (Appeals). He did not succeed and assessee again carried the matter before the Tribunal. The Tribunal at Para 6 of its order as reproduced above, followed another order of the Tribunal rendered in the case of Sharda Chambers Premises Co.-Op. Society Ltd. v. ITO in ITA No. 1234/Mum/2008, dt. 1-9-2009 and decided the issue in favour of the assessee and held that income from letting out of the terrace has to be assessed under the head ‘income from house property’ subject to deduction under section 24 of the Act as against income from other sources as assessed by the assessing officer. Since in the present case, the facts in dispute are identical and no difference in facts could be pointed out by the learned DR of the Revenue, respectfully following this order of the Tribunal, I decide the issue in favour of the assessee. Respective Grounds are allowed.

  1. In the result, both the appeals of the assessee are allowed.

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