Full Judgment
(ii) Commissioner (Appeals) was not justified in upholding the order of the assessing officer estimating the rental income at Rs. 24 lakhs against the rental income of Rs. 12.84 lakhs received by the assessee.
(iii) Commissioner (Appeals) was not justified in confirming the charge of interest under Sections 234B and 234D and withdrawal of interest under Section 244A and also in confirming the initiation of penalty processing by the assessing officer under Section 271(1)(c).
2. The assessee-company is stated to have been formed on 24-9-1997 to carry out the business of letting out premises constructed on the plot No. B-1/5A, Janakpuri New Delhi. The said plot was owned by Ramesh Rani Maini, wife of Shri Kulwant Rai Maini, the MD of the assessee-company.
The assessing officer noticed that the assessee company had disclosed a sum of Rs. 12.84 lakhs as a lease rent in the profit and loss account and computed the income under the head 'Business' after setting off total expenses of Rs. 11,53,475 which included depreciation, lease charges, security charges, repair and office and administrative expenses, etc. The property under reference consisted of basement ground floor, 1st floor, 2nd floor and 3rd floor and thus there were five units in all. The Assessing Officer asked the details like floor area, which had been let out and tenant wise details, which was not furnished. The form No. 16A furnished with the return in connection with tax deducted at source, showed that the assessee had received total rent of Rs. 12,84,000 from three tenants. The assessing officer also noted that though there were five units, the rent had been disclosed only in respect of 21/2 units and the assessee did not give complete details in respect of rent received in respect of each floor.
Considering that the rent received in respect of 21/2 floors had been disclosed at Rs. 12.84 lakhs, the assessing officer estimated the annual letting out value of the entire property at Rs. 24 lakhs. He also rejected the claim of the assessee to assess the rental income as income from business. He computed the income under the income from house property at Rs. 18 lakhs after allowing the statutory deduction @ 25 per cent. The assessing officer also charged interest under Section 234 and withdrew interest allowed under Section 244A and also initiated concealment penalty proceedings under Section 271(1)(c). The decision of the assessing officer was disputed by the assessee.
2.1 In appeal, the assessee submitted before Commissioner (Appeals) that the rental income was assessable as business income since the rent received was in the nature of composite rent, which included services towards security, watchman, telephone, computer and secretial facilities etc. It was also submitted that the assessee had received the total rent of only Rs. 12.84 lakhs and therefore, assessing officer was not correct in computing the annual letting out value at Rs. 24 lakhs. Commissioner (Appeals) observed that the predominant object of the assessee was letting out the property so as to enjoy rental income and therefore, the rental income even if it included charges for providing other incidental services, will be assessable as income from house property as held by the Delhi Bench of the Tribunal in case of Neelam Cable Mfg. Co. v. Asstt. CIT (1997) 63 ITD 1. Accordingly, he upheld the decision of the assessing officer assessing the rental income under the. head 'House property'. As regards the letting out value, Commissioner (Appeals) observed that the assessee did not furnish floor-wise and tenant wise details of the property despite adequate opportunity given by the assessing officer. The assessee also could not give details regarding nature of occupation and usage of the remaining of 21/2 units in respect of which; no rental income was shown. The assessing officer was therefore, justified in assessing the annual letting out value at Rs. 24 lakhs and order of the assessing officer was thus upheld by the Commissioner (Appeals). Commissioner (Appeals) also confirmed the order of the assessing officer in relation to interest as well as initiation of penalty proceedings. Aggrieved by the said decision, the assessee has filed present appeal before the Tribunal.
3. Before us, the Learned A.R. for the assessee submitted that the assessee company had constructed the five units on the land belonging to Smt. Ramesh Rani Maini as per the verbal agreement as per which 21/2 units were occupied by the company and the remaining 21/2 unfinished units were handed over to the land lady. The entire portion of 21/2 units was occupied by three tenants and the assessee, for administrative work and C no part was lying vacant. Further the company had let out the furnished building along with services of security, watchman, secretarial facilities, communication facilities, computer, vehicles etc. The composite rent agreement along with the land documents and confirmation from tenants had been filed before Commissioner (Appeals). The letting out of the building and services provided by the assessee were inseparable and therefore, the income was required to be assessed under the head 'Business'. Commissioner (Appeals) had not considered these documents. The learned AR relied on the judgment of Hon'ble Supreme Court in case of Sultan Bros. (P)Ltd. v. CIT and also referred to the judgment of Hon'ble High Court of Gujarat in case of Asstt. CIT v. Saptarshi Services Ltd. in which it was pointed out that under similar circumstances the income had been assessed under the head 'Business'.
It was also submitted that the assessee-corripany was not the owner of the units, which were only on lease and therefore, the income should be assessed as business income.
3.1 The learned Sr. DR appearing for the revenue on the other hand strongly defended the orders of the lower authorities. It was argued that the claim of verbal agreement was only colourable device and no such claim was made before the lower authorities. It was further submitted that the assessee-company was receiving the rental income from immovable property in its own right and therefore, it was assessable as income from house property. There was no material to indicate that the assessee had any intention to do business in the property. He also relied on the judgment of Hon'ble Supreme Court in case of Shamhhu Investment (P) Ltd. v. CIT in support of the plea that the income has to be assessed as income from house property.
3.2 In reply the Learned A.R. for the assessee pointed out that Commissioner (Appeals) while applying the decision of the Tribunal in case of Neelam Cable Mfg. Co. (supra) had overlooked the fact that Tribunal in that case had held that while computing the income from house property the amount of security service charges claimed by the assessee was deductible from the gross rent.
4. We have perused the records and considered the rival contentions carefully. The issue raised before us is regarding taxability of income from letting out of the premises constructed at plot No. B-1 /5A Janakpuri, New Delhi. Five units had been constructed on the said plot consisting of basement and four upper floors. The claim of the assessee before us is that the assessee-company had constructed the building on the said plot, which was owned by Smt. Ramesh Rani Maini as per the verbal understanding with the latter in terms of which the assessee-company was entitled to occupy 21/2 units whole of which was occupied by the three tenants and partly by the assessee for its own business use. It has also been submitted before us that in consideration for constructing the building on the plot of land the assessee had been provided 21/2 floors on lease. On careful perusal we find that these details were not available before the lower authorities. The assessing officer had specifically asked for tenant wise and area wise details of usage of the entire building but no details had been given. He, therefore, estimated the annual letting value at Rs. 24 lakhs on the basis of rental income received of Rs. 12.84 lakhs from 21/2 units. Before Commissioner (Appeals) also the ownership details as well as usage of entire building had not been given. The assessee vide letter dated 17-9-2004 addressed to Commissioner (Appeals), a copy of which is available in the paper book at page 16, had only submitted that the assessee had received a composite rent including the charges for various services such as security, watchman, vehicle, secretarial and communication facilities.
Though the assessee had also mentioned in the said letter that no other amount had been received as rent, but had not given full details of the usage of the remaining portion of the building. The assessee has filed affidavits from the assessee and the landlady confirming the verbal understanding but the said affidavits are dated 14-3-2007 and were obviously not available before the lower authorities.
4.1 The matter in our view requires fresh examination to find out constructed area owned by the assessee and whether the share received by the assessee in consideration for the construction of the building free on the plot owned by the landlady conforms to the market value. As regards the ownership, we may make it clear that in the context of the provisions of Section 22 of the Income Tax Act, the owner is a person who is entitled to receive the income from the property in his own right and not on behalf of others as held by Hon'ble Supreme Court in case of R.B. Jodhamal Kuthiala v. CIT . Subsequently, the Act was also amended with effect from 1-4-1989 and deemed ownership provisions were incorporated in Clauses (iii), (iiia) and (iiib) of Section 27. Under the provisions of Clause (iiib), even a person having a lease right exceeding a particular period is deemed to be the owner of the property for the purpose of assessment under the head 'House property'. These aspects can be examined only after getting the full details, which were not available before the lower authorities. As regards the head of the income under which the composite rental income had to be assessed, the same has to be examined in the light of the judgment of Hon'ble Supreme Court in case of Sultan Bros. (P) Ltd. (supra) and after taking into account the other judgments relied upon by the respective parties and after carefully an alyzing the terms and conditions of the lease agreement. The composite lease agreement was not there before the assessing officer. Though it is claimed to have been filed before Commissioner (Appeals), the latter has not made a detailed examination of the same.
4.2 On the facts and in the circumstances of the case mentioned above, in our view, the entire matter requires fresh examination in order to arrive at a fair decision. Accordingly, we set aside the order of Commissioner (Appeals) and restore the matter to the file of the assessing officer for passing a fresh order after necessary examination and after allowing opportunity of being heard to the assessee. While making the fresh assessment, the assessing officer will recompute the interest under the provisions of law and will be free to take decision on merit in the matter of initiation of penalty proceedings.
5. In the result, the appeal of the assessee is allowed for statistical purposes.