Category: Income from House Property

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Renting out of counters to counter holders executing the sale and purchase of goods and provision of cash collection counters, staff facility is business Income

Renting out of counters to counter holders executing the sale and purchase of goods and provided facility of collection counter of sales proceeds manned by its own staff, packaging and delivery facility using its own staff, further counters were furnished by assesse, is  not a case of exploiting the property simpliciter, but a case where the objective of earning profits by conducting of the department store was merely facilitated by the use of the property. Hence assessable as business income and not income from house property.

Asiatic Stores & Soda Fountain[2017] 86 taxmann.com 211 (Mumbai – Trib.) SEPTEMBER  27, 2017

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INTEREST ON MONEY BORROWED FOR HOUSE PROPERTY IS TO BE ALLOWED ONLY IN RESPECT OF FIRST OR SECOND LOAN AND NOT FOR ANY SUBSEQUENT LOAN

SATYA CO. LTD [1986] 19 ITD 596 (CAL.)

 

The words ‘such capital’ used in section 24( 1)(vi) definitely refers to the borrowed capital and as such the section confines the benefit to the borrowed capital, i.e., original loan only. The language is not capable of being extended to any second or subsequent loan. No doubt, that the aforesaid Board’s circular refers to the second loan to which the provision of the section was extended by this Board’s circular. But it could not be extended to subsequent loans as contended by the assessees. Therefore, the Commissioner (Appeals) was incorrect in holding that the test laid down in section 24(1)(vi) was that the loan should have been taken to acquire the property and it did not say whether it was the first loan or second loan or subsequent loans.

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Issue of deduction of Housing Loan Interest in case of co-owners decided by Punjab and Haryana High Court in Priya Mahajan [ITA 384/2015 dtd 26-11-2015

Facts: Plot purchased in the name of four cowners. Also they were co-borrowers of housing loan for construction of house. The assessee solely repaid entire interest and principal since the date of borrowing. While assessee claimed 100% deduction on housing loan interest, the AO restricted it to 25% having regard to assessee’s share of ownership Section 45 of Transfer of Property Act 1882 on Joint transfer for consideration.— Where immoveable property is transferred for consideration to two or more persons and such consideration is paid out of a fund belonging to them in common, they are, in the absence of a contract to the contrary, respectively entitled to interests in such property identical, as nearly as may be, with the interests to which they were respectively entitled in the fund; and, where such consideration is paid out of separate funds belonging to them respectively, they are, in the absence of a contract to the contrary, respectively entitled to interests in such property in proportion to the shares of the consideration which they respectively advanced. In the absence of evidence as to the interests in the fund to which they were respectively entitled, or as to the shares which they respectively advanced, such persons shall be presumed to be equally interested in the property. Held that : In present case though assessee has claimed to have paid entire consideration for purchase of plot/construction, no evidence has been produced. In the sale deed since shares of individuals are not specified. Section 45 of Transfer of Property Act shall apply. In the case of Saiyed Abdullah v. Ahmad AIR 1929 All. 817, the Hon’ble Allahabad High Court held that ‘in the absence of specification of the shares purchased by two persons in the sale deed, it must be held that both purchased equal shares. In present case, since the individual shares were not specified in the sale deed, the logical conclusion is that everyone had equal share in the property. Hence allowance of 25% of Housing Loan to assessee borrower is correct even if the assessee solely repaid entire interest and principal since the date of borrowing.

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Hotel providing accomodation on daily basis is assessable under Business Income and not Income from House property merely because tds is deducted u/s 194-I

TDS of the assessee is deducted u/s 194-I for providing accommodation on daily basis. However assessee’s memorandum of association indicates that main object of the company is to carry on the business of hotels, resorts, boarding, lodges, guest houses, etc. However no property was let out and assessee received only rentals for occupation of the premises on a daily basis. Assessing Officer’s contention that income has to be assessed under ‘house property’ because TDS is deducted u/s 194-I is not correct because Even if machinery was leased, the consequent rent comes under the definition of rent u/s 194-I. But machinery lease cannot be considered under ‘income from house property’. That indicates that just because TDS was made under section 194-I, it cannot be treated as ‘house property income’ as the rent definition includes lease of equipment, lease of furniture, fittings which cannot be considered as ‘house property Moreover, even if assessee has let out property but when the memorandum of association permits the business of letting out of properties as such, the income cannot be brought to tax as ‘income from house property’ as held in the case of Chennai Properties & Investments Ltd. 373 ITR 673. It was held by Supreme Court that where in terms of Memorandum of Association, main object of the assessee-company was to acquire properties and earn income by letting out the same, the said income is to be brought to tax as ‘income’ from business and not as ‘income from house property’ ITAT Hyderabad in Heritage Hospitality Limited [2016] 68 taxmann.com 150 (Hyderabad – Trib.) JANUARY 22, 2016

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Assessee who was reflecting income under head Income from House property and therefore could not claim maintenance charges of Rs. 3.20 crore allowed to change the head of Income by filing revised computation of Income before AO by ITAT Mumbai in Peepul Tree Properties (P.) Ltd. [2016] 71 taxmann.com 332 (Mumbai – Trib.) MAY 20, 2016

ITAT in para 5.4 of the Judgement said that:

“……..there is no dispute on the proposition that tax liability of assessee has to be determined strictly in accordance with law. But a claim can be allowed to assessee which is valid as per law and made by the assessee in accordance with law and in a complete and rightful manner. In case the assessee wants its income to be assessed under different head as per the provisions of law, then, the minimum duty expected from the assessee is to at least file a revised computation sheet of income offering the income in proper heads and making appropriate claims against each and every head separately. This exercise is not expected to be done by the AO on behalf of the assessee. But nonetheless, with a view to meet the ends of justice and in view of these peculiar facts and circumstances of the case, we find it appropriate to give an opportunity to the assessee to file revise computation sheet of income before the AO making out its claim in an appropriate and complete manner………..”

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Prepayment charges and processing fee are allowable under section 24(b) as Interest from Income under head “Income from House property”[Peepul Tree Properties Mum Trib]

Definition of Interest u/s 2(28A) includes any service fee or other charge in respect of moneys borrowed or debt incurred or in respect of any credit facility which has not been utilized.

Hence both the prepayment charges and processing fee are allowable under section 24(b) as Interest from Income under head “Income from House property”

ITAT Mumbai followed :

  1. Pentagram Properties Pvt. Ltd. DCIT (ITA No.3713/M/2010) dated 12th August 2011
  2. Windermere Properties (P) Ltd. DCIT (34 taxmann.com)
  3. CIT Gujarat Guardian Ltd. (177 Taxman 434, Delhi)

Peepul Tree Properties (P.) Ltd. [2016] 71 taxmann.com 332 (Mumbai – Trib.) MAY  20, 2016