Building under construction cannot be taxed as deemed let out property

CIT Vs M/s. National Engineering Industries Ltd. (Calcutta High Court)

The Court:-This appeal was admitted on the following substantial questions of law:-

“(i) Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is correct in deleting the addition of Rs.67,97,355/- being rent receivable in respect of the portion of the property owned by the assessee, which was vacant during the year, on correct interpretation of the amended provisions of section 23(1)(c) of the Income-tax Act, 1961 ?

(ii) Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is correct in deleting the addition of Rs.1,49,71,491/- being service charges and depreciation of the property owned by the assessee as integral part of the letting out of the house property, and not the business carried on by the assessee ?”

The appeal primarily involves computation of income of the assessee from its immovable property for the assessment year 2005-2006. The property consists of a building in New Delhi at Barakhamba Road. For the relevant previous year a part of the building was let out and another part thereof was under construction. The assessing officer added the income receivable as income from house property.

Contention of the assessee before the assessing officer was that the building being under construction during the relevant previous year, the same could not be taxed applying the provision of Section 23(1)(c) of the Income Tax Act, 1961. On the second question, contention of the assessee was that the service charges received from the occupiers/ tenants ought to be taxed as business income and not income from house property and depreciation should have been allowed. The assessing officer went against the assessee on both these counts but the assessee’s stand was upheld by the Commissioner of Appeals.

The opinion of the Commissioner was that in the event any part of the property was vacant then only actual rent had to be taken and not any amount received or receivable on the basis of annual valuation. On the second point, Commissioner held, on fact, that the assessee was entitled for allowance, expenses and depreciation of assets used for rendering the service in connection with the property let out. The Tribunal affirmed the order of the Commissioner. In the assessee’s own case in ITAT No. 188 of 2010 [COMMISSIONER OF  INCOME TAX, KOLKATA- II VS. NATIONAL ENGINEERING INDUSTRIES LTD.] decided on 10^th September 2010 a Coordinate Bench had dismissed the appeal on similar facts and under similar circumstances pertaining to an earlier assessment year relying on two authorities of this Court being cases of CIT vs. MODEL MFG CO. [175 ITR 374(Cal)] and CIT vs. RUSSEL PROPERTIES PVT.  LTD.[ 137 ITR 473 (Cal)]

Having gone through the materials on record, we do not find any distinguishing feature so far as this appeal is concerned vis-à-vis the decision of the Coordinate Bench in relation to the earlier assessment year. The decision in the case of RUSSEL PROPERTIES PVT. LTD.(supra) squarely covers the points raised in this appeal and the ratio is in favor of the assessee. We, accordingly, dismiss this appeal. No order as to costs.