Kanakia Gruhnirman Pvt Ltd Vs DCIT (ITAT Mumbai)
ITAT Mumbai held that composite rental income received by letting out school building with infrastructure and amenities is taxable under the head ‘Income from House Property’ and not under ‘Income from income from other sources’ in view of section 56(2)(ii) of the Income Tax Act.
Facts- During the year under consideration, the assessee has shown rental income of ₹.3,24,37,720/- from Babubhai Kanakia Foundation & ₹. 91,66,360/- from M/s RBK Education Solution Pvt Ltd for letting out of school building along with complete infrastructure and amenities which has been constructed by it after acquiring the development rights from M/s. Natvar Parikh & Co, on 11.08.2006. During the construction period, a lease deed was entered into with Babubhai Kanakia Foundation at a monthly lease rent as provided in the lease deed plus taxes, electricity charges and outgoings. The said lease deed was not registered.
AO observed that as lease deed to let out the school building with infrastructure and amenities was entered into for composite in-separable rent in respect of letting out of school building with infrastructure. The assessee was asked to show cause as to why the composite rent income received under the head house property should not be brought to tax under the head other sources in view of section 56(2)(ii) of the Act.
AO adopted lease rental income shown at ₹.4,16,04,080/- to be treated as income from other sources u/s 56(2)(ii). Accordingly, AO proceeded to compute the income of the assessee at ₹.4,27,63,941/- by adding ₹.4,16,04,080/- as income from other sources and also added ₹. 11,59,861/- (under income from business ₹.10,97,013/-, Demat Charges and Insurance charges of ₹.2,848/-, ₹.60,000/- respectively).
CIT(A) dismissed the appeal of the assessee.
Conclusion- The issue involved in this appeal is, the assessee declared the income earned from letting of school building with amenities under the Head “income from House Properties” from A.Y. 2009-10. This issue was decided by the Ld.CIT(A) and ITAT in favour of the assessee till A.Y.2012-13.
CIT(A) has relied on the decision of Coordinate Bench to give relief to the assessee and it is fact on record that this issue is settled in favour of the assessee. Therefore, we are inclined to allow the grounds raised by the assessee in this regard. With regard to Ground No. 2, since we decided the issue of taxability of income under the Head “Income from House property” in favour of the assessee, therefore this ground becomes infructuous.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
1. This appeal is filed by the assessee against order of Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter in short “Ld.CIT(A)”] dated 10.11.2022 for the A.Y.2013-14.
2. Brief facts of the case are, assessee is engaged in the business of ‘Real Estate Development’. Return of income was filed on 27.08.2013 declaring total loss at ₹.1,36,51,953/- and return was processed u/s. 143(1) of Income-tax Act, 1961 (in short “Act”). Subsequently, case was selected for scrutiny and notices u/s. 143(2) and 142(1) of the Act were issued and served on the assessee. In response Authorised Representative of the assessee attended and submitted the relevant information as called for.
3. The assessee is engaged in the business of construction and development of properties. During the year under consideration, Assessing Officer noticed that no real estate development activity was carried out by the assessee and assessee has shown rental income from letting out of school building, capital gain on redemption of preference shares, interest on fixed deposits and interest from partnership firm and dividend on shares.
4. During the year under consideration, the assessee has shown rental income of ₹.3,24,37,720/- from Babubhai Kanakia Foundation & ₹. 91,66,360/- from M/s RBK Education Solution Pvt Ltd for letting out of school building along with complete infrastructure and amenities which has been constructed by it after acquiring the development rights from M/s. Natvar Parikh & Co, on 11.08.2006. During the construction period, a lease deed was entered into with Babubhai Kanakia Foundation at a monthly lease rent as provided in the lease deed plus taxes, electricity charges and outgoings. The said lease deed was not registered. The school building was constructed with the above referred infrastructure and amenities and the lease rent was ₹.30/- per sq. ft. per month for all the ten (10) academic years without any subsequent upward variation. The cost composition of the school is as under: –
