Introduction: The Income Tax Appellate Tribunal (ITAT) Delhi recently delivered a significant judgment in the case of DCIT vs U & I Business Services Pvt. Ltd. for the assessment year 2014-15. The dispute revolved around the treatment of rental income and expenses related to properties leased by the assessee. The ITAT’s decision, dated 25th October 2023, is noteworthy as it addresses key issues raised by the Revenue and upholds the order of the Commissioner of Income-Tax (Appeals) in favor of the assessee.
Background: U & I Business Services Pvt. Ltd., a resident corporate entity, is engaged in the business of leasing properties. For the assessment year in question, the assessee declared an income of Rs. 3,95,29,220, including rental income of Rs. 4,58,97,039 from leasing a property to Reliance Retail Ltd.
Issues Raised by the Revenue: The Revenue raised two principal grounds in its appeal:
ITAT’s Analysis and Decision:
1. Treatment of Rental Income: The Assessing Officer contended that the rental income should be treated as business income. However, the Commissioner (Appeals) accepted the assessee’s claim that the rental income earned had to be assessed as income from house property. The ITAT, upon reviewing the facts, noted that the assessee had two different properties – one leased as a business center with associated services and the other leased without additional services. The ITAT upheld the decision to treat the rental income as income from house property and allowed the deduction under Section 24(a) of the Act.
2. Disallowance of Rental Expenses: The Assessing Officer disallowed rental expenses of Rs. 60,00,000, claiming that the premises were not used for the assessee’s business. The Commissioner (Appeals), after verifying the facts, concluded that one of the properties taken on rent was indeed used for the business. Consequently, he deleted the addition to the extent of Rs. 48,00,000. The ITAT, considering the factual finding, declined to interfere with the decision, and the grounds were dismissed.
Conclusion: In conclusion, the ITAT’s order in the case of DCIT vs U & I Business Services Pvt. Ltd. clarifies the treatment of rental income and expenses for properties taken on rent for business purposes. The decision emphasizes the importance of factual findings and substantiated claims in determining the tax implications of such transactions. This ruling provides valuable insights for taxpayers and tax professionals dealing with similar issues in the realm of income tax assessments.
FULL TEXT OF THE ORDER OF ITAT DELHI
This is an appeal by the Revenue against order dated 10.04.2019 of learned Commissioner of Income-Tax (Appeals)-19, New Delhi for the assessment year 2014-15. The effective grounds raised by the Revenue are as under:
1. Whether on facts and in the circumstances of the case the Ld. CIT(A) has erred in law in deleting the disallowance of 1,17,26,787 made u/s. 24(a) of the Income-Tax Act, 1961 by the AO.”
2. Whether on facts and in the circumstances of the case the Ld. CIT(A) has erred in law in deleting the disallowance of 48,00,000/- made on account of rental expenses, by the AO.”
2. Briefly, the facts are, assessee is a resident corporate entity stated to be engaged in the business of leasing of property. For the assessment year under dispute, assessee filed its return of income on 30.10.2014 declaring income of Rs.3,95,29,220. While verifying the return of income filed by the assessee during assessment proceedings, the Assessing Officer noticed that the rental income received of 4,58,97,039 from letting out a property to Reliance Retail Ltd. has been offered to tax under the head “income from house property”.
3. Being of the view that such income has to be treated as business income, the Assessing Officer issued a show cause notice to the assessee and also directed the assessee to furnish its Memorandum of After perusing the Memorandum of Association, the Assessing Officer observed that as per the objects, the rental income received by the assessee has to be treated as business income. Accordingly, he assessed the income under the head “business and profession”.
4. Being aggrieved with the aforesaid addition, the assessee preferred an appeal before learned First Appellate Authority. Being convinced with the submissions of the assessee, learned Commissioner (Appeals) accepted assessee’ s claim that the rental income earned has to be assessed as income from house property.
5. We have considered rival submissions and perused the material on record.
6. As could be seen from the facts and material on record, assessee had two different properties, one located at Sector-32, Gurgaon and the other at Sector-29, Gurgaon. The property at Sector-32, Gurgaon has been let out to Greynium Information Technologies Pvt. Ltd. as a business centre with various types of additional services such as staff assistance, reception services, photocopy, FAX, counter services, car parking services etc. for which the lease rent has been offered as income from business. However, the property located at Sector-29, Gurgaon has been let out to M/s. Reliance Retail Ltd. without any additional/associated services. Hence, the rental income received has been offered as income from house property. It is also observed that the rental income received from Reliance Retail Ltd. has been assessed and offered to tax as income from house property from past assessment years. The aforesaid factual position remains uncontroverted before us. Thus, in view of the aforesaid, we are inclined to uphold the decision of learned First Appellate Authority in treating the rental income as income from house property and allow deduction under Section 24(a) of the Act.
7. The second issue relates to deletion of disallowance of 48,00,000.
8. Briefly, the facts relating to this issue are, in course of assessment proceedings, the Assessing Officer noticed that the assessee has paid rent of Rs.60,00,000 to two persons, namely, Shri Harbans Kohli and Chanchal Rani Kohli. Being of the view that the concerned premises were not used for the purpose of assessee’s business, the Assessing Officer disallowed the rental expenses of Rs.60,00,000. Assessee contested the aforesaid disallowance before learned First Appellate Authority.
9. Having factually verified the issue, learned Commissioner (Appeals) observed that out of three properties taken on rent, one of the properties situated at F-41, NDSE Part-I is being used as registered office and business premises of the assessee as per the documents available from Ministry of Corporate Affairs’ website, as well as copies of bills from various vendors address, to the said address. Thus, he held that, since, the property is being used for business, rent paid of Rs.48,00,000 relating to that property has to be allowed as business expenses. Accordingly, he deleted the addition to the extent of Rs.48,00,000.
10. Having considered rival submissions, we find that learned First Appellate Authority has recorded a factual finding that one of the properties taken on rent, is actually used for the business of the assessee. The Revenue has not been able to controvert the aforesaid factual finding and that being the case, we decline to interfere with the decision of learned First Appellate Authority. Grounds are dismissed.
11. In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the open court on 25 .10.2023.