Case Law Details
Construction expenses not recorded in books of account, cannot be a ground for assessing the rental income under the head “income from other sources”when the conditions of Section 22 of the Act for assessing the annual value of the property have been fulfilled by the assessee. By not recording construction expenses in books of account, the rights of ownership of the assessee over the property cannot be taken away and it remains the owner of the property.
1. The facts in brief of the case are that during year under consideration, the assessee received rent of Rs.1,22,98,440/-. In the return of income filed for the year under consideration on 29.09.2009, the assessee declared the said rental income under the head tax payment. Before the learned Commissioner of Income Tax (Appeals), the assessee produced copy of sale deed through which the assessee purchased the property. After consideration of the submissions of the assessee, the learned Commissioner of Income Tax (Appeals) observed in the impugned order as under:
(i) According to the sale deed the assessee only purchased roof rights over the entire second floor with the right to construct and own any areas/floors on the third floor and subsequent terraces in respect of Plot No. 26, Block No. 34, Pusa Road, New Delhi, along with 20% indivisible leasehold rights in the plot of land.
(ii) The sale deed clearly reflected that the third floor was not constructed as on the date of purchase of the property.
(iii) In the balance sheet as on 01.04.2008, only the investment in purchase of terrace right with the right to construct was reflected and there was no investment on construction of the property either in the relevant year or in the previous year reflected in the balance sheet.
(iv) According to the electricity bill of the property produced by the appellant, energization date was 11.07.2007 showing that the electricity connection was provided in July, 2007.
2. Further, on the basis of the lease-deed which was entered on 14.01 .2008, and the electricity bill, the learned Commissioner of Income Tax (Appeals) was of the opinion that the property must have been constructed in the year 2007-08. According to the learned Commissioner of Income Tax (Appeals), the expenditure on construction over the property was not reflected in the books of account and thus the income generated from such property could not been treated as the Electricity bill and electricity connection in the name of the generated from such property could not been treated as the “income from house property”and accordingly, she upheld the finding of the Assessing Officer of assessing the rental income under the head “income from other sources”. Aggrieved, the assessee is in appeal before the Tribunal raising the grounds reproduced above.
3. Before us, the learned counsel for the assessee argued the issue of whether the rental income received by the assessee is assessable under the head “income from house property”or under the head “income from other sources”. No arguments in respect of the other grounds were taken before us. Learned counsel for the assessee submitted that once the learned Commissioner of Income Tax (Appeals) has accepted that the property was constructed in the year 2007-08, then the same cannot be assessed under the head “income from other sources”merely on the ground that the construction expenses of the same were not reflected the balance sheet of the assessee.
4. On the other hand, learned Sr. Departmental Representative relied on the orders of the authorities below.
5. We have heard the rival submissions and perused the relevant material on record. We find that for the purpose of assessing the rental income from the property under the head “income from house property”, the two conditions must be fulfilled. First condition is that there must be a property consisting of any building or land appurtenant thereto. Second condition is that the assessee must be owner of that property.
5.1 In the instant case, the assessee has submitted the following evidences in support of the above two conditions:
(i) House tax receipt issued by the Municipal Corporation.
(ii) Electricity bill and electricity connection in the name of the assessee.
(iii) Sale deed for purchase of rights of construction over the second floor of the building.
(iv) Lease deed entered with the tenant.
5.2 The assessee did not furnish the evidence in support of the cost of construction incurred, however, after appreciation of the evidences as available the learned Commissioner of Income Tax (Appeals) was of the view that the property was construction in the year 2007-08.
5.3 We find that in view of the evidences brought on record, the learned Commissioner of Income Tax (Appeals) has accepted the fact that property must have been constructed in the year 2007-08, thus, in a way, he confirmed that the property consisting of building came into existence, and in these circumstances, the assessee fulfill both the conditions for assessing the rental income from the property under the head “income from house property”. The reasoning for assessing the income under the head “income from other sources”given by the learned Commissioner of Income Tax (Appeals) is not justified because if the cost of construction is not shown in books of account, the Assessing Officer is free to take necessary action for evasion of tax, if any, in that regard. However, construction expenses not recorded in books of account, cannot be a ground for assessing the rental income under the head “income from other sources”when the conditions of Section 22 of the Act for assessing the annual value of the property have been fulfilled by the assessee. By not recording construction expenses in books of account, the rights of ownership of the assessee over the property cannot be taken away and it remains the owner of the property.
5.4 In view of the above discussion, we, therefore, direct the Assessing Officer to assess the rental income from the property under the head “income from house property”and allow the deduction in accordance with law.
