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Facts
The assessee, a private beneficiary trust, declared rental income from its property as 'income from house property' and offered it to tax through its beneficiaries. The CPC, however, treated this income as business income and made an adjustment u/s 143(1), also denying TDS credit.
Held
The Tribunal held that rental income from leasing a property is to be assessed as 'income from house property' and not business income, especially when beneficiaries have included it in their individual returns. The denial of TDS credit was also found to be incorrect.
Key Issues
Whether rental income from property let out without any services should be treated as 'income from house property' or 'business income', and the consequential treatment of TDS credit.
Sections Cited
143(1), 139(9), 24(a), 161, 166, 143(3)
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Income Tax Appellate Tribunal, “C” BENCH MUMBAI
ORDER PER: AMIT SHUKLA, JM: The aforesaid appeal has been filed by the assessee against the order dated 25.10.2024 passed by Addl./JCIT (A), Bhubaneshwar, in relation to the adjust assessment made u/s 143(1) for the year 2018-19. 2. In various grounds of appeal
, the assessee has challenged firstly, not granting of deduction u/s 24(a) to Rs.1,97,80,200/- as claimed by the assessee by computing the income from house 2 property and in the intimation u/s.143(1)(a) the assessee‟s income was assessed at Rs.6,69,38,890/- as against “Nil” income by treating the income from house property as business income; Secondly, non granting of credit for TDS deducted from house property.
3. The brief facts of the case are that the assessee is a private specified beneficiary trust registered on 25.11.1978 for the benefit of 5 beneficiaries each having 20% share of income. The income derived from the trust has been offered to tax by the beneficiaries in their respective return of income in their individual hands. The assessee trust filed a return of income for A.Y. 2018-19 on 02.07.2018 showing “Nil” income after allocating the income amongst 5 specified beneficiaries. In the computation of income, assessee has declared income from house property and interest income from other sources. In the intimation u/s 143(1)(a), income credited in the profit and loss account offered under the head „income from house property‟ and “other source” schedules has been assessed and taxed as business income at the maximum marginal rate. 3.1 Prior to the issue of intimation u/s 143(1), in response to notices u/s 139(9) dated 28.10.2019 and 09.12.2019 all the facts relating to trust were disclosed by the assessee, however, assessee could not respond to the notice sent by the CPC on 23.12.2019 accordingly CPC made the adjustment.
3 4. The Ld. CIT(A) simply on the ground that assessee did not responded to the communication sent on 23.12.2019, therefore, CPC was correct in making the adjustment and by treating the total income under the head business income.
Before us, the Ld.AR of the assessee submitted that assessee had filed a detailed written submission before ld. CIT(A) disclosing all the facts relevant to the trust and also given the reasons for not able to file the reply in response to the show cause notice issued by the CPC. The Ld. CIT(A) has not considered the submission and explanation of the assessee filed before him erroneously dismissed the appeal.
On perusal of the facts and materials placed on record before the Ld. CIT(A), it is seen that assessee is a private specified trust which had a property and was let out without any other asset or rendering any kind of services to M/s Schlumberger Asia Ltd. in the year 2003. The property continued to be rented till date and during the year assessee trust received rent of Rs.6,59,34,000/-. Since assessee being the owner of the property which was given on rent without any service or any other amenities, therefore, the rent received was declared under the head income from house property and such “income from house property” has been shown in all the earlier years, and there was never any dispute by the department. It is well settled principle, in view of the judgment of Hon‟ble Supreme Court in the case of Raj Dadarkar & Associates 394 ITR 592 (SC), that rental income derived from leasing of the property is to be assessed under the head “income from house property” as not a 4 „business income‟. Thus, income was liable to be assessed under the head income from house property only and not as business income.
In so far as applicability of section 161, it has been brought on record that consistently in all the past years as assessment year 2016-17 income has been assessed in the hands of specified beneficiaries under the head “house property” and in support following assessment years u/s 143(3) and 143(1) has been submitted: i. Order u/s 143(3) for AY 11-12 ii.Order u/s 143(3) for AY 12-13 iii.Order u/s 143(3) for AY 14-15 iv.Order u/s 143(3) for AY 16-17 v.Intimation u/s 143(1) AY 2021-22 dated 19-06-2022 vi.Intimation u/s 143(1) AY 2022-23 dated 13-10-2022 vii. Intimation u/s 143(1) AY 2023-24 dated 19-10-2023
It is also matter of fact that these beneficiaries have included the trust income in their individual return of income and were taxed at higher rate of tax as they had substantial other income. The details of each beneficiaries who have declared the rent received other income from house property in the individual return which are as under: i. Details of income ii. Mukul M Deora 5 iii. Milind M Deora iv. Poja P Deora v. Puneet p Deora vi. Krtikk Deora
It is now well settled that if income being taxed in individual hands of beneficiaries, the same cannot be assessed u/s 166 as “Representative Assessee‟s” in the hands of the trust. This view is squarely covered by the judgment of Hon‟ble Calcutta High Court in the case of Alfred Herbert (I)(P) Ltd. 159 ITR 583 (Cal).and in the case of Smt. Ushaben Trust 190 ITR 485 (Bom). Accordingly, we hold that firstly, income from rental income received from letting out property is to be assessed under the head “income from house property”; and secondly, once, the beneficiaries have included the trust income in their individual return of income and paid the tax at higher rate of tax, the assessee trust cannot be assessed at rate of assessee u/s 166. Accordingly, on this issue all the grounds raised
by the assessee are allowed.
10. Coming to the denial of TDS credit to the beneficiaries, once the TDS has been deducted on the rental income and all the 5 beneficiaries have declared this income in their individual return as income from house property, then income received by the trust is also entitled for proportionate TDS credit in the hands of all the beneficiaries.
6 11. In the result the appeal filed by the assessee is allowed.