RAVINDRA SUNKU,BANGALORE vs. ITO, BANGALORE

These two appeals by the husband and wife are directed against the

composite order dt.28.5.2014 of Commissioner of Income Tax (Appeals) for the

2 IT(I.T)A Nos.65 & 66/Bang/2015 Assessment Year 2008-09. Common grounds are raised in these appeals which

are as under :

“ 1. That the orders of the A.O./CIT (Appeals) in so far as it is against the appellant is against the law, facts, circumstances, natural justice, equity, without jurisdiction, bad in law and all other known principles of law. 2. That the total income and total tax liability computed is hereby disputed. 3. That the assessment made in the status of AOP is bad in law and without jurisdiction requires to be cancelled. 4. That the learned CIT (Appeals) erred in upholding the assessment made in the hands of AOP. 5. The ld. A.O/CIT (Appeals) erred in taxing the rental income of Rs.8,53,632 letting out building as income from other sources. 6. Without prejudice to the above, the A.O./CIT (Appeals) erred in not allowing depreciation as per law. 7. The ld. A.O./CIT (Appeals) erred in not giving credit to the taxes paid. 8. The appellant denies liabilities for interest under Section 234B. Without prejudice to the appellant’s right of seeking waiver before appropriate authority, the appellant begs for consequential relief in the levy of interest under Section 234B. 9. For the above and other grounds and reasons which may be submitted during the course of hearing of this appeal, the appellant requests that the appeal be allowed as prayed and justice be rendered.”

while completing the assessment treated husband and wife (assesses) as

Association of Persons (AOP) and further the income from house property

3 IT(I.T)A Nos.65 & 66/Bang/2015 declared in the respective returns in equal amounts representing rent and

service charges received from the property which was purchased and held in

joint names was assessed as ‘income from other sources’. Aggrieved by the

action of the Assessing Officer the assesses filed appeals before the CIT

(Appeals). The CIT (Appeals) has confirmed the action of the Assessing Officer

so far as the assessment were made as AOP in respect of individual assesses as

well as treatment of rental income and service charges as ‘income from other

sources’. However the CIT (Appeals) has directed the Assessing Officer to

consider the grant of depreciation as per provisions of section 57(ii) of the Act.

adjudication.

4.1 The learned Authorised Representative of the assessee has submitted

that the assesses are husband and wife and Non-Resident Indians (NRIs). The

assesses are working in USA and having their joint account in USA as well as in

India. The property in question is a commercial property and was purchased by

the assesses in their joint names by contributing the purchase consideration

from the joint account. Therefore the assesses are having equal share in the

4 IT(I.T)A Nos.65 & 66/Bang/2015 property and accordingly rental income of the property as well as service

charges of the property are equally shared by the assesses and offered to tax

as ‘income from house property’. The learned Authorised Representative has

referred to the rent agreement and service agreement and submitting that the

separate agreements were entered into by the assessee. When the assesses

are not in the business of hiring or leasing out of the property, the assessments

made by the Assessing Officer by treating the same as AOP in respect of

individual is not justified. He has referred to the Section 45 of Transfer of

Property Act and submitted that in the case of joint ownership of the property

the shares of the joint owners will be determined as per the share of

contribution in purchase of the property. The learned Authorised

Representative has referred to the agreement and pleaded that the assesses

have the joint account in USA as well as in India and both husband and wife are

working having their independent source of income. He has further contended

that the assesses have filed the relevant documents to show their separate

source of income and joint account in USA as well as in India from where the

purchase consideration was paid. Thus the learned Authorised Representative

has pleaded that the evidence filed by the assesses may be admitted as

5 IT(I.T)A Nos.65 & 66/Bang/2015 additional evidence to show that both the husband and wife are having

independent source of income and the purchase consideration was paid by

contributing from their own income. Thus he has contended that when the

assesses are able to show their contribution for purchase of property then the

finding of the Assessing Officer is not sustainable. There is no definite share in

the property and therefore the Assessing Officer assessed the entire income in

the hand of the AOP instead of individual status. The status of individual was

not accepted by the Assessing Officer as the sale date under which the property

was purchased has not expressly mentioned specific share of the husband and

wife. Thus the learned Authorised Representative has submitted that in view of

the Section 45 of the Transfer of Property Act as well as the additional evidence

filed by the assessee, the share of the husband and wife in the property in

question shall be in the ratio of contribution made by them in purchase of the

property.

4.2. On the other hand, the learned Departmental Representative has

submitted that the Assessing Officer has given a finding that it is not

ascertainable from the documents of title deed, the specific shares of the

6 IT(I.T)A Nos.65 & 66/Bang/2015 husband and wife, therefore, the status of the assesses were rightly treated as

AOP. She has relied upon the orders of the authorities below.

4.3 Rival submissions as well as relevant records have been considered.

There is no dispute that the property in question was purchased by the

husband and wife in the joint names and no specific share of the husband and

wife is mentioned in the purchase document. However, the assessee has filed

the additional evidence showing the independent source of the husband and

wife for purchase of the property which was pooled into joint account in USA

and transferred to India from where the payment was made in the property.

Thus the assesses have claimed that when the husband and wife both have

contributed their share of purchase consideration then the share in the

property is in the ratio of contribution in the purchase consideration.

Reference has been made to Section 45 of the Transfer of Property Act as

under :

“45. Joint transfer for consideration -- Where immovable property is transferred for consideration to two or more persons and such consideration is paid out of a fund belonging to them in common, they are, in the absence of a contract to the contrary, respectively entitled to interests in such property identical, as nearly as may be, with the interests to which they were respectively entitled in the fund; and, where such consideration is paid out of separate funds belonging to

7 IT(I.T)A Nos.65 & 66/Bang/2015 them respectively, they are, in the absence of a contract to the contrary, respectively entitled to interest in such property in proportion to the shares of the consideration which they respectively advanced. In the absence of evidence as to the interests in the fund to which they were respectively entitled, or as to the shares which they respectively advanced, such persons shall be presumed to be equally interested in the property.”

As per the provisions of Section 45 of the Transfer of Property Act in case of

joint ownership of property the share of the co-owner shall be determined as

per the ratio of their contribution in the purchase consideration. Since the

assesses have filed additional evidence in support of the independent source of

income and contribution in the purchase consideration which is required to be

examined and verified. Accordingly in the facts and circumstances of the case

this issue is set aside to the record of the Assessing Officer to examine and

verify the additional evidence filed by the assessee and then decide the issue.

sources.’

5.1 The learned Authorised Representative of the assessee has submitted

that the property in question was let out by two separate agreements one is

rental agreement and another is service agreement which will not lead to the

8 IT(I.T)A Nos.65 & 66/Bang/2015 conclusion that the assessee is carrying out activity of leasing out the property

but in this case of assesses individual property was let out to the tenant and as

per requirement of the tenant two separate agreements were entered one for

rent and another for service. Thus the learned Authorised Representative has

submitted that treating the rental income as ‘income from other sources’ is not

justified as this is the only property of the assessee which has been let out with

obvious reason that the assesses are staying in USA for their job purpose and

therefore rental income offered by the assessee as ‘income from house

property’ ought to have been accepted. He has further contended that service

agreement is nothing but regarding the air-condition, lift and other common

amenities of maintenance of generator etc. which are part and parcel of the

building and therefore cannot be given a separate and different treatment than

‘income from house property.’

5.2 On the other hand, the learned Departmental Representative has relied

upon the orders of the authorities below and submitted that the Assessing

Officer has given a finding that the let out of the building is inseparable from

letting of plant and machinery, furniture and therefore entire income is to be

assessed as ‘income from other sources’ as per section 56(2)(iii) of the Act.

9 IT(I.T)A Nos.65 & 66/Bang/2015 5.3 Having considered the rival submissions and relevant material on record

it is noted that this is an isolated case of purchase of property in the joint name

by the husband and wife and letting out the same to the tenant. Therefore it is

not the case of a regular and organized activity of the assesses to lease out the

properties. When it is only an isolated case of owning a single property in the

joint name then the rental income from letting out of the property will be in the

nature of ‘income from house property’ and cannot be treated as ‘income from

other sources’. As regards the service charges under the separate service

agreement, it is clear that this is only with respect to the power back up, air

condition and other lighting fixtures and service lifts as well as car parking

spaces. Therefore no specific machinery or furniture was made available by

the assessee to the tenant against the service charges but only the necessary

amenities and power back up and common lift are part of the subject matter of

the service agreement. When the dominant purpose of letting out of the

property in question is the house property and not the plant and machinery,

then the rental income as well as the service charges has to be given the same

treatment as held by the Hon'ble Calcutta High Court in the case of Shambu

Investments Ltd. (supra) which has been confirmed by the Hon'ble Supreme

10 IT(I.T)A Nos.65 & 66/Bang/2015 Court cited in 263 ITR 143. The Hon'ble Supreme Court in the case of Sultan

Brothers Vs. CIT 51 ITR 353 while dealing with an identical issue has observed

that the income realized by the owners by way of rental income from a building

whether commercial or residential house is assessable under the head ‘income

from house property’. The only exceptions are cases where letting off the

building is inseparable from letting of machinery, plant and furniture. In such

cases it has been held that the rental income would not have been realized but

for letting out of machinery, plant or furniture along with such building and

therefore the rentals received for the building is to be assessed under the head

‘income from other sources.’ In the case on hand, the predominant purpose

was letting out the commercial building/property in question and not the lift or

air-conditioners fixed in the building. Therefore the charges for common lift

and air condition would partake the character of the main purpose of letting

out which is the building and accordingly the rental income will be assessed as

‘income from house property’. Hence the orders of the authorities below for

this issue was set aside and the claim of the assessee is allowed.

11 IT(I.T)A Nos.65 & 66/Bang/2015 6. Ground No.6 is allowance of depreciation. In view of the finding on the

Ground No.5, this ground becomes infructous. The other grounds are

consequential in nature .

Order pronounced in the open court on 29th day of July, 2016.

Sd/- (VIJAY PAL RAO) JUDICIAL MEMBER

*Reddy gp

Copy to : 1. Appellant 2. Respondent 3. C.I.T. 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard File.

By Order

Asst. Registrar, ITAT, Bangalore