PADMA VASHI SHEWARAMANI,CHENNAI vs. ADIT, CHENNAI

आदेश /O R D E R

PER VIKAS AWASTHY, JUDICIAL MEMBER:

The appeal has been filed by the assessee against the order

of the Commissioner of Income Tax (Appeals)-VII, Chennai, dated

23.05.2014 for the assessment year 2007-08. The assessee has

assailed the findings of the CIT(Appeals) primarily on following three

grounds:-

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(1) Disallowance u/s 14A read with Rule 8D (2) Rejection of set off of short term capital loss against short term capital gains. (3) Rental income from property treated as business income instead of income from house property.

assessee has filed application for condonation of delay supported

by affidavit. After perusal of the same, we are satisfied that the

delay in filing of the appeal is caused due to medical exigencies.

The delay in filing of the appeal is condoned and the appeal is

admitted to be heard on merits.

The assessee is a non-resident individual. The assessee

filed her return of income for assessment year 2007-08 on

27.07.2007 declaring loss of ` 4,15,520/-. The case of the

assessee was taken up scrutiny and the notice under Section

143(2) of the Income-tax Act, 1961 (in short 'the Act') was issued to

the assessee.

The assessee during the period had earned tax free income

in the form of dividend. The Assessing Officer made disallowance

on the interest free income by applying the provisions of Rule 8D of

Income-tax Rules, 1962.

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The assessee during the period relevant to the assessment

year under consideration, sold some property and debited the loss

to Profit & Loss account. During the course of scrutiny assessment,

the assessee realized her mistake and filed a revised computation

of income by setting off the short term capital loss against short

term capital gains. The A.O. refused to take cognizance of the

same on the ground that revised computation has been filed,

without filing revised return of income.

The assessee in the return of income admitted rental income

from commercial property under the head “income from house

property”. The A.O. held that the assessee in earlier assessment

years has claimed the income from letting out of the property as

business income. The assessee cannot arbitrarily change the head

of the income. The Assessing Officer treated the rental income

from property under the head “business income”.

assessee preferred an appeal before the CIT(Appeals). The

CIT(Appeals) upheld the findings of the Assessing Officer and

rejected the appeal of the assessee.

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Now, the assessee has come in second appeal before the

Tribunal assailing the findings of the First Appellate Authority.

assessee, submitted that the First Appellate Authority has erred in

confirming the disallowance made by the Assessing Officer under

Section 14A r.w. Rule 8D. The Ld. A.R. contended that the

provisions of Rule 8D does not apply in the assessment year 2007-

Hon'ble Bombay High Court in the case of Godrej and Boyce Mfg.

Co. Ltd vs. Dy. CIT (328 ITR 81). With respect to setting off of short

term capital loss against short term capital gains, the Ld. A.R.

contended that the loss on sale of fixed assets under Section 50 of

the Act was not shown as short term capital loss under the head

“capital gains” but was debited to Profit & Loss account. During the

course of assessment proceedings, the assessee realized her

mistake and filed revised computation of income before the

Assessing Officer, claiming set off of short term capital loss against

short term capital gain. The A.O. has failed to consider the revised

computation. In support of his submission, the Ld. A.R. placed

reliance on the decision of Hon'ble Supreme Court of India in the

case of Goetze (India) Ltd. v. CIT (284 ITR 323). On the third issue

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of treating rental income from letting out of property as “business

income”, the Ld. A.R. submitted that earlier, the assessee has been

offering rental income under the head “income from business”. In

view of the judgment of the Hon'ble Supreme Court of India in the

case of CIT v. Shambhu Investments (263 ITR 143) and the

judgment of Hon'ble jurisdictional High Court in the case of Keyaram

Hotels Pvt. Ltd. v. DCIT 2014 (11) TMI 633, the assessee changed

the head of income and returned the rental income under the head

“income from house property”. The Ld. A.R. prayed for setting

aside the impugned order.

the Revenue, strongly defended the order of the CIT(Appeals). The

Ld. D.R. contended that the assessee cannot raise fresh claim by

filing a revised computation before the A.O. The Hon'ble Supreme

Court of India in the case of Goetze (India) Ltd. (supra) has

categorically held that the A.O. has no power to entertain fresh

claim of the assessee other than by way of revised return of income.

On the issue of treating rental income under the head “income from

business”, the Ld. D.R. submitted that the assessee has been

showing income under the head “business income”. There is no

change in the agreement with the tenants. The tenants in the TDS

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certificate have shown the amount as contract payment and not as

“rent”. The assessee cannot change the head of income in arbitrary

manner to suit its convenience and claim statutory deductions.

representatives of both sides and have perused the orders of

authorities below. The assessee in her appeal has raised three

issues. The first issue in appeal is with regard to disallowance

under Section 14A r.w. Rule 8D. The Assessing Officer has applied

Rule 8D for making disallowance on income not chargeable to tax.

The Hon'ble Bombay High Court in the case of Godrej and Boyce

Mfg. Co. Ltd. (supra) has held that the provisions of Rule 8D are

applicable from assessment year 2008-09. Thus, to the impugned

assessment year, i.e. assessment year 2007-08, the provisions of

Rule 8D will not be applicable. However, we are of the opinion that

a reasonable disallowance has to be made on income not

chargeable to tax. Accordingly, we direct the Assessing Officer to

make a disallowance of 2% of interest free income earned by the

assessee during the relevant period. This ground of appeal of the

assessee is thus partly allowed.

term capital loss against short term capital gains. It is an

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undisputed fact that the assessee had debited the short term capital

loss in Profit & Loss account instead of treating it under the head

“capital gains”. After the assessee realized her mistake, she filed a

revised computation before the Assessing Officer at the time of

scrutiny assessment. The Assessing Officer refused to accept the

claim of the assessee. The Hon'ble Supreme Court of India in the

case of Goetze (India) Ltd. (supra) has held that powers of the

Tribunal are not impinged for accepting such claim of the assessee.

Accordingly, we remit this issue back to the file of the Assessing

Officer with a direction to consider the revised computation

furnished by the assessee. This ground of the appeal is allowed for

statistical purposes.

income from property under the head “income from house property”

instead of income from business. It is an admitted fact that in the

earlier assessment years, the assessee has been admitting the

rental income under the head “income from business”. For the

assessment year under appeal the assessee changed the head

from the business income to “income from house property”. The

assessee has placed reliance on the decision of Hon'ble Supreme

Court of India in the case of Shambhu Investments (supra). The

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rental income whether to be treated as business income or under

the head “income from house property” is a mixed question of fact

and law. The authorities below have not examined the rent

agreement entered into by the assessee with tenants and other

facts surrounding the agreement. If the main intention of the

assessee is to let out the property or any part of it, the rental income

therefrom should be assessed under the head “income from house

property”. If the object is to exploit the commercial property by

letting out temporarily, then the income derived from such letting out

of property can be termed as “business income”. We are of the

considered opinion that this issue needs a revisit to Assessing

Officer to examine the rent agreement and analysis of other

material. The A.O. shall also take into consideration the general

principles laid down by the Hon'ble Supreme Court of India in the

case of Universal Plast Ltd. v. CIT (237 ITR 454) to determine

whether the rental income is assessable as “business income” or

“income from house property”. Accordingly, this ground of appeal is

remitted to the file of the Assessing Officer.

assessee is partly allowed for statistical purposes.

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Order pronounced on Friday, the 27th of March, 2015 at Chennai.

sd/- sd/- (ए. मोहन अलंकामणी) (�वकास अव�थी) (A. Mohan Alankamony) (Vikas Awasthy) लेखा सद�य/Accountant Member �या�यक सद�य/Judicial Member

चे�नई/Chennai, �दनांक/Dated, the 27th March, 2015. Kri.

आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु�त/CIT(International Taxation), Chennai 4. आयकर आयु�त (अपील)/CIT(A)-VII, Chennai-34 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF.