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Income Tax Appellate Tribunal, “B” BENCH, CHENNAI
Before: SHRI A. MOHAN ALANKAMONY & SHRI VIKAS AWASTHY
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:-
(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.
The appeal has been filed with a delay of 26 days. The 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 facts in brief as emanating from records are:
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.
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”.
Aggrieved by the assessment order dated 24.12.2009, the 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.
Now, the assessee has come in second appeal before the Tribunal assailing the findings of the First Appellate Authority.
Shri K.M. Mohandass, CA, appearing on behalf of the 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-
8. In support of his submission, he relied on the decision of 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 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.
On the other hand, Shri S. Das Gupta, JCIT, representing 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 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.
We have heard the submissions made by the 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.
8. The next issue in the appeal is with regard to set off of short term capital loss against short term capital gains. It is an 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.
The third issue in the appeal is with regard to treating rental 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 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.
In the result, the impugned is set aside and the appeal of the assessee is partly allowed for statistical purposes.
Order pronounced on Friday, the 27th of March, 2015 at Chennai.