· Assessee entered into a lease deed, whereby basement, ground floor, first floor and second floor of a building were given on rent to the lessee for a period of four years.
· AO held that the rental income declared by assessee is composite rent and has to be assessed as income from other sources, as per the provisions of section 56(2)(iii) of the Act. Therefore, AO disallowed assessee’s claim of deduction u/s 24(a) of the Act.
· CIT(A) deleted the addition made by AO stating that assessee was exploiting the property by letting out the same and realizing income by way of rent, and therefore, it held that the rental income was liable to be assessed under the head income from house property, and accordingly directed AO to allow the deduction u/s 24(a) of the Act.
· ITAT held that the income from letting had to be treated as composite rental income as the amenities of wooden cabins, central air-conditioning facility supported by power backup through a generator set were inseparable from the letting of building, and thus, the income from such letting of building shall be chargeable under the head income from other sources.
· It was submitted before High Court that the lease deed was only for lease of the building and it did not provide for any separate rent for the amenities. It was further submitted that the predominant purpose was to lease out the building. Alternatively, it was submitted that if the entire rental income is not treated as income from house property, then only the portion representing the income from furniture, fittings, air-conditioning etc. should be treated as income from other sources, and the balance should be treated as income from house property.
· High Court was of the view that certain extracts of the lease deed made it clear that what was given on rent was not just the basement, ground floor, first floor and second floor of the building, but also the furniture and fixtures, which included air-conditioning and power backup. Therefore, the Court concluded that letting was not merely of the building, but was a composite letting of both, the building as well as the equipment, furniture etc.
· As regards the alternative plea taken by the assessee while arguing, it was held by the Court that no such alternative plea was urged by the assessee before the Court, and therefore, the Court was not inclined to entertain the alternative plea of the assessee.
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Further Reading