Pranav B Prem

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that rental income earned by a co-operative society from letting out its administrative building is assessable under the head “Income from House Property” and not as “Income from Other Sources.” The Tribunal ruled that in the absence of any change in facts or in the nature of activities, the Assessing Officer could not depart from the consistent treatment accepted in earlier years.

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The ruling was delivered by a Bench comprising Vice President Saktijit Dey and Accountant Member Jagadish while deciding cross appeals filed by Western Industrial Co-operative Estate Limited for the Assessment Year 2017-18.

The assessee is a registered co-operative society located at MIDC, Andheri (East), Mumbai. The society had been allotted land by MIDC and had constructed several buildings for its members, with one building earmarked for administrative purposes. The society derived rental income by sub-letting portions of its administrative building and had, over the years, consistently offered such rental receipts to tax under the head “Income from House Property.”

For the relevant assessment year, the Assessing Officer deviated from the earlier approach and assessed the rental income as “Income from Other Sources.” As a consequence, the Assessing Officer disallowed the statutory 30% standard deduction under Section 24(a), sub-letting charges paid to MIDC, interest on borrowed capital claimed under Section 24(b), and certain other expenses. The Commissioner of Income Tax (Appeals) upheld this approach, primarily relying on the manner in which the receipts were reflected in the income and expenditure statement and the fact that tax was deducted at source by some tenants under provisions applicable to rent.

Before the Tribunal, the assessee contended that there was no change in facts or in the nature of its activity compared to earlier years. It was submitted that the same property had been let out, the nature of income remained unchanged, and in earlier assessment years the Department had accepted the rental income as income from house property. The assessee also relied on an earlier decision of the Tribunal in its own case, where similar disallowances relating to sub-letting charges had been deleted.

After examining the record, the Tribunal noted that the assessee’s primary income was derived from leasing out the administrative building and that such income had consistently been assessed under the head “Income from House Property” in the past. The Bench observed that the Assessing Officer had misdirected himself by reclassifying the rental income as income from other sources without any material change in circumstances. Emphasising the rule of consistency, the Tribunal held that when the Department has accepted a particular treatment in earlier years, it cannot take a contrary view in a subsequent year without justifiable reasons.

Accordingly, the Tribunal reversed the findings of the Assessing Officer and the Commissioner (Appeals) and directed that the rental income be assessed under the head “Income from House Property.” As a consequence, the Tribunal allowed the assessee’s claim for the 30% standard deduction under Section 24(a) and held that interest on borrowed capital under Section 24(b) was also allowable, subject to verification.

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On the issue of sub-letting charges paid to MIDC, the Tribunal followed its earlier decision in the assessee’s own case and deleted the disallowance. In respect of certain expenses claimed against testing and miscellaneous income, as well as the deduction claimed under Section 80P on storage charges, the Tribunal noted that these issues had not been properly examined by the lower authorities and remanded them back to the Assessing Officer for fresh consideration in accordance with law. In the result, the appeal filed by the assessee on the main issues was allowed, while the connected rectification appeal was dismissed as infructuous.

Appearance

Appearance for Appellant: Shri Satyaprakash Singh

Appearance for Respondent: Shri Arun Kanti Datta, CIT D.R.

Cause Title: Western Industrial Co-operative Estate Limited Vs. DCIT Circle 32(1)

Case No: ITA No. 6514/Mum/2024 A.Y. 2017-2018

Coram: Vice President Saktijit Dey, Accountant Member Jagadish