Income-Tax Officer vs P.N. Shukla on 22 March, 1985

Income Tax Appellate Tribunal – Allahabad
Income-Tax Officer vs P.N. Shukla on 22 March, 1985
Equivalent citations: 1985 14 ITD 105 All
Bench: P Narain, A Das


Prakash Narain, Accountant Member

1. The assessee owns a property. It was let out to the Fertilizer Corporation of India Ltd. The letting out was by a lease deed dated 1-8-1978. The letting out was for a period of 11 months. Clause (1) of this deed is relevant for our purpose and is reproduced below :

That lessee shall pay a monthly rent of Rs. 3,250 (Three thousand two hundred and fifty only) and Rs. 1,250 towards the installation of booster pump and other fixtures to the lesser for the premises and fixtures as above, total Rs. 4,500 (Four thousand and five hundred only) to the landlord for the ground floor of the premises.

The ITO on the basis of the above clause was of the opinion that the income from the property accruing to the assessee was only Rs. 3,250, while income of Rs. 1,250 being rental of the fixtures was assessable as income from other sources. He, therefore, assessed these two incomes under two different heads. The income from property was computed by him for the year under appeal at Rs. 16,400. The income from other sources was determined at Rs. 10,000. In working out the income from property, he also allowed certain deductions, permissible under law which deductions were denied from income from other sources. He also while computing the income from property denied the benefit of proviso (c) to Section 23(1) of the Income-tax Act, 1961 (‘the Act’).

2. The assessee appealed to the A AC with regard to the claim under proviso (c) to Section 23(1). It was submitted before him that although the benefit was available to the residential unit only but it was not necessary that the property should have been let out for the purpose of residence. The AAC accepted this plea and directed the relief of Rs. 2,400 permissible under the above clause of the proviso.

3. The department is now in appeal before us against the above relief allowed by the AAC. In our opinion, the finding of the AAC cannot be sustained. There is no dispute that the relief is admissible to the residential unit only. What is the meaning of the residential unit has to be judged from the use to which a property has been put. A newly constructed property cannot be said to be meant either for residence or for the purposes other than residence unless it has been put to one use or the other. It had been let out for a commercial purpose as the case is here, it will be difficult to say that it continues to be a residential unit. We do not understand the logic that a property can be treated as a residential unit without actually examining the use to which it has been put or if it has been let out for a purpose other than residential and it still can be treated as a residential unit. Our finding, therefore, is that the property belonging to the assessee is riot entitled to the relief under proviso (c) to Section 23(1). The relief allowed by the AAC, is, therefore, directed to be withdrawn.

4. The next contention before the AAC was that the entire rent of Rs. 4,500 was income from the property and was, therefore, assessable under Section 22 of the Act. In this connection, the assessee filed a detailed statement of the equipments fitted in the building. They were only fans, tube lights, brackets, looking glass, wash basin and similar other things. It was submitted before the AAC that the above fittings and fixtures made the building more attractive and habitable and that the rent also was an integral part of the income from property. The AAC also found that the FCI, the tenant, issued a consolidated cheque as rent without specifying that the amount of Rs. 1,250 per month was being paid for the use of the fixtures and fittings. In this connection, he also referred to the decision of the Kerala High Court in Dr. P. A. Varghese v. CIT [1971] 80 ITR 180. He finally directed the ITO to recompute the income from property including the amount of Rs. 10,000, which he had assessed as income from other sources.

5. Here also, the department is in appeal before us. It was emphasised by the learned departmental representative that the AAC had erred and failed to appreciate the fact that the buildings and the fittings were separately let out for which separate rents were charged. On behalf of the assessee, reliance was placed on the orders of the AAC.

6. We have considered the facts of the case very carefully. In our opinion, the finding of the AAC is correct. The fittings of the nature described above are normally part and parcel of a building. They are necessary to make a building fit for habitation. They are actually embedded in the building and cannot be separated nor can be let out separately from the building. There is only one thing which attracts our attention, i.e., a booster pump. However, in our opinion, even a booster pump in the modern age is an essential part of the building. As in olden days, a well could be treated as a part of the building so in the modern times, a booster pump is necessary for a building without which it would remain incomplete or inhabitable. We, therefore, hold that the entire rent of Rs. 4,500 should be treated as income from the property. This was also the view taken by the Kerala High Court in the case referred to above. We do not attach any importance to the recitation in the lease deed, that might be for the convenience of the parties or for some other reasons but certainly it cannot deviate us from the correct principles of law or the interpretation of Section 22. The finding of the AAC on this issue is, therefore, upheld.

7. In the result, the appeal is partly allowed.

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