Treatment of income from house property of director

IN THE INCOME TAX APPELLATE TRIBUNAL

(DELHI BENCH ‘G’: NEW DELHI)

BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMEBR

AND

SHRI T.S. KAPOOR, ACCOUNTANT MEMBER

ITA No.430/Del./2012

(Assessment Year: 2007-08)

Smt. Shashi Singh,

B – 8, Magnum House 1,

Commercial Complex, Karampura,

New Delhi – 110 015.

(PAN: ABAPS1382G)

(Appellant)

Vs.

ACIT, Circle 8 (1),

New Delhi.

 (Respondent)

Assessee by: Shri T.R. Talwar, Advocate

Revenue by: Smt. Surjani Mohanty, Senior DR

ORDER

PER T.S. KAPOOR, ACCOUNTANT MEMBER

This is an appeal filed by the assessee against the order passed by CIT (Appeals) dated 04.11.2011. The grounds of appeal taken by assessee are as under:-

“1. That the assessment order passed by the ld. Asstt. Comm. Of I. Tax is wrong, illegal, arbitrary and against natural justice.

2. That the ld. Assessing Officer has erred by making an addition of Rs.1,50,000/- as income from house property form B-8, Magnum House-1, Karampura, New Delhi inspite of its use for its own business and form Flat No.B-701, Shiv Surbhi Apartment, Thakur Village, Western Express Highway, Kandivali (East), Mumbai2 400 101 inspite of its either own use or remaining vacant during the year under assessment.

3. That the assessee craves leave to add, amend, change or withdraw any ground of appeal at the time of hearing.”

2. The brief facts about the case are that assessee is an individual and she filed her return of income for the Assessment Year 2007-08 declaring total income of Rs.1,66,425/-. The income consisted of salary income from Shashi International Pvt. Ltd. in which assessee along with her husband are directors. During assessment proceedings, the Assessing Officer noted that assessee had not declared income from house property from her flat at Mumbai and when questioned, the assessee replied that the said premises is being kept vacant and is used while going abroad for business purposes. Therefore, the question of rental income does not arise. The Assessing Officer further noted from the statement of immovable properties that assessee had one more property at SF-31, North Avenue, Punjabi Bagh, New Delhi and the assessee had also not declared any income from this house property. The assessee explained that house was being used by M/s. Shashi International (P) Ltd. in which she and her husband were Directors and the same was being used for business purposes. The Assessing Officer did not agree with the contention of assessee and income from the same was estimated at Rs.60,000/- after considering municipal taxes and 30% repair expenses and hence, an amount of Rs.30,000/- was added to the income of the assessee based upon her 50% share in the property. Similarly, in respect of the house property at Mumbai, a sum of Rs.1,20,000/- was added back considering the annual rental value at Rs.1,20,000/- after considering municipal taxes and 30% repair expenses. The contention of the assessee that the same was being used during the course of going abroad for business purposes was not accepted. Dissatisfied with the order, the assessee filed appeal before CIT (A) and submitted that the house property income from property at Delhi cannot be taxed since it was

being utilized for business purpose by his husband and by M/s. Shashi International Pvt. Ltd. in which she and her husband were directors. She further stated that Mumbai property was being used by employees & Directors as residence who were concerned with the promotion of business and thus, there was no income from house property.

3. The ld. CIT (A) after going through the submissions of ld. AR did not accept the contentions of the assessee and upheld the additions made by Assessing Officer. The relevant portion of CIT (A) order is reproduced below :-

“The appellant Smt. Shashi Singh is an individual filing the return of income as an individual and showing income from salary and other sources. The property shown at Megnum House, Karampura, as stated by the assessee is used for business use under the proprietorship of her husband Sh. P.N. Singh. Further appellant has stated that this property is utilized for business purposes by Shashi International Pvt. Ltd. a co. in which she and her husband are Directors. This being the case the assessee is not carrying out any business from this premise. The proprietorship business of her husband and the business of Shashi International Pvt. Ltd. are totally separate form the appellant Smt. Shashi Singh. Shahsi Singh is only a proprietor drawing salary income as a director in M/s. Shashi International. The property is not occupied by the appellant Shashi Singh for her business or profession and she has no profits from any business carried on at the property mentioned above. Regarding the property at Flat No.B-701, Surabhi Aptt., Thakur Village, western express Highway, Kandivali (East), Mumbai. The premises is being used by the business concern of her husband and by Shahsi International. Both the concerns are separate from Shashi Singh as an individual. In view thereof as regards this property also it is not occupied by the appellant for the purpose of her business or profession and there are no profits chargeable to Income tax from any business carried on by the appellant on such property. The addition made by the Assessing Officer is correct and is upheld.”

4. At the outset, the ld. AR read from the statement of facts and relied upon the case laws of Shri H.S. Sehgal & Sons – 253 ITR 653 wherein it  was held by Hon'ble Delhi High Court that no notional income from house property can be added in the hands of an HUF who was a partner in the firm and the ld. AR relied upon the ratio decided by Hon'ble Delhi High Court and argued that this ratio was also applicable to the assessee since the property was being used for business purposes of M/s. Shashi International Pvt. Ltd. in which she along with her husband was director. On the merits of the case, the ld. AR argued that assessee had only 50% share in the property at Mumbai as the same was jointly held by her with her husband. However, the Assessing Officer had added the whole amount to the income of the assessee and despite the assessee’s submissions before ld. CIT (A) for inclusion of only 50% of the income, ld. CIT (A) had not considered the same and has included 100% of the income of assessee. Our attention was also invited to page 8 of paper book wherein the annual value of house property situated at Delhi was worked out by Municipal Corporation of Delhi at Rs.43,260/-

5. Ld. DR, on the other hand, relied upon the order of Assessing Officer and argued that ratio in the case relied upon by ld. AR was not applicable as that case was of a partnership firm and the present case related to a private limited company in which assessee was a director. Regarding considering 50% share in the Mumbai property, the ld. DR had no objection.

6. We have heard the rival parties and have gone through the material placed on record. We have noted from the order of ld. CIT (A) that property at Mumbai was a joint property which was held by assessee along with her husband. This fact was noted by CIT (A) at page 4 of his appellate order. However, he added the 100% of rental value of Rs.1,20,000/- instead of 50%. Therefore, we hold that only 50% should be added to the income of assessee. In view of above facts, we reduce the addition of Rs.1,20,000/- made in respect of Mumbai house property to Rs.60,000/-. As regards contention of ld. AR that only Rs.43,260/- be taken as rental value on the basis of determination by Delhi Municipal Corporation, we find that this document does not find any mention by Assessing Officer, Ld. CIT (A) or by ld. AR in his submissions before Assessing Officer or Ld. CIT (A), therefore, we ignore it. In view of the above, the appeal filed by the assessee is partly allowed.

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

Order pronounced in open court on this 19th day of October, 2012.

Sd/- Sd/-

(I.C. SUDHIR) (T.S. KAPOOR)

JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated the 19th day of October, 2012

TS

Copy forwarded to:

1. Appellant

2. Respondent

3. CIT

4. CIT(A)-XII, New Delhi

5. CIT(ITAT), New Delhi.

AR/ITAT

NEW DELHI