I let a fully furnished, centrally air-conditioned office with a generator on a single lease and claimed the thirty per cent standard deduction under s.24(a). The Assessing Officer has taxed the whole rent as income from other sources. Can I still get some deduction?
The Delhi High Court held that the lease was composite, that the rent answered the description in s.56(2)(iii), and that the standard deduction under s.24(a) was therefore not available. But it did not leave the assessee with nothing: it directed that while giving appeal effect the Assessing Officer grant the benefit of s.57 — recorded in the judgment as s.57(iii) — in respect of the deduction corresponding to the letting, the Revenue not having disputed that the assessee had never claimed depreciation.
Decided by the High Court (S. Muralidhar J and Prathiba M. Singh J) on 2017-07-13, reported as ITA 308/2016 (Delhi High Court), AY 2009-10. It bears on section 56(2)(iii), section 56, section 57, section 57(iii), section 24(a), section 22, section 260A of the Income Tax Act 1961, in House Property, Deductions & Disallowances and How Tax Law Is Read matters.
Two things matter here. First, the composite-letting test: following Sultan Bros., inseparability turns on the intention of the parties, and the question is whether the two were meant to be enjoyed together and whether one would have been let alone. On these facts — furniture and fixtures, central air-conditioning and a 200 KVA generator handed over 'in good working condition' under the lease — the court found a composite letting, and distinguished Dr. P.A. Varghese, where the amenities formed part of the building and there was only one letting. The library already carries decisions going the other way on similar facts, so the line is fact-sensitive and this is the side that goes to the Revenue. Second, and practically the most useful part of a losing case: once the income falls under s.56(2)(iii) the taxpayer is not stripped of deductions, because s.57 supplies its own set — clause (ii) carrying repairs, insurance and depreciation on the plant, machinery and furniture let out. The court also refused an alternative apportionment plea taken for the first time on appeal, which is a warning about pleading.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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By a lease deed dated 5 October 2007 the assessee let the basement, ground, first and second floors of a building at Plot No. 811, Udyog Vihar Phase-V, Gurgaon to Feedback Ventures Private Limited for four years at Rs 9,10,000 per month. The preamble recorded that the premises were leased 'fully furnished, centrally air conditioned and with adequately power backed through a 200 KVA diesel generator set', and clause 2(d) required the lessor to hand over the office with furniture and fixtures, the 200 KVA generator and adequate air conditioners in good working condition, the lessee paying maintenance and utilities directly. For AY 2009-10 the assessee returned income of Rs 98,56,790 and claimed Rs 24,73,500 as the deduction under s.24(a) against rent of Rs 82,45,000. The Assessing Officer held the rent to be composite rent assessable under s.56(2)(iii) and disallowed the s.24(a) deduction. The Commissioner (Appeals) allowed the assessee's appeal, following his own order for AY 2008-09, reasoning that the amenities were part of the property and not separate plant and machinery. The Tribunal allowed the Revenue's appeal on 18 December 2015, following Garg Dyeing & Processing Industries v. ACIT (2013) 212 Taxman 160 (Del). Before the High Court the assessee argued that the predominant purpose was to lease the building, that no separate rent was charged for the amenities, that it had never claimed depreciation, and alternatively that only a valued portion should be treated as income from other sources.
The appeal was disposed of and the Tribunal's order affirmed. The lease deed was composite and the rental receipts answered the description in s.56(2)(iii), so the question whether the Tribunal erred in treating the rent as income from other sources was answered in the negative, in favour of the Revenue. The alternative plea for apportionment and remand was refused as raised for the first time. But the court directed that while giving appeal effect the Assessing Officer grant the assessee the benefit of s.57 — recorded in the judgment as s.57(iii) — the Revenue not having disputed that the assessee had not claimed depreciation.
The court took the test from Sultan Bros. (P) Ltd. v. CIT (1964) 51 ITR 353, decided under s.12(3) and (4) of the 1922 Act, where inseparability was held to arise from the intention of the parties, to be tested by asking whether the intention was that the two should be enjoyed together, whether the letting of the two was practically one letting, and whether one would have been let alone without the other; if the first two answers are yes and the third no, the lettings are inseparable, and the income becomes a new kind of income arising from a building but which would not have arisen if the plant, machinery and furniture had not also been let with it. Applying that to the preamble and clause 2(d) of this lease, the court found that what was given on rent was not merely the floors but also the fixtures and furniture including air-conditioning and the generator, and that there could be no manner of doubt that the lease was composite. Dr. P.A. Varghese v. CIT (1971) 80 ITR 180 (Ker.) was distinguished: there the amenities formed part of the building, the rent was fixed for the building with all the amenities, and there was only one letting. The apportionment plea was refused because the assessee's own written submissions before the Tribunal had asserted that the rent was entirely for the land and building. On the last plea the court accepted that if the whole income is treated as income from other sources the assessee cannot be deprived of the corresponding deduction, and directed the Assessing Officer to grant it.
Accordingly, it is directed that while giving the appeal effect, the AO will grant the Assessee the benefit of Section 57 (iii) of the Act.
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Handle my notice → Ask a CA on WhatsAppThe Delhi High Court held that the lease was composite, that the rent answered the description in s.56(2)(iii), and that the standard deduction under s.24(a) was therefore not available. But it did not leave the assessee with nothing: it directed that while giving appeal effect the Assessing Officer grant the benefit of s.57 — recorded in the judgment as s.57(iii) — in respect of the deduction corresponding to the letting, the Revenue not having disputed that the assessee had never claimed depreciation. This was decided by the High Court (S. Muralidhar J and Prathiba M. Singh J) and bears on section 56(2)(iii), section 56, section 57, section 57(iii), section 24(a), section 22, section 260A of the Income Tax Act 1961. It is reported as ITA 308/2016 (Delhi High Court), AY 2009-10. Two things matter here. First, the composite-letting test: following Sultan Bros., inseparability turns on the intention of the parties, and the question is whether the two were meant to be enjoyed together and whether one would have been let alone. On these facts — furniture and fixtures, central air-conditioning and a 200 KVA generator handed over 'in good working condition' under the lease — the court found a composite letting, and distinguished Dr. P.A. Varghese, where the amenities formed part of the building and there was only one letting. The library already carries decisions going the other way on similar facts, so the line is fact-sensitive and this is the side that goes to the Revenue. Second, and practically the most useful part of a losing case: once the income falls under s.56(2)(iii) the taxpayer is not stripped of deductions, because s.57 supplies its own set — clause (ii) carrying repairs, insurance and depreciation on the plant, machinery and furniture let out. The court also refused an alternative apportionment plea taken for the first time on appeal, which is a warning about pleading. If it applies to you, the first step is this: Decide at the drafting stage. Where the building is the substance of the letting, keep the amenities out of the lease or grant them under a separate agreement with a separate consideration — the Revenue's counsel argued exactly that, and the court recorded it without disapproval.
By a lease deed dated 5 October 2007 the assessee let the basement, ground, first and second floors of a building at Plot No. 811, Udyog Vihar Phase-V, Gurgaon to Feedback Ventures Private Limited for four years at Rs 9,10,000 per month. The preamble recorded that the premises were leased 'fully furnished, centrally air conditioned and with adequately power backed through a 200 KVA diesel generator set', and clause 2(d) required the lessor to hand over the office with furniture and fixtures, the 200 KVA generator and adequate air conditioners in good working condition, the lessee paying maintenance and utilities directly. For AY 2009-10 the assessee returned income of Rs 98,56,790 and claimed Rs 24,73,500 as the deduction under s.24(a) against rent of Rs 82,45,000. The Assessing Officer held the rent to be composite rent assessable under s.56(2)(iii) and disallowed the s.24(a) deduction. The Commissioner (Appeals) allowed the assessee's appeal, following his own order for AY 2008-09, reasoning that the amenities were part of the property and not separate plant and machinery. The Tribunal allowed the Revenue's appeal on 18 December 2015, following Garg Dyeing & Processing Industries v. ACIT (2013) 212 Taxman 160 (Del). Before the High Court the assessee argued that the predominant purpose was to lease the building, that no separate rent was charged for the amenities, that it had never claimed depreciation, and alternatively that only a valued portion should be treated as income from other sources. The matter was decided on 2017-07-13 by the High Court (S. Muralidhar J and Prathiba M. Singh J). On those facts the High Court held as follows. The appeal was disposed of and the Tribunal's order affirmed. The lease deed was composite and the rental receipts answered the description in s.56(2)(iii), so the question whether the Tribunal erred in treating the rent as income from other sources was answered in the negative, in favour of the Revenue. The alternative plea for apportionment and remand was refused as raised for the first time. But the court directed that while giving appeal effect the Assessing Officer grant the assessee the benefit of s.57 — recorded in the judgment as s.57(iii) — the Revenue not having disputed that the assessee had not claimed depreciation.
The court took the test from Sultan Bros. (P) Ltd. v. CIT (1964) 51 ITR 353, decided under s.12(3) and (4) of the 1922 Act, where inseparability was held to arise from the intention of the parties, to be tested by asking whether the intention was that the two should be enjoyed together, whether the letting of the two was practically one letting, and whether one would have been let alone without the other; if the first two answers are yes and the third no, the lettings are inseparable, and the income becomes a new kind of income arising from a building but which would not have arisen if the plant, machinery and furniture had not also been let with it. Applying that to the preamble and clause 2(d) of this lease, the court found that what was given on rent was not merely the floors but also the fixtures and furniture including air-conditioning and the generator, and that there could be no manner of doubt that the lease was composite. Dr. P.A. Varghese v. CIT (1971) 80 ITR 180 (Ker.) was distinguished: there the amenities formed part of the building, the rent was fixed for the building with all the amenities, and there was only one letting. The apportionment plea was refused because the assessee's own written submissions before the Tribunal had asserted that the rent was entirely for the land and building. On the last plea the court accepted that if the whole income is treated as income from other sources the assessee cannot be deprived of the corresponding deduction, and directed the Assessing Officer to grant it. In the words reproduced by the source cited on this page: "Accordingly, it is directed that while giving the appeal effect, the AO will grant the Assessee the benefit of Section 57 (iii) of the Act." The decision followed or applied Sultan Bros. (P) Ltd. v. CIT (1964) 51 ITR 353 (SC) — applied; Garg Dyeing & Processing Industries v. ACIT (2013) 212 Taxman 160 (Del) — followed by the Tribunal and not disturbed; Dr. P.A. Varghese v. CIT (1971) 80 ITR 180 (Ker.) — distinguished; CIT v. Mysore International Hotels Pvt. Ltd. (2010) 322 ITR 116 (Kar.) — relied on by the assessee for the apportionment plea, not accepted.
It was decided by the High Court on 2017-07-13 and is reported as ITA 308/2016 (Delhi High Court), AY 2009-10. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 56(2)(iii), section 56, section 57, section 57(iii), section 24(a), section 22, section 260A, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. The appeal was disposed of and the Tribunal's order affirmed. The lease deed was composite and the rental receipts answered the description in s.56(2)(iii), so the question whether the Tribunal erred in treating the rent as income from other sources was answered in the negative, in favour of the Revenue. The alternative plea for apportionment and remand was refused as raised for the first time. But the court directed that while giving appeal effect the Assessing Officer grant the assessee the benefit of s.57 — recorded in the judgment as s.57(iii) — the Revenue not having disputed that the assessee had not claimed depreciation. It arises in House Property, Deductions & Disallowances and How Tax Law Is Read matters, on section 56(2)(iii), section 56, section 57, section 57(iii), section 24(a), section 22, section 260A of the Income Tax Act 1961, and was decided by S. Muralidhar J and Prathiba M. Singh J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. If the letting is composite, do not spend the appeal on s.24(a); claim under s.57 instead, and quantify the depreciation on the plant, machinery and furniture let out. Take the apportionment plea, if you want it, before the Assessing Officer and the Tribunal. Here it was refused because the written submissions before the Tribunal had asserted the opposite. Where you argue the letting is only of the building, put the facts on record as in Dr. P.A. Varghese — that the amenities are part of the building and that the rent is fixed for the building with those amenities. Check whether the s.57 deduction you are claiming has ever been claimed before; the direction here rested on the undisputed fact that depreciation had not been claimed.
Validity check could not be completed. Validity check could not be completed. No search for later treatment or for an appeal to the Supreme Court was run in this pass. The composite-letting question is fact-sensitive and this library already carries decisions in which similar facts were held to produce house-property income, so the entry should be read as one side of a line rather than as a rule. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The judgment at paras 15, 26 and 27 refers to the deduction as 'Section 57 (iii)' while the deduction actually in issue is depreciation, which falls under s.57(ii) read with s.32; the words are reproduced exactly as printed and the discrepancy is flagged rather than corrected. The judgment also contains transcription defects reproduced as printed — 'machinery, plant or machinery' in the extract of s.56(2)(iii), 'income from source sources' at para 26, '200 KIVA' at para 19 — and at para 22 the sentence beginning 'Applying the test laid down in Sultan Bros.' reads as though the income 'could be considered to be income from house property', which is the opposite of the conclusion the court reaches at para 23; that sentence appears to be defective in the report and is not relied on. The judgment runs from para 1 to para 28 with sub-numbered paragraphs 17.1 to 17.3 and 21.1 to 21.3; there is no paragraph 17 or 21 standing alone. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was disposed of and the Tribunal's order affirmed. The lease deed was composite and the rental receipts answered the description in s.56(2)(iii), so the question whether the Tribunal erred in treating the rent as income from other sources was answered in the negative, in favour of the Revenue. The alternative plea for apportionment and remand was refused as raised for the first time. But the court directed that while giving appeal effect the Assessing Officer grant the assessee the benefit of s.57 — recorded in the judgment as s.57(iii) — the Revenue not having disputed that the assessee had not claimed depreciation.
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