Indian Kanoon - Search engine for Indian Law

5. Whether the CIT (A) was right in not considering rent received on vacant shops & offices as non taxable on mutuality concept?"

14. On these grounds of appeals in assessment years 2001-02 to 2005-06, learned CIT(A) followed his order for assessment year 2006-07 dated 28-02-2011 and dismissed these grounds of appeals of the assessee. We therefore, take up this issue from assessment year 2006-07. The assessee submitted before the AO that it is not liable for any tax as it claimed that they were carrying on activity of construction of building for its members only as mutual concern out of funds provided by the members of the society and also that the society was working on no profit no loss basis. The AO noted that two issues cropped up as far as the taxability is concerned viz., rent income and profit from construction activity of Shree Ghantakarna Mahavir Cloth Market Project. On the rental income AO noted that assessee furnished balance sheet along with its other submissions. On perusal of balance sheet it was observed that the work in progress has been arrived after reducing the rent received to the tune of Rs.3,10,574/-. The AO following the decision of the Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers, 227 ITR 172 held that the rent derived by the society from letting out of the open plot requires to be taxed. The rent being derived from the letting of this plot as the building was not ready, as evident from the fact that the balance sheet shows work in progress, the income required to be brought to tax under the head "income from other sources". The addition was made in all the assessment years under appeal under the head "income from other sources" instead of "rental income". The learned CIT(A) noted in the impugned order for assessment year 2006-07 that assessee has not made any submission on this point. The learned CIT(A) confirmed the order of the AO by following the same decision of the Hon'ble Supreme Court and noted that rental income cannot be assessed under the head income from house property, because the assessee has given vacant land on rent which was lying idle at the relevant time. Resultantly, statutory deduction u/s 24 of the IT Act was also not allowed. The learned CIT(A) followed the order of assessment year 2006-07 in the remaining appeals and dismissed this ground of appeal in all the remaining years. It may be noted that in assessment year 2001-02 to 2005-06 the learned CIT(A) noted the submissions of the assessee with regard to rental income and exclusion of income on principle of mutuality. The learned CIT(A) also noted that since income is earned from renting the property, therefore, it has no nexus with the mutuality activities. The remaining appeals were also dismissed on this issue.