THE ISSUE IS - Whether when rent receipts are inextricably linked with the business of the assessee, same can not be treated as income from house property. YES IS THE VERDICT.
Facts of the case
The assessee firm, engaged in real estate business, had filed return for relevant AY. During assessment, the AO observed that the assessee was in the possession of Datar Block property which it was in the process of developing. The property had some tenants. The assessee had to pay large amounts of money in order to get the property vacated. These sums paid have been capitalized in work-in - progress which was accepted by the AO. For the same property, the tenants had paid rent also which were treated by the assessee by crediting to the work-in-progress. However, during assessment, the AO held the same to be income from house property. The assessee was allowed deduction u/s 24(a) @ 30% of rent received. On appeal, CIT(A) confirmed the action of the AO.
Tribunal held that,
++ the assessee's business is development of property. For the same property, for getting vacation, the sums paid are being debited to the work-in-progress which is being accepted by the AO. However, pending vacation, the rent receipt from the tenants of the said property is not being given the same treatment by the AO. He is treating the same as income from house property. It was noted that the rent received is inextricably linked with the business of the assessee, development of the property. Hence, the rent received cannot be treated as income from house property and the assessee's treatment of crediting the same towards work-in-progress is justified.
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