2005 (7) TMI 585 - AT - Income Tax

Summary

Issues:
1. Classification of income as "Income from house property" or "Income from business"
2. Ownership of the property for tax assessment purposes

Issue 1: Classification of income:
The appeals were filed against orders treating income earned by a partnership firm on leasing properties as "Income from house property". The firm contended that the income should be assessed as business income, not house property income. The Assessing Officer taxed the rent receipt under "Income from house property". The CIT(A) upheld this decision based on a precedent from the Calcutta High Court. The firm argued that in a previous assessment year, the department assessed the same income as business income. The firm also claimed it was not the owner of the property, citing provisions of section 27 of the Income Tax Act. The firm's counsel argued that since the lease period was more than one year, the lessee should be deemed the owner for tax assessment purposes under section 27.

Issue 2: Ownership of the property:
The firm contended that it was not the owner of the property leased out and therefore, the income should not be assessed under "Income from house property". The firm's counsel highlighted that based on the lease terms and provisions of section 27, the lessee should be deemed the owner for tax assessment purposes. The firm emphasized that the heavy investment made and the number of properties acquired for leasing indicated a business activity. The Revenue argued that based on the lease deed, the firm was the owner, not the Government of India. The Tribunal examined the lease deed clauses and concluded that the firm was indeed the owner, and the Government of India was the tenant.

In conclusion, the Tribunal dismissed both appeals, upholding the classification of income as "Income from house property" and affirming the firm's ownership of the property for tax assessment purposes. The decision was based on the lease terms, provisions of section 27, and the precedent set by the Supreme Court in a related case.