2009 (10) TMI 650 - AT - Income Tax

Summary

Issues Involved:
1. Classification of lease rent as income from house property vs. income from business.
2. Treatment of temporary letting of property.
3. Applicability of various case laws to the facts of the case.

Summary:

Issue 1: Classification of Lease Rent
The primary issue was whether the lease rent of Rs. 3,10,000 should be classified as income from house property or income from business. The assessee argued that the income should be treated as business income since the property was commercially exploited. However, the Assessing Officer and the CIT(A) concluded that the income should be classified as income from house property, citing that the premises were not proven to be commercial assets and referring to the decision in Shambhu Investment (P.) Ltd. v. CIT [2003] 263 ITR 143 (SC).

Issue 2: Temporary Letting of Property
The assessee contended that the letting out of flats was incidental to its business activity of property development. The CIT(A) rejected this argument, noting that the letting out did not support the main business and was instead a means to earn rental income from unsold residential units. The CIT(A) also pointed out that the lease agreements indicated long-term letting, which contradicted the claim of temporary letting.

Issue 3: Applicability of Case Laws
The assessee cited various case laws, including CIT v. National Storage (P.) Ltd. [1967] 66 ITR 596 (SC) and Universal Plast Ltd. v. CIT [1999] 237 ITR 454 (SC), to argue that the income should be treated as business income. The CIT(A) and the Tribunal, however, relied on the decision in Shambhu Investment (P.) Ltd. (supra), which was affirmed by the Supreme Court, to conclude that the income should be classified as income from house property unless the property was part of a complex commercial activity.

Tribunal's Decision:
The Tribunal held that the classification of income depends on whether the property was exploited for commercial purposes or merely for earning rental income. It concluded that the income from the property let out to Rajinder Hiralal Grover should be treated as business income since it was part of a composite commercial activity. However, the income from the property let out to Lear Seating (P.) Ltd. was classified as income from house property, as it did not meet the criteria for complex commercial activity. The issue regarding Roamware (India) (P.) Ltd. was remanded to the Assessing Officer for fresh consideration.

Conclusion:
The appeal was partly allowed for statistical purposes, with specific directions for re-examination of certain aspects by the Assessing Officer. Ground No. 2 was dismissed as not pressed.