2017 (7) TMI 1070 - AT - Income Tax

Income derived from letting out of property - business income or income from house property - Held that - In the instant case we take note of the fact that the assessee s main object as stated in its Memorandum of Association was to acquire on license or by purchase lease exchange hire or otherwise lands and property of any tenure or premises in any part of India and to license or sub-license or lease or sub-lease or let such lands or property or premises or any part thereof clearly spells out that the assessee s main business is to carry out systematic and regular activity in the nature of business of letting out property. Therefore the entire income which accrued and was assessed was from letting out of these properties. The assessee showed the rental income received as income from business in its return and we uphold the said claim of the assessee in the facts and circumstances and the law and on the ratio-decidendi laid down by the Hon ble Supreme Court in Chennai Properties & Investment Ltd. (2015 (5) TMI 46 - SUPREME COURT) and Royala Corporation Pvt. Ltd. (2016 (8) TMI 522 - SUPREME COURT). Therefore we set aside the order of the Ld. CIT(A) and allow the claim of the assessee and hold that the income from contribution received from the shop has to be assessed as business income.

Summary

Issues:
1. Characterization of income from letting out property as business income or income from house property.

Analysis:
The appeal was filed against the order of the Ld. CIT(A)-VI, Kolkata for AY 2006-07. The Ld. AR of the assessee did not press ground no.4 related to disallowance u/s. 14A of the Act. The main issue revolved around the treatment of income derived from letting out property as business income or income from house property. The AO had changed the classification of income from 'business income' to 'income from house property' for the assessee, a Private Limited Co., which led to the dispute.

The Tribunal, in a previous order, had upheld the AO's decision to treat the income as 'income from house property.' However, the assessee contended that the income should be classified as business income based on its main business activity of letting out properties. The assessee cited relevant judgments of the Hon’ble Supreme Court to support its claim that income from letting out properties should be assessed as business income if it is the primary business activity of the assessee. The Tribunal considered the facts, the Memorandum of Association of the assessee, and the judgments cited by the assessee.

The Tribunal noted that the assessee's main business was letting out properties and that the income in question arose from letting out these properties. Relying on the judgments of the Hon’ble Supreme Court, the Tribunal concluded that the income should indeed be treated as business income. The Tribunal set aside the order of the Ld. CIT(A) and allowed the claim of the assessee, holding that the income from the contribution received from the shop should be assessed as business income. Consequently, the appeal of the assessee was partly allowed.

In conclusion, the Tribunal's decision clarified the characterization of income derived from letting out property, emphasizing that if letting out properties is the primary business activity of the assessee, the income should be treated as business income rather than income from house property. The Tribunal's decision was based on a thorough analysis of the facts, relevant legal principles, and precedents set by the Hon’ble Supreme Court.