2017 (5) TMI 1553 - AT - Income Tax

Lease rental income received - assessable under the head income from house property or under the head income from business - Held that - There is merit in the contentions of the assessee, as the assessee-company has been formed with the objective of acquiring and developing lands and buildings, realizing rent etc. Thus set aside the order passed by the learned CIT(A) and direct the Assessing Officer to assess the rental income under the head income from business . See Chennai Properties and Investments Ltd. 2015 (5) TMI 46 - SUPREME COURT - Decided in favour of assessee

Summary

Issues:
Whether lease rental income received by the assessee is assessable under the head income from house property or under the head income from business.

Analysis:
The appeal pertains to the assessment year 2012-13 and revolves around the classification of lease rental income received by the assessee. The assessee, a company formed for acquiring and managing properties, received rental income from two properties, which it declared as business receipts. However, the Assessing Officer assessed the income under the head "income from house property," a decision upheld by the CIT(A) leading to the appeal before the Tribunal.

During the hearing, the assessee's representative highlighted the company's objective of acquiring, developing, and managing properties to generate income, citing the main object clause of the company. The representative argued that the rental income should be classified as "income from business" based on relevant decisions of the Hon'ble Supreme Court, including Chennai Properties and Investments Ltd. (2015) 373 ITR 673 and Rayala Corporation Pvt. Ltd. Vs. ACIT (2016) 386 ITR 500. Additionally, reference was made to a previous decision in favor of the assessee by the Coordinate Bench in ACIT Vs. M/s. Stellar Developer Pvt. Ltd. (2015) 68 SOT 34.

The Departmental Representative contended that in a previous assessment year, the rental income was classified as "income from house property," a decision that was not challenged by the assessee. In response, the assessee's representative clarified that the decision not to appeal in the previous year was due to minimal tax effect and pointed out a favorable decision by the CIT(A) in the assessee's case for the A.Y. 2011-12.

After considering the arguments, the Tribunal found merit in the assessee's contentions. Given the company's formation for property-related activities and in line with the decisions of the Hon'ble Supreme Court, the Tribunal set aside the CIT(A)'s order and directed the Assessing Officer to assess the rental income under the head "income from business." Consequently, the appeal filed by the assessee was allowed, with the order pronounced on 3.5.2017.