2011 (5) TMI 553 - AT - Income Tax

Income for sub-letting - Business income or income from other source - Held that - As it is not in dispute that assessee has not carried on any other activity either in this year or in the subsequent years to indicate that it was engaged in the business of acquiring properties and letting out the same - Even going by the unsigned partnership deed the main intention appears to be to acquire land/building and to develop the property whereas assessee has not carried on any such activity in any of the earlier years - In otherwords assessee had not intended to carry on its main activity in the year under consideration - The firm has merely taken on lease the property at Chankya Puri and the terms of agreement clearly depict that the assessee is not entitled to sub-let the property - Therefore income for such sub-letting cannot be treated as business income - Since assessee is not the owner of the property it cannot be assessed to tax even under the head Property Income - Hence CIT(A) was justified in holding that the impugned income is assessable to tax under the head Other Sources - Decided against the assessee.

Issues Involved:
1. Treatment of business income as income from other sources.
2. Validity of reopening proceedings under section 147 of the Income Tax Act, 1961.
3. Assessment of rental income under the appropriate head of income.

Detailed Analysis:

1. Treatment of Business Income as Income from Other Sources:
The assessee-firm contended that the lower authorities erred in treating its business income as income from other sources. The initial appeal was dismissed due to non-prosecution. Upon recall and subsequent hearing, the Tribunal affirmed that the interest received on bank FDRs was correctly assessed as "Income from other sources" since no business activity was carried on by the assessee.

2. Validity of Reopening Proceedings under Section 147 of the Income Tax Act, 1961:
The assessee raised additional grounds challenging the validity of the reopening proceedings under section 147, claiming it was invalid and based on an audit objection. The Tribunal noted that the appeal had already been disposed of, and the recall was for the limited purpose of addressing ground No.1. Hence, the Tribunal held that it had no jurisdiction to consider new grounds not set forth in the original memorandum of appeal. The Tribunal also observed that the reopening was valid as it was based on information and application of mind by the Assessing Officer, not merely on an audit objection, aligning with the Supreme Court's decision in CIT v. P.V.S. Beedies (P.) Ltd.

3. Assessment of Rental Income under the Appropriate Head of Income:
The main issue was whether the rental income should be assessed as "business income" or under another head. The assessee argued that the rental income was part of its business activities as per the partnership deed. However, the Tribunal found that the assessee had not engaged in any other business activities and had merely sub-let the premises. The lease agreement prohibited sub-letting, and the property was used for residential purposes. Consequently, the Tribunal affirmed the CIT(A)'s decision to assess the rental income under the head "Other Sources" since the assessee was not the owner of the property and the rental income did not align with the business activities stated in the partnership deed.

Conclusion:
The Tribunal dismissed the appeal, upholding the lower authorities' decisions to treat the interest income as "Income from other sources," validate the reopening proceedings under section 147, and assess the rental income under the head "Other Sources."

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