2011 (7) TMI 651 - HC - Income Tax

Rental income received by the assessee is to be treated as income from house property and not from business and profession - assesse was partnership firm. It was carrying on Real estate business - property developed by the assessee was let out to various tenants - partnership firm was converted into a private Limited Company - Assessing Authority accepted the contention of the assessee and the rental income was accordingly computed under section 22 of the Act - interest paid by the assessee was claimed deduction. The Assessing Officer did not allow the entire interest as deduction - Appellate Commissioner treated the rental income as income from business and accordingly, disallowed the depreciation and enhanced the liability of payment of tax. He also disallowed the claim of the assessee on other grounds - appeal against the order of the Appellate Commissioner - impugned order, contended the Tribunal was in error in holding that the rental income is to be assessed as business income - estopped from challenging this appeal - appeal is dismissed

Summary

Issues:
1. Classification of rental income as income from house property or business and profession for the assessment year 2000-01.

Analysis:
For the assessment year 1999-2000, the appellant, originally a partnership firm engaged in real estate and property development business, converted into a private limited company. The appellant received rental income from a property near HAL airport, Bangalore, due to a sluggish real estate market. Initially, the return was accepted under section 143(1) of the Act. However, upon reevaluation under section 147, the Assessing Officer proposed taxing the rental income under section 28, which the appellant opposed, arguing it should be taxed under section 22. The Assessing Authority agreed with the appellant, computing the rental income under section 22. The appellant also declared maintenance charges as business income, which was considered income from other sources. The interest paid by the appellant was claimed as a deduction, but not fully allowed by the Assessing Officer.

The Appellate Commissioner, in the appeal, treated the rental income as business income, disallowed depreciation, and increased the tax liability. Both the appellant and the revenue appealed against this decision. The revenue contended that the rental income should be classified as income from house property, not business. The Tribunal, in its decision, noted that both parties agreed that for the assessment year 2000-01, the rental receipts should be computed under section 22, not section 28. Consequently, the Tribunal allowed the appellant's appeals, dismissing the revenue's appeal for the assessment year 1999-2000 and allowing it for 2000-01.

In the current appeal for the assessment year 2000-01, the revenue challenged the Tribunal's decision to assess the rental income as business income. The revenue's argument was refuted, stating they initially contended before the Tribunal that the income should be treated as income from house property, thus estopping them from challenging the decision now. The court dismissed the appeal, noting it lacked merit and no substantial question of law needed to be addressed given the circumstances.

In conclusion, the judgment resolved the issue of classifying rental income for the assessment year 2000-01, affirming the Tribunal's decision to compute the rental receipts under section 22 of the Act and dismissing the revenue's appeal.