2011 (4) TMI 1160 - HC - Income Tax

Whether Tribunal has erred in law in holding rental income from letting out commercial space in the building known as Kumar Towers is taxable as income from business Held that - property is not in the possession of the assessee, let alone the question of doing any business there, and has let out the same to others for rent. We are clearly of the view that income from the property in question has to be taxed under the head Income from house property , appeal is allowed, order passed by the learned Tribunal is hereby set aside, and that of the learned Commissioner of Income-tax (Appeals) II, is hereby restored, decision in favour of the Revenue, and against the assessee

Summary

Issues involved:
1. Determination of whether rental income from letting out commercial space should be treated as business income or income from property under the Income-tax Act, 1961.

Analysis:
The Department of Income-tax filed an appeal against the order of the Income-tax Appellate Tribunal, Patna, which had treated the income from rent of the assessee's property as business income. The substantial questions of law framed included whether the Tribunal erred in reversing the order of the Commissioner of Income-tax (Appeals) and whether the income should be taxed as income from property under section 22 of the Income-tax Act. The case involved the assessment year 1996-97, where the assessee owned flats in a complex and let them out on rent. The Assessing Officer initially assessed the income as from house property, but the Tribunal reversed this decision based on a previous order in Mamta Properties P. Ltd. The High Court disagreed with the Tribunal's decision, stating that the income from the property should be taxed under the head "Income from house property" as the assessee was not in possession of the property for business purposes.

The High Court emphasized that the property was not in the possession of the assessee and was let out to others for rent, thus falling under the category of income from house property as per section 22 of the Act. The Court noted that the Tribunal had erred in treating the income as from business and agreed with the Assessing Officer's original assessment upheld by the Commissioner. The Court expressed displeasure with the Tribunal's reliance on its earlier order without adequately considering the differences between the cases. Consequently, the High Court allowed the appeal, setting aside the Tribunal's order and restoring the Commissioner's decision in favor of the Revenue. The judgment concluded that there would be no order as to costs in the case.