2016 (2) TMI 234 - AT - Income Tax

Addition under the head income from other sources as against income from business - CIT(A) with reference to the lease agreement and clauses thereon and held that Assessing Officer had correctly assessed the income from letting out of godowns for commercial space under the head income from house property - Held that - The appellant is not engaged in the business of leasing properties i.e. taking the properties on lease and again sub-leasing properties to various users. In the instant case the appellant has let out the property for a fixed consideration in the capacity of the owner of the property. The godowns which are rented by the appellant are not in the nature of plant and machinery. The manner of end-use of the property consisting of buildings or lands will not alter the assessability of income from house property to a business activity. The AO had correctly applied the ratio of the decision of the Hon ble jurisdictional High Court in the case of Chennai Properties & Investments 2003 (3) TMI 28 - MADRAS High Court and Shambu Investments 2003 (1) TMI 99 - SUPREME Court . It is to be mentioned here that the various expenses claimed by the appellant in the P & L account are not laid out for purpose of earning the rental income. The various expenses claimed in the P & L account are in no way connected with the earning the rental income. Therefore, the considered view that the AO had correctly assessed the income from letting out the godowns or commercial space under the head Income from house property is acceptable. - Decided against assessee.

Summary

Issues:
1. Addition of income under other sources instead of business income.
2. Treatment of rental income from godowns as income from house property instead of business income.

Issue 1: Addition of income under other sources instead of business income

The appeal was filed against the order of the Commissioner of Income Tax (Appeals) sustaining the addition of Rs. 2,18,400 under income from other sources rather than business income. The Assessing Officer required the assessee to produce ledger account of sales and details of business activities, as the assessee admitted sales but could not substantiate conducting business. The Commissioner observed that the appellant failed to provide evidence of business activities, like sale bills and invoices, and expenses claimed were not supported. The Commissioner upheld the addition under income from other sources. The Tribunal affirmed this decision, stating that there was no infirmity in assessing the receipts under income from other sources.

Issue 2: Treatment of rental income from godowns as income from house property

The second issue was regarding the treatment of rental income from godowns as income from house property instead of business income. The assessee converted a leather processing unit into a commercial complex and claimed the rental income as business income. However, the Assessing Officer treated it as income from house property. The Commissioner upheld this decision, considering the lease agreement and clauses, and concluded that the income from letting out godowns for commercial space should be assessed under income from house property. The Tribunal agreed with the Commissioner, stating that the lease income should indeed be assessed under income from house property and not as business income.

In conclusion, the Tribunal dismissed the appeal and upheld the decisions of the Commissioner of Income Tax (Appeals) regarding both issues. The stay petition filed by the assessee was also dismissed as the main appeal was disposed of.