2014 (10) TMI 978 - AT - Income Tax

Treatment to rental income received by the assessee on letting out the unsold stock - Income from house property or Business income - allowing of deduction under section 24 - Held that - On identical set of facts, it has been held consistently by the Tribunal that the rental income received by the assessee has to be assessed under the head Income from house property . Therefore, following the orders of the Tribunal in the preceding assessment years on the same issue, we confirm the order of the ld. CIT(A) on this issue and thus the appeal of the Revenue is hereby dismissed accordingly. Income from the sale of the premises in question as sale of the stock in trade - busniss income - assessee submitted that property in question was converted from stock in trade to investment in the year 2005 - Held that - Mere changing the head in the balance sheet is not sufficient to hold that the intention of the assessee to hold the property was as investment. From the record, we observe that since the assessee could not sell its property at appropriate time and therefore had exploited it for rental purposes. To get the benefit of indexation, the assessee made the accounting entry treating the same as investment, whereas, the real business intention and treatment of the property remained the same i.e. to sell it for the purpose of business of the assessee. The AO has discussed in detail, the nature, character and business of the assessee, the clauses of the partnership deed as well as the terms and conditions of the agreement entered into by the assessee while selling the property in question as promoter of the property. The order of the AO as well as of the ld. CIT(A) is well reasoned and we do not find any infirmity in the same. Lower authorities have rightly treated the income from the sale of the premises in question as sale of the stock in trade and as such the income from the same has rightly been taxed under the head Business income.

Summary

Issues involved:
1. Treatment of rental income as "Income from house property" or "Business income"
2. Classification of profit from sale of commercial premises as "Business Income" or "Long Term Capital Gain"

Analysis:

Issue 1: Treatment of rental income
The Revenue contested the treatment of rental income of Rs. 4.6 crore as "Income from house property" by the ld. CIT(A) instead of "Business income." The Tribunal referred to previous decisions in the assessee's own case, where it was consistently held that such rental income should be assessed under the head "Income from house property." The Tribunal upheld the order of the ld. CIT(A) based on the precedent set in previous assessment years, dismissing the Revenue's appeal accordingly.

Issue 2: Classification of profit from sale of commercial premises
The assessee argued that the profit from the sale of commercial premises should be treated as "Long Term Capital Gain" instead of "Business Income." The AO observed that the premises were initially treated as stock in trade and later converted to investment, but this change did not alter the real character of the property. The ld. CIT(A) agreed, emphasizing that the property was developed with the intention of holding it as stock in trade. The Tribunal concurred, noting that the change in the balance sheet did not change the fundamental business intention of selling the property. The income from the sale was deemed as "Business income" and taxed accordingly.

In conclusion, both appeals were dismissed, affirming the treatment of rental income as "Income from house property" and the profit from the sale of commercial premises as "Business income." The Tribunal upheld the decisions of the lower authorities, finding no merit in the appeals from both the assessee and the Revenue.