2017 (10) TMI 1569 - AT - Income Tax

Revision u/s 263 - computation of rental income under the head income from house property - whether the rental income earned by the assessee should be assessed under the head income from house property or business income ? - HELD THAT - Assessee ought to have submitted relevant information before the AO to substantiate that the income earned on leasing out the properties is assessable to tax under the head property income . AO had not indicated that he has actually called for any information to seek clarification as to whether the impugned income is assessable under the head income from house property or under the head business income . In the backdrop of the available rulings as observed (M/s Rayala Corporation Pvt. Ltd. 2016 (8) TMI 522 - SUPREME COURT that in the event of leasing out property by a company, such income should be treated as its business income. Similar view has taken in the case of Chennai Properties Investments Ltd. 2015 (5) TMI 46 - SUPREME COURT . Since such matters have to be considered by analysing under broader aspects of law by referring to the facts of each case, it is the duty of the AO to have obtained the relevant information, but, the record does not indicate that the AO applied his mind. Under these circumstances, we are of the view that the case law relied upon by the assessee (Malabar Industrial Co. Ltd. 2000 (2) TMI 10 - SUPREME COURT and other such cases taking a similar view) have no application to the instant case; in the aforecited cases, only AO has taken a specific stand upon application of mind, it is one of the views possible in the circumstances and those case law cannot be applied where the AO has not applied his mind. Having regard to the circumstances and for the detailed reasoning given by the revisional authority, we are of the view that the order passed by the AO is erroneous and prejudicial to the interests of revenue. Thus the issue as to whether the said income is assessable under the head income from house property or income from business has to be considered in the backdrop of the case law on the issue and therefore, the matter deserves to be set aside to the file of the AO instead of directing the AO to treat the income as income from business. Accordingly, we modify the order of revisional authority and direct the AO to reconsider the matter in accordance with law by properly analysing the facts and consider the issue on the touchstone of the case law available on the issue. Appeal filed by the assessee is treated as partly allowed for statistical purposes.

Summary

Issues:
1. Whether rental income should be assessed under 'income from house property' or 'business income' for AY 2012-13.

Analysis:
The appeal was against the order of the Commissioner of Income-tax (CIT) under section 263 of the Income Tax Act for the assessment year 2012-13. The CIT observed that the assessee company offered rental income under 'Income from house property' in the return, while the nature of business indicated infrastructure development and rental services. The CIT held that rental income should be assessed as 'Income from business' instead of 'Income from house property' due to the business proposition of leasing properties. The CIT also raised concerns about unexamined deposits during the year. The CIT found the assessment accepting the rental income as 'Income from house property' to be erroneous and prejudicial to revenue, leading to the revision. The assessee objected, arguing that the AO considered all relevant facts during assessment. The CIT directed the AO to assess rental income as 'Income from business.'

In response, the assessee contended that the CIT's revision under section 263 was erroneous, as the AO had taken a permissible view. The CIT, however, emphasized the commercial nature of the rental activities, suggesting it should be considered business income. The ITAT noted the dispute over assessing rental income as 'Income from house property' or 'business income.' The AO had not sought clarification on this matter. While the assessee cited case law supporting 'income from house property,' recent Supreme Court decisions favored treating rental income as business income. The ITAT agreed with the CIT that the AO's order was erroneous and prejudicial to revenue. However, rather than directing the income to be treated as business income, the ITAT remanded the issue to the AO for proper analysis in line with relevant case law. The ITAT partially allowed the appeal for statistical purposes, emphasizing the need for a comprehensive reconsideration by the AO.

In conclusion, the judgment addressed the crucial issue of assessing rental income as 'Income from house property' or 'business income,' highlighting the necessity for the AO to analyze the matter thoroughly in accordance with applicable case law. The ITAT's decision to remand the issue to the AO for detailed consideration ensured a fair assessment based on legal principles and factual analysis.