2016 (7) TMI 504 - AT - Income Tax

Revision u/s 263 - Rental income received - treated as income from business or house property - Held that - There is no break-up of the rent between facilities and shop area rented out. Obviously the lease deeds were composite. No doubt consistent view taken by various courts including Hon ble Apex Court is that an assessee, even if it was in the business of real estate, income earned from letting out of property was to be assessed under the head income from house property . Exception to this rule is where letting of the building was inseparable from letting of the plant, machinery and furniture in which case circumstance alone, it could be treated as income from business. This position of law has been clearly enunciated by the Hon ble Madras High Court in the case of Keyaram Hotels (2014 (11) TMI 633 - MADRAS HIGH COURT ), after considering its own judgment in the case of Chennai Properties & Investments Ltd, (2003 (3) TMI 28 - MADRAS High Court ). AO was aware that assessee was in the business of real estate development and leasing of commercial space. This mentioned in the first sentence of the assessment order passed u/s.143(3) of the Act, which was the subject matter of the revisionary proceedings. So it is not a case where AO had not made enquiries. He was aware that assessee was into real estate development and leasing of commercial space. Assessee was required to file copies of lease deeds, specifically mentioning the types of services to be given by the assessee. AO thereafter assessed thes income of the assessee was to be considered under the head income from business . We cannot say that it is an illegal or unlawful view which was not possible in the facts and circumstances of the case. - Decided in favour of assessee

Summary

Issues:
1. Assessment of income/loss from business operation under the head 'Income from house property.'
2. Erroneous assessment order under section 263 of the Income-tax Act, 1961.

Issue 1: Assessment of income/loss from business operation under the head 'Income from house property':

The appellant contested the assessment order passed by the Principal Commissioner of Income Tax, Bangalore, arguing that the income/loss from the business operation of Forum Value Mall should be categorized under 'Profits and gains of business' rather than 'Income from house property.' The appellant highlighted that the letting out of the property, along with additional services and amenities provided, constituted a business activity, not merely property rental. The Principal Commissioner, however, relied on a Supreme Court decision and concluded that the income should be assessed under 'Income from house property.' The appellant presented lease deeds showing the inseparability of property rental and service provision, emphasizing that the AO had already considered this aspect during the original assessment. The appellant's view was supported by a Karnataka High Court judgment. The Departmental Representative argued that the AO's view was erroneous and cited various court judgments to support the contention that the AO had not properly considered the nature of the income.

Issue 2: Erroneous assessment order under section 263 of the Income-tax Act, 1961:

The Principal Commissioner issued a notice under section 263, contending that the AO's assessment order was erroneous and prejudicial to the Revenue's interests. The appellant argued that the AO had conducted thorough inquiries and considered all relevant details before making the assessment. The appellant referenced a High Court judgment supporting their position that the income should be treated as business income. The Departmental Representative highlighted that the AO had not adequately applied his mind and made necessary inquiries, rendering the assessment order prejudicial to Revenue's interests. Several High Court judgments were cited to support this argument.

In the final judgment, the Appellate Tribunal reviewed the facts, including the details provided by the appellant during the original assessment, lease deeds, and relevant court judgments. The Tribunal concluded that the AO's assessment was not erroneous or prejudicial to Revenue's interests. The Tribunal found that the AO had taken a possible and lawful view, even if debatable, regarding the categorization of income from the business operation of Forum Value Mall. Consequently, the order of the Principal Commissioner was set aside, and the appeal of the assessee was allowed.