2016 (9) TMI 199 - AT - Income Tax

Treatment to rental income - Business Income OR Income from House Property - Held that - As decided in assessee s own case we are of the view that Ld. CIT(A) has rightly held that the rental income should be assessed as Income from House Property. Therefore, AO is not justified in treating the above income as business income and CIT was rightly directed to allow deductions claimed by the appellant u/s. 24. - Decided against revenue

Summary

Issues Involved:
1. Classification of rental income as "Business Income" vs. "Income from House Property".
2. Admissibility of deductions under Section 24 of the Income Tax Act.
3. Consistency of judicial decisions in similar cases from previous assessment years.

Detailed Analysis:

1. Classification of Rental Income:
The primary issue revolves around whether the rental income derived from unsold flats should be classified as "Business Income" or "Income from House Property". The Assessing Officer (AO) contended that since the assessee is engaged in the business of developing and selling properties, the rental income should be treated as "Business Income". This classification would disallow the deductions claimed under Section 24 of the Income Tax Act.

The Commissioner of Income Tax (Appeals) [CIT(A)] and the Income Tax Appellate Tribunal (ITAT) both disagreed with the AO, relying on a precedent set by the Hon'ble Delhi High Court in the assessee's own case. The High Court had previously ruled that rental income from unsold flats held as stock-in-trade should be assessed under the head "Income from House Property". This decision was based on the principle that the nature of income should be determined by its source, not the business activities of the assessee.

2. Admissibility of Deductions under Section 24:
The AO disallowed the deductions claimed by the assessee under Section 24, which pertains to deductions from income from house property. This disallowance was based on the AO's classification of the rental income as "Business Income". However, the CIT(A) allowed these deductions, following the High Court's ruling that the rental income should be classified as "Income from House Property". The ITAT upheld this decision, emphasizing that the deductions under Section 24 are admissible when rental income is classified correctly.

3. Consistency of Judicial Decisions:
The ITAT noted that similar issues had been adjudicated in the assessee's favor in previous assessment years (2004-05, 2008-09, and 2009-10). In those years, the AO had also classified rental income as "Business Income", but the CIT(A) and ITAT had ruled in favor of the assessee, a decision subsequently upheld by the Delhi High Court. The principle of consistency in judicial decisions was emphasized, reinforcing that the same classification and deductions should apply in the current assessment years.

Conclusion:
The ITAT dismissed the Revenue's appeals, confirming that the rental income should be assessed as "Income from House Property", allowing the deductions under Section 24. The Tribunal upheld the CIT(A)'s well-reasoned order, which aligned with the High Court's precedent and maintained consistency with previous rulings. This decision reinforces the judicial principle that the nature of income is determined by its source, not merely by the business activities of the assessee.