2017 (5) TMI 116 - AT - Income Tax

Rental receipt from letting out commercial properties - the assessee is involved in the activity of taking lands lease and construction of commercial buildings and let out the same on monthly rental - assessable under the head income from profit & gains of business or profession or income from house property ? - Held that - the coordinate bench of this Tribunal, under similar circumstances held that rental income from letting out commercial properties is assessable under the head income from profits and gains of business or profession but not under the head income from house property - appeal dismissed - decided against Revenue.

Summary

Issues Involved:
1. Classification of rental income from commercial properties.
2. Applicability of previous Tribunal and High Court decisions.
3. Assessment of rental income under the appropriate head of income.

Issue-wise Detailed Analysis:

1. Classification of Rental Income from Commercial Properties:
The primary issue in this case is whether the rental income received by the assessee from letting out commercial properties should be classified under the head "income from business or profession" or "income from house property." The assessee, a partnership firm engaged in the business of tobacco trade and letting out commercial properties, filed its return of income for the assessment year 2011-12, declaring rental income under "income from business." The Assessing Officer (A.O.) reclassified this income under "income from house property," which was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)].

2. Applicability of Previous Tribunal and High Court Decisions:
The assessee referred to a previous decision by the Tribunal in its own case for the assessment year 2008-09, where it was held that rental income from commercial properties should be assessed under "income from business or profession." The Tribunal, in the present case, found that the factual matrix and circumstances were similar to the previous case. The Tribunal also considered the decision of the Hon’ble Supreme Court in the case of Chennai Properties, which emphasized that if the main objective of the assessee is to let out properties as part of its business activity, the income should be classified under "income from business."

3. Assessment of Rental Income under the Appropriate Head of Income:
The Tribunal analyzed the partnership deed of the assessee, which stated that the firm’s business included constructing and leasing out commercial properties. The Tribunal concluded that the systematic activity of acquiring land, constructing buildings, and leasing them out constituted a business activity. Therefore, the rental income should be treated as "income from business" and not "income from house property." This conclusion was supported by the Hon’ble High Court of Telangana & A.P., which dismissed the revenue's appeal, affirming that the rental income should be classified under "income from business."

Conclusion:
The Tribunal, after considering the facts, previous decisions, and the nature of the assessee's business, dismissed the revenue's appeal and upheld that the rental income from commercial properties should be assessed under "income from business or profession." Consequently, the cross-objection filed by the assessee was dismissed as not maintainable. The order was pronounced in the open court on 28th April 2017.