2017 (5) TMI 974 - AT - Income Tax

Leased rental received - Income from house property or business income - Held that - We find that through lease deed the assessee has leased out the entire property to M/s. Prathibha Housing and Finance (Pvt) Ltd. vide lease deed dated 31.01.2011. Through this lease deed the possession of the property was given to the lessee and the lessee has exclusive right over the entire property for its use and also to sublease any portion of premises to the tenant for a period within the lease agreement period. Day to day maintenance of leased premises shall also be the responsibility of the lessee. We have carefully perused the other terms of the lease deed and we find that the assessee has simply leased out its property to M/s. Prathibha Housing and Finance (Pvt) Ltd. During the first year of lease he has agreed to receive the 60% profit of the business as annual rental income but subsequently the annual rent has been prescribed in clause 3 of the lease deed. Therefore by any stretch of imagination it cannot be said that the assessee was doing business with M/s. Prathibha Housing and Finance (Pvt) Ltd. on profit sharing basis. It was simply a case of leasing out of property to M/s. Prathibha Housing and Finance (Pvt) Ltd. Therefore the leased rent received by the assessee is chargeable to tax as income from house property. - Decided against assessee.

Summary

Issues involved:
Nature of income received from the property, Treatment of income as business income or income from house property.

Detailed Analysis:

Issue 1: Nature of income received from the property
The appellant declared a loss for the assessment year 2012-13, having built apartments and entered into an Operation & Management agreement with another company for profit sharing. The Income Tax Officer treated the proceeds as income from house property, disputing the appellant's classification as business income.

Analysis:
The appellant argued that the income should be treated as business income due to the profit-sharing agreement. However, the CIT(A) upheld the Income Tax Officer's decision, stating that the appellant simply leased the property to the other company and had no active involvement in the business operations, leading to the income being classified as from house property.

Issue 2: Treatment of income as business income or income from house property
The appellant appealed to the Tribunal, emphasizing the profit-sharing nature of the agreement and the lease deed entered into for running the business of providing accommodations.

Analysis:
The Tribunal examined the lease deed and found that the appellant had leased out the entire property to the other company, granting them exclusive rights over the premises. The Tribunal concluded that the arrangement was a straightforward lease agreement, with the lessee responsible for day-to-day operations, making the income chargeable as income from house property. The Tribunal dismissed the appeal, affirming the CIT(A)'s decision.

In conclusion, the Tribunal's judgment focused on the nature of the agreement between the parties and the level of involvement of the appellant in the business operations. Despite the profit-sharing aspect, the Tribunal determined that the arrangement constituted a lease agreement rather than a business partnership, leading to the income being categorized as from house property.