2009 (6) TMI 49 - HC - Income Tax

Business Income or Income From Other Soruces Leasing of the hospital - As the assessee company suffered loss in running the business the hospital building along with various equipments and machineries was leased out to Apollo Hospitals Enterprises Ltd. on a monthly lease of Rs.3, 00, 000/-per month and the same was claimed as business income against which earlier business losses were set off AO treated the income from lease of the hospital as income from other sources and therefore disallowed setting off the earlier years business losses and assessed the lease income from the hospital as income from other sources Held that income from leasing of the hospital can be assessed only as income from other sources decided in favor of revenue ITAT order upholding the order of AO maintained.

Summary

Issues:
1. Classification of income from lease of hospital building.
2. Treatment of lease income for setting off previous years' losses.

Issue 1: Classification of income from lease of hospital building
The assessee company leased out a hospital building and claimed the lease income as business income to set off earlier business losses. The Assessing Officer treated the lease income as 'income from other sources' disallowing setting off previous losses. The C.I.T. (Appeals) reversed the Assessing Officer's decision, considering the exploitation of a commercial asset for profit as 'business income.' However, the Income Tax Appellate Tribunal, following relevant judgments, concluded that income from leasing the hospital should be assessed as "income from other sources." The Tribunal allowed setting off previous losses against the lease income, citing legal precedents. The Tribunal's decision was based on the intention behind the lease agreement and the nature of the asset, determining that the income should be classified as 'income from other sources.'

Issue 2: Treatment of lease income for setting off previous years' losses
The Tribunal acknowledged that the hospital building was a business asset and allowed setting off previous business losses against the lease income, even though classified as 'income from other sources.' The Tribunal relied on a Madras High Court ruling allowing the carry forward of business losses to be set off against income from other sources if the assets were business-related. This decision was consistent with the legal provisions of the Income Tax Act, ensuring the permissibility of setting off business losses against income from leasing the hospital building. The Tribunal's finding supported the assessee's position that the lease income could be used to offset previous years' losses, despite being categorized as 'income from other sources.'

In conclusion, the High Court upheld the Tribunal's decision, affirming that the income from leasing the hospital building should be treated as 'income from other sources.' The Court dismissed the appeal, emphasizing that the issue had already been settled in previous judgments and finding no grounds to interfere with the Tribunal's order. The legal analysis provided clarity on the classification and treatment of lease income in relation to setting off previous business losses, ensuring compliance with relevant laws and judicial precedents.