2017 (7) TMI 815 - HC - Income Tax

Income derived by the assessee from letting out the shops in the Atlantis Mall - income from house property OR income from business - Held that - In the present case according to Memorandums of Association and Articles of Association the Assessing Officer as well as the tribunal have categorically found that the main object of the business of the assessee is to construct Mall and to derive income from letting out the shops therein. Therefore, the income so derived by the assessee may be the income from house property but would ultimately be the business income and as such the Assessing Officer has not committed any error in determining the taxable income of the assessee under the head income from business. In view of the above question no. 1 is answered in favour of the assessee and against the Income Tax Department and it is held that the income derived by the assessee from letting out the shops in the Atlantis Mall is income from business for the purposes of assessment of income tax. - Decided in favour of the assessee Revision u/s 263 - as per CIT-A AO had only made the assessment of the taxable income of the assessee on the basis of the income as disclosed by it under the head income from business without considering the other aspects of the matter whether it would fall under the head Income from house property - Held that - For the proposes of revising an order under Section 363 of the Act two conditions need to be satisfied namely that the order of the Assessing Officer sought to be revised is erroneous and it is prejudicial to the interest of the revenue. The Supreme Court went ahead in holding that it has no power to correct each and every mistake or error committed by the Assessing Officer. Therefore, interpreting the expression prejudicial to the interest of revenue it held that the order of the Assessing Officer can not be termed as prejudicial simply because the Assessing Officer adopted one of the courses permissible in law resulting in loss of revenue or where two views were possible if the Assessing Officer has taken one view, the Commissioner has no power to interfere. It was accordingly held that in such circumstances, the assessment order can not be treated as an order erroneous and prejudicial to the interest of revenue. In the present case two views were possible before the Assessing Officer and on the basis of the main objects and the nature of income derived by the Assessee, if he had taken one view of the matter, it could not have been said that it was erroneous in law or was likely to cause prejudice to the revenue so as to permit any interference in exercise of revisional jurisdiction by the Commissioner. - Decided against revenue

Summary

Issues:
1. Classification of rental income from letting out shops in a Mall as income from business or income from house property.
2. Validity of the order passed under Section 263 of the Income Tax Act by the Commissioner.

Issue 1: Classification of Rental Income:
The High Court considered whether the rental income received from letting out shops in a Mall should be assessed as income from business or income from house property. The company, as per its Articles of Association, was primarily engaged in constructing and leasing Multiplexes with commercial complexes. The Assessing Officer initially assessed the income under the head income from business, but the Commissioner, in a revision under Section 263, directed the income to be re-computed under the head income from house property. The High Court relied on the Supreme Court's decision in Chennai Properties and Investment Limited case, stating that if the main source of business for the assessee is letting out properties, the income should be considered as business income. The court found that the main business objective of the company was to construct the Mall and derive income from letting out shops, supporting the Assessing Officer's decision to assess the income under the head income from business.

Issue 2: Validity of Commissioner's Order under Section 263:
The second issue revolved around the validity of the Commissioner's order under Section 263, which set aside the assessment order made by the Assessing Officer. The Commissioner contended that the Assessing Officer did not consider whether the income should fall under income from house property. However, the High Court noted that the Assessing Officer was aware that the main business of the assessee was operating the Mall and earning income from shop rents. The tribunal also highlighted that various documents supported the business income classification. Referring to the Supreme Court's decision in Commissioner of Income Tax Vs. Kwality Steel Supplier Complex, the High Court emphasized that the Commissioner's revisional powers are limited to correcting orders that are both erroneous and prejudicial to revenue. Since two plausible views existed regarding the income classification, the High Court concluded that the Commissioner lacked jurisdiction to interfere. Therefore, the High Court upheld the tribunal's decision to set aside the Commissioner's order under Section 263.

In conclusion, the High Court answered both substantial questions of law in favor of the assessee, confirming that the income derived from letting out shops in the Mall should be treated as income from business. The appeal was dismissed as lacking merit, affirming the tribunal's decision and rejecting the Income Tax Department's contentions.