2017 (12) TMI 852 - AT - Income Tax

Treatment of rental income received - under the head Income from House Property OR Income from Business/Profession - disallowance of the claim of lease rental paid on the land. annual value of the property which is in the nature of a building is to be charged under the head Income from House Property , if the assessee is the owner of the such building. Admittedly assessee was the owner of the building though it might not be the owner of the land. It is not essential that a person who owns a building should be owner of the land upon which it stands for assessing the rental income under the head Income from House Property . In the circumstances, we are of the opinion that lower authorities were justified in considering the rental income under the head Income from House Property . Once income is assessed under the head Income from House Property , assessee will be eligible only for allowance mentioned in Section 24 of the Act. We thus do not find any reason to interfere with the orders of the lower authorities. - Decided against assessee.

Summary

Issues involved:
1. Treatment of rental income under different heads of income.
2. Disallowance of lease rental paid on the land.

Issue 1: Treatment of rental income under different heads of income
The assessee contested the treatment of rental income under the head "Income from House Property" instead of "Income from Business" for certain assessment years. The counsel argued that the rental income was shown differently in various years, with inconsistencies in the categorization. The authorized representative contended that the rental income should be considered under "Income from Other Sources" due to the leased land on which the building stood. The representative emphasized that the lease rental paid for the land should be allowed as an expenditure under this head. The argument was based on the interpretation of relevant sections of the Income Tax Act, particularly Section 27(iiib) and Section 269(f), to establish ownership criteria for income classification.

Issue 2: Disallowance of lease rental paid on the land
The Departmental Representative asserted that the assessee was the rightful owner of the building and earned rental income from multiple tenants, justifying the classification under "Income from House Property." Referring to precedent judgments, the representative highlighted that income from such properties should fall under this specific head. The contention was supported by the dismissal of a Special Leave Petition by the Apex Court against the mentioned judgments. The Tribunal reviewed the contentions, noting the historical categorization of rental income by the assessee and the absence of commercial activities related to the property. Ultimately, the Tribunal affirmed that the rental income, despite the leased land, should be assessed under "Income from House Property" based on the ownership of the building, as outlined in Section 22 of the Income Tax Act. Consequently, the appeals of the assessee were dismissed, upholding the lower authorities' decisions regarding the categorization of rental income.

In conclusion, the Tribunal clarified the classification of rental income based on ownership criteria and upheld the treatment under the head "Income from House Property." The judgment emphasized the importance of ownership of the building in determining the appropriate head for assessing rental income, irrespective of the land ownership status.