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2018 (11) TMI 393 - AT - Income TaxNature of income - Income from warehouse - assessed under the head income from house property OR head income from business and profession - Held that - Though the ownership has been changed on record but the nature of usage of the warehouse remains the same. Before purchasing the warehouse by assessee, the earlier owner was receiving the income from warehouse as rental income and after change of ownership, the nature of payments made by occupier (Tupperware) remains the same. Thus, the nature of transactions or income generated through this warehouse did not change. The basis taken by assessee regarding the clauses of memorandum of association also holds no force now after the aforesaid decision of Hon ble Supreme Court in M/S CHENNAI PROPERTIES & INVESTMENTS LTD VERSUS THE COMMISSIONER OF INCOME TAX 2015 (5) TMI 46 - SUPREME COURT . In view of this, Ld. CIT(A) has rightly held that income from warehouse has to be assessed under the head income from house property not under the head income from business and profession. The computation made by AO under the head income from house property determining the net loss of ₹ 1,51,524/- was, therefore, rightly upheld and confirmed by Ld. CIT(A), which does not need any interference on my part, hence, I uphold the action of the Ld. CIT(A) on the issue in dispute and reject the grounds raised by the Assessee.
Issues:
1. Classification of income from leasing of warehouse - whether taxable under "Income from House Property" or "Income from Business" 2. Correct application of legal precedents and judgments in determining the classification of income 3. Adjudication of expenses claimed by the Assessee Analysis: Issue 1: Classification of Income The primary issue in this case revolves around the classification of income derived from the leasing of a warehouse. The Assessee argued that the income should be treated as "Income from Business" due to their primary engagement in the business of leasing warehouses. On the contrary, the Revenue authorities contended that the income should be taxed under "Income from House Property" based on the dominant intention of the lease agreement. The Assessing Officer (AO) concluded that the income falls under the provisions of section 22 of the Income Tax Act, thus categorizing it as income from house property. The AO disallowed business expenses claimed by the Assessee, resulting in a net loss under the head of business income. The Commissioner of Income Tax (Appeals) upheld the AO's decision, leading to the Assessee's appeal to the Tribunal. Issue 2: Application of Legal Precedents The Assessee argued that the CIT(A) erred in applying legal precedents incorrectly, specifically mentioning the judgments in the cases of Chennai Properties & Investment Limited and Rayala Corporation Pvt Ltd. versus ACIT. The Assessee contended that the CIT(A) failed to appreciate the ratio of judgment in the case of Raj Dadarakar and Associates versus ACIT correctly. However, the Tribunal, after considering the arguments from both parties and analyzing the legal precedents cited, upheld the CIT(A)'s decision. The Tribunal highlighted that the nature of income derived from leasing the warehouse did not change after the change in ownership, and the primary ingredient for income classification under section 22 of the Act was satisfied, leading to the affirmation of the income as "Income from House Property." Issue 3: Adjudication of Expenses Additionally, the Assessee raised concerns regarding the non-adjudication of claimed expenses amounting to a specific sum in the profit and loss account. The Tribunal noted the contentions but ultimately upheld the decision of the CIT(A) regarding the classification of income, which consequently influenced the treatment of related expenses. The Tribunal found no grounds to interfere with the CIT(A)'s ruling on this matter. In conclusion, the Tribunal dismissed the Assessee's appeal, affirming the classification of income from leasing the warehouse as "Income from House Property" based on the legal provisions and precedents cited. The Tribunal found the CIT(A)'s decision to be well-reasoned and in accordance with the law, thereby upholding the assessment made by the Revenue authorities.
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