2020 (4) TMI 566 - AT - Income Tax

Rental income earned - Correct head of income - taxable under the head Income from House Property OR Income from Business - HELD THAT - Referring to lease deeds available in the paper book, we find that the assessee has simply let out the properties owned by it for exploitation of his property by an owner and it is not doing any such activity based on which, it can be said that the letting out of the properties was the doing of a business. In very next year, the AO has also accepted the claim of the assessee in the scrutiny assessment although without any discussion but because of this fact that in the immediately preceding year, the claim of the assessee was not accepted by the AO, it cannot be said that the claim of the assessee was not noticed by the AO particularly when as against loss reported by the assessee under the head Income from Business and income declared by the assessee under the head Income from Other Sources , the assessee has declared much higher amount of income under the head Income from House Property , which was converted by the AO to Income from Business in the preceding year i.e. the present year. We respectfully follow the judgment rendered in the case of Raj Dadarkar Associates vs. ACIT 2017 (5) TMI 586 - SUPREME COURT and in turn follow the earlier judgment of Sultan Bros. Pvt. Ltd. 1963 (12) TMI 4 - SUPREME COURT and decide the issue in favour of the assessee and hold that the rental income is taxable under the head Income from House Property as claimed by the assessee in the return of income. - Decided in favour of assessee.

Summary

Issues:
Whether the rental income earned by the assessee is taxable under the head "Income from House Property" or under the head "Income from Business."

Analysis:
The appeal was filed by the assessee against the order of CIT(A) regarding the taxability of rental income. The key issue was whether the income should be categorized as "Income from House Property" as claimed by the assessee or as "Income from Business" as held by the Assessing Officer (AO). The AO and CIT(A) relied on the partnership deed to determine the nature of the income, emphasizing the business objective of renting or leasing out buildings. The assessee argued that the lease deeds indicated a simple letting out arrangement without additional services provided. The assessee referenced a judgment by the Hon'ble Apex Court in a similar case to support their position.

The Tribunal noted that the partnership deed's clauses alone cannot determine the income's classification and that the business activities should be considered. Referring to the judgment in a similar case by the Hon'ble Apex Court, it was emphasized that each case should be viewed from a businessman's perspective to ascertain if the letting out was part of a business or property exploitation. The Tribunal found that the assessee had merely rented out properties without engaging in business activities. The AO's acceptance of the assessee's claim in the subsequent year was also considered, highlighting the principle of consistency. Consequently, the Tribunal followed the Hon'ble Apex Court's judgment and held that the rental income should be taxed under "Income from House Property" as claimed by the assessee.

In conclusion, the Tribunal allowed the appeal of the assessee, ruling in favor of taxing the rental income under the head "Income from House Property." The decision was based on the interpretation of business activities and the principle of consistency in tax assessment.