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2021 (4) TMI 745 - HC - Income TaxCorrect head of income - rental income received by the assessee by letting out properties - 'income from other sources' OR 'income from house property' - HELD THAT - It is not disputed by the learned counsel on either side that the issue has been decided by the Hon'ble Division Bench of this Court in favour of the assessee and against the Revenue in the appeals filed by the Revenue in the assessee's own case 2020 (8) TMI 21 - MADRAS HIGH COURT wherein held where the facts of the cases are undisputed that Assessees in the present case carry on the business of earning the rental income, as per the Memorandum of Associations only and the fact is that they were not carrying on any other business, compels us to come to the conclusion that the present appeals of the Assessees are required to be allowed. The same are accordingly allowed and the question of law framed above is answered in favour of the Assessee
Issues:
Challenging the assessment of rental income under 'income from other sources' instead of 'income from house property' for specific assessment years. Analysis: The High Court of Madras dealt with the issue of whether rental income received from letting out properties should be assessed under 'income from other sources' or 'income from house property' for the assessment years 2009-10 and 2012-13. The Revenue filed appeals under Section 260A of the Income Tax Act, challenging the order of the Income Tax Appellate Tribunal. The Court referred to a previous judgment where it was held that if the property is used as a business asset and the main source of income is rental or lease money, then such income should be treated as 'Business Income' and not 'Income from House Property'. The Court emphasized that the Head of Income depends on the nature of the Assessee's business. In cases where rental income is the exclusive or predominant business activity, it should be taxed under 'Income from business income' and not 'Income from house property'. The Revenue argued that the development of an IT Park was not the main business activity of the Assessee company. However, the Court found no evidence to support this claim. It was observed that the Assessee diversified its business by developing real estate for software companies, earning lease rental income as its main business income. The Court noted that the name of the company did not define its main business activity. The Tribunal had previously ruled that when the main business is earning rental income, it should be taxed under the appropriate head, allowing deductions like depreciation and special deductions. The Court criticized the Revenue authorities for taking divergent views despite binding precedents, leading to unnecessary litigation for the Assessee. While considering imposing costs on the Assessing Authority for not following court judgments, the Court decided against it, hoping that the Revenue would understand and apply court judgments faithfully. Ultimately, the appeals were dismissed based on the earlier judgment, and the substantial question of law was answered against the Revenue. No costs were awarded in this case. In conclusion, the High Court of Madras upheld the previous judgment's interpretation that rental income from properties used as business assets should be assessed under 'Income from business income' and not 'Income from house property' when it is the Assessee's main source of income. The Court emphasized the importance of following legal precedents to avoid unnecessary litigation and encouraged the Revenue to adhere to court rulings.
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