2008 (1) TMI 101 - HC - Income Tax

Income derived from leasing of the commercial property - it is clear that assessee was only exploiting the property as owner by leasing out the same & realised income by way of rent. Such rental income is liable to be assessed as income from house property not as business income - in computation of long term capital gains, fair market price of property fixed by Comm., which has been affirmed by appellate authority requires no re-consideration in this appeal, as it is factual in nature

Summary

Issues:
1. Classification of income derived from leasing of commercial property as business income or income from property.
2. Assessment of lease income under different heads - property, business, or other sources.
3. Valuation of long term capital gains based on fair market value.

Issue 1: Classification of Income:
The appellant contended that the lease income from a commercial property should be treated as business income due to the nature of the property exploitation. However, the assessing officer and subsequent authorities classified the income under the head of income from property. The Tribunal upheld this classification, emphasizing that the property was let out without any commercial or business activities conducted by the appellant. The courts referred to precedents stating that the mere object of acquiring land and buildings for commercial purposes does not automatically convert lease income into business income. The absence of business activities by the appellant led to the conclusion that the income should be assessed as income from property.

Issue 2: Assessment of Lease Income:
The appellant argued that the lease income should be assessed under the head of business income or other sources, considering the amenities and services provided along with the property. However, the authorities found that the income was generated solely from property exploitation through leasing and not from any commercial or business activities. The courts reiterated that the nature of the activity conducted by the appellant determines the classification of income. Since no business activities were carried out, the income was rightfully assessed as income from property.

Issue 3: Valuation of Long Term Capital Gains:
Regarding the valuation of long term capital gains, the appellant disputed the fair market value determined by the assessing officer and subsequent authorities. The Commissioner fixed the fair market value after considering various factors and evidence, including a personal visit to the property location. The courts upheld this valuation, stating that it was based on factual evidence and did not require reconsideration. As the valuation was factual in nature and supported by evidence, the courts found no substantial question of law to entertain the appeal, ultimately dismissing it.

In conclusion, the courts affirmed the classification of lease income as income from property, based on the absence of business activities by the appellant. They also upheld the valuation of long term capital gains, emphasizing the factual basis and evidence considered in determining the fair market value.