2021 (12) TMI 139 - AT - Income Tax

Correct head on income - rental income derived from letting out properties under the head income from business or Business and profession - HELD THAT - In this case, the main objects of the assessee is not into own, develop and let out properties on rent and further, the assessee has not carried out letting out of properties on rent as a systematic or organized business activity. Further, the assessee has not provided any amenities to the occupants of the premises except providing premises on simple leave and license basis. Case of the assessee is squarely covered by the decision of the Hon ble Supreme Court in the case of Chennai Properties Investment Ltd vs CIT, 2015 (5) TMI 46 - SUPREME COURT and in the case of Raj Dadarkar and Associates 2017 (5) TMI 586 - SUPREME COURT - AO without appreciating facts has wrongly concluded that income derived from letting out of properties is assessable under the head income from business or profession as against income declared under the head income from house properties . CIT(A) after considering relevant facts has rightly directed the AO to assess income derived from letting out of properties under the head income from house property. Hence, we are inclined to uphold findings of the Ld. CIT(A) and dismiss appeal filed by the Revenue.

Issues Involved:

1. Whether the rental income derived from letting out warehouse properties should be assessed under the head "House Property" or "Business Income".
2. Applicability of the Supreme Court decisions in cases of M/s Rayala Corporation Pvt. Ltd. and Chennai Properties and Investments Ltd.
3. Consideration of the main objects of the assessee's company as per its Memorandum of Association.

Detailed Analysis:

Issue 1: Assessment of Rental Income

The primary issue is whether the rental income from letting out warehouse properties should be assessed under the head "House Property" or "Business Income." The assessee declared the rental income under "House Property," claiming deductions under sections 24(a) and 24(b) of the Income Tax Act, 1961. The Assessing Officer (AO) assessed it under "Business Income," arguing that the assessee is in the business of providing warehouse solutions and supply chain management, which is a business activity rather than simple letting out of property.

Issue 2: Applicability of Supreme Court Decisions

The AO relied on the Supreme Court decision in the case of M/s Rayala Corporation Pvt. Ltd., where it was held that income from leasing property should be taxed under "Business Income." The AO also referenced the decision in Chennai Properties and Investments Ltd., where the Supreme Court held that if the main object of a company is to develop and let out properties, the income should be assessed under "Business Income."

Issue 3: Main Objects of the Assessee's Company

The assessee argued that its primary activity is simple letting out of property without providing any amenities, which should be assessed under "House Property." The Commissioner of Income Tax (Appeals) [CIT(A)] agreed, noting that the assessee's activity did not involve systematic business activity or providing additional facilities to tenants. The CIT(A) distinguished the case from the Supreme Court decisions, noting that the assessee's main object was not to develop and let out properties but to provide warehouse solutions.

Detailed Findings:

Assessment of Rental Income:

The CIT(A) found that the assessee's activity of letting out property did not involve providing amenities or services, which would classify it as a business activity. The CIT(A) directed the AO to assess the income under "House Property," allowing the statutory deduction of 30% under section 24(a).

Applicability of Supreme Court Decisions:

The CIT(A) distinguished the assessee's case from the Supreme Court decisions in Rayala Corporation Pvt. Ltd. and Chennai Properties and Investments Ltd. by noting that the main object of the assessee was not to develop and let out properties but to provide warehouse solutions. The CIT(A) also referenced the decision in Raj Dadarkar and Associates vs. ACIT, where the Supreme Court held that the determination of whether an activity is a business activity depends on the facts of each case.

Main Objects of the Assessee's Company:

The CIT(A) and the Tribunal both found that the assessee's main object was not to develop and let out properties but to provide warehouse solutions. The Tribunal noted that the AO failed to provide evidence that the assessee's main object was to own, develop, and let out properties on rent. The Tribunal upheld the CIT(A)'s decision, concluding that the rental income should be assessed under "House Property."

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to assess the rental income under "House Property." The Tribunal found that the assessee's activity did not involve systematic business activity or providing amenities, distinguishing it from the Supreme Court decisions in Rayala Corporation Pvt. Ltd. and Chennai Properties and Investments Ltd. The Tribunal emphasized that the determination of whether an activity is a business activity depends on the facts of each case, as established in Raj Dadarkar and Associates vs. ACIT.

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