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2022 (8) TMI 1136 - HC - Income TaxRevision u/s 263 by CIT - whether the letting was doing of a business or the exploitation of the property by the owner? - assessee had earned rental income which had been shown as Income from Business Profession rather than showing the same as Income from House Property - whether the income is to be treated as income from business and such a question would depend upon the circumstances of each case, viz., whether a particular business is letting or not? - HELD THAT - The Hon ble Supreme Court in Chennai Properties and Investments Limited, Chennai vs. Commissioner of Income Tax Central III, Tamilnadu 2015 (5) TMI 46 - SUPREME COURT held that where the assessee is a company whose main object of business is to acquire properties and to let out properties, the rental income received therefrom was taxable as income from business and not income from house property . This view was taken after following the ratio of the judgment of the Hon ble Supreme Court in Sultan Brothers (P) Ltd. 1963 (12) TMI 4 - SUPREME COURT wherein it was held that each case has to be looked at from businessman s point of view to find out whether the letting was doing of a business or the exploitation of the property by the owner. In view of the settled legal position with which we are duty bound to respectfully agree, more particularly, when we do not find any later and recent contrary view to the aforesaid legal position, no fault can be found with the order of the ITAT. Thus, we are clearly of the opinion that once the property in question is used as business asset and the exclusive business of the assessescompany or firm is to earn income by way of rental or lease money, then such rental income can be treated only as business income of the assessee and not as income from house property . Apart from the above, we notice that no doubt this is a case which falls under the exception laid down in Para 10 (c) of the CBDT Circular dated 20.08.2018. The tax effect otherwise involved in the instant case is barely Rs.8,04,740/- which again dissociates us from interfering with the order passed by the ITAT, more especially, for the reasons as already stated above.
Issues Involved:
1. Condonation of delay in filing the appeal. 2. Classification of rental income as "Income from Business & Profession" vs. "Income from House Property". 3. Validity of the revisionary powers exercised by the Principal Commissioner of Income Tax (Pr. CIT) under Section 263 of the Income Tax Act. Issue-wise Detailed Analysis: 1. Condonation of delay in filing the appeal: The court addressed two applications regarding delays. The first application (OMP (M) No. 39 of 2022) seeking condonation of delay in filing the appeal was dismissed as misconceived, referencing an order by the Hon'ble Supreme Court. The second application (OMP No. 563 of 2022) for condonation of delay in refiling the appeal after removing objections was allowed, and the delay was condoned. 2. Classification of rental income as "Income from Business & Profession" vs. "Income from House Property": The primary issue was whether the rental income earned by the assessee, a private limited company engaged in renting immovable properties, should be classified as "Income from Business & Profession" or "Income from House Property". The Assessing Officer (A.O.) initially assessed it as business income, but the Revenue Audit Party objected, suggesting it should be classified as income from house property. The Pr. CIT, invoking Section 263, deemed the A.O.'s order erroneous and prejudicial to revenue interests, directing a reassessment. The ITAT, however, upheld the assessee's classification of rental income as business income, noting that the company's Memorandum of Association (MOA) included leasing as part of its business activities. The ITAT emphasized that the A.O.'s view was one of the possible views and thus not erroneous. The ITAT cited the Supreme Court's judgment in CIT vs. Max India Ltd., which states that an order is not prejudicial to revenue interests if the A.O.'s view is sustainable in law. 3. Validity of the revisionary powers exercised by the Principal Commissioner of Income Tax (Pr. CIT) under Section 263 of the Income Tax Act: The court examined whether the Pr. CIT rightly exercised revisionary powers under Section 263. The Pr. CIT argued that the A.O. failed to verify lease deeds and that the property was shown as an investment asset, not stock-in-trade. The ITAT countered, noting that the A.O. conducted inquiries and considered the assessee's replies and documents, concluding the rental income as business income based on consistent treatment in preceding years. The High Court upheld the ITAT's decision, agreeing that the A.O.'s assessment aligned with the business activities authorized by the MOA. The court referenced Supreme Court judgments in Chennai Properties and Investments Limited vs. CIT and Sultan Brothers (P) Ltd. vs. CIT, which support treating rental income as business income if leasing is part of the business. The court also noted that the tax effect in this case was minimal, further justifying the ITAT's decision. Consequently, the appeal was dismissed, affirming that the rental income should be classified as business income, and the Pr. CIT's revisionary action was unwarranted.
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