2001 (7) TMI 278 - AT - Income Tax

Summary

Issues Involved:
1. Classification of income from property as 'Business income' or 'Income from house property'.
2. Applicability of Supreme Court judgments to the present case.
3. Treatment of service charges received by the assessee.
4. Principle of res judicata in income tax proceedings.

Issue-Wise Detailed Analysis:

1. Classification of Income from Property:
The primary issue is whether the income from letting out property should be classified as 'Business income' under section 28 of the Income-tax Act, 1961, or as 'Income from house property' under section 22 of the Act. The assessee argued that the income should be treated as business income because the company was formed with the object of acquiring and commercially exploiting properties. However, the Assessing Officer and the Tribunal concluded that the income should be classified as income from house property. The Tribunal emphasized that the letting out of property on a monthly rental basis for a longer term with a renewal clause does not constitute a business activity.

2. Applicability of Supreme Court Judgments:
The CIT(A) relied on the Supreme Court judgment in the case of Karnani Properties Ltd. v. CIT, which held that income from letting out premises could be considered as business income. However, the Tribunal found that this judgment was not applicable to the present case. Instead, it relied on the judgment in East India Housing & Land Development Trust Ltd. v. CIT, which stated that income from shops and stalls is income received from property and falls under 'Income from house property'. The Tribunal also referred to Sultan Bros. (P.) Ltd v. CIT, which held that income under a lease cannot be assessed as business income unless the letting was part of a business activity.

3. Treatment of Service Charges:
The CIT(A) directed that service charges received by the assessee should be treated as business income. However, the Tribunal found no evidence that the assessee rendered any services to the tenants beyond those typical of a landlord. The lease deed did not specify any particular services, and the Tribunal concluded that the mention of service charges was likely an attempt to split rental income to avoid taxes. Therefore, the Tribunal held that service charges should also be treated as income from house property.

4. Principle of Res Judicata:
The assessee contended that in previous years, the income was treated as business income, and the Assessing Officer should not change this classification. The Tribunal rejected this argument, stating that the principle of res judicata does not apply to income tax proceedings. Each assessment year is separate, and the Assessing Officer is not bound by previous classifications if they were erroneous.

Conclusion:
The Tribunal set aside the order of the CIT(A) and restored the order of the Assessing Officer, concluding that the income from letting out the property should be classified as 'Income from house property' under section 22 of the Income-tax Act, 1961. The appeal was allowed in favor of the Revenue.