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2025 (2) TMI 394 - AT - Income TaxCharacterization of receipt - rental income earned - taxable under the head house property or profit and gains from business and professions - HELD THAT - We find that the main business of the assessee is manufacturing and trading of carpets and rental income is only a side activity. The contention of the ld. counsel for the assessee that since the assessee has been offering the rent received to tax under the head house property since 2007 the rule of consistency has to be followed in the income tax proceedings unless there are compelling/convincing reasons for deviating from the view consistently being held has substance. Nothing has been brought on record by the A.O. or the ld DR before us to prove that there is any variation in the facts of the case as compared to the earlier or subsequent years wherein the rental income has been assessed to tax under the head House Property. We are therefore of the considered view that since there is no change in the facts of the case the rule of consistency applies in accordance with case of Radhaswami Satsang 1991 (11) TMI 2 - SUPREME COURT Thus no infirmity in the well-reasoned order of the ld. CIT(A) holding that the rental income is to be taxed under Income from House Property . Decided against revenue.
ISSUES PRESENTED and CONSIDERED
The core legal issue considered in this judgment was whether the rental income earned by the assessee from leasing out a building should be taxed under the head "Income from House Property" or as "Business Income" under the Income Tax Act. The Revenue contended that it should be considered as business income, while the assessee argued for it to be taxed as income from house property. ISSUE-WISE DETAILED ANALYSIS Relevant Legal Framework and Precedents The primary legal framework involved the classification of income under the Income Tax Act, specifically whether rental income should be classified as "Income from House Property" or "Business Income." The precedents cited included:
Court's Interpretation and Reasoning The Tribunal interpreted that the rule of consistency should apply in this case, given the assessee's historical treatment of rental income as income from house property. The Tribunal noted that the assessee's primary business was manufacturing carpets, and the rental activity was a secondary activity. It found no compelling reason to deviate from the established practice of classifying the income under house property. Key Evidence and Findings The Tribunal considered the following key evidence:
Application of Law to Facts The Tribunal applied the rule of consistency, as supported by the Supreme Court rulings, to the facts of the case. It emphasized that in the absence of any change in circumstances or compelling reasons, the historical classification of income should be maintained. The Tribunal also distinguished the facts of the current case from those in Chennai Properties and Investments Ltd., where the primary business was property letting. Treatment of Competing Arguments The Tribunal addressed the Revenue's argument that the rental income should be treated as business income by highlighting the lack of evidence for any change in circumstances. It also noted that the provision of amenities did not transform the rental activity into a business venture. The Tribunal found the assessee's argument for consistency more persuasive, supported by the cited precedents. Conclusions The Tribunal concluded that the rental income should continue to be assessed under the head "Income from House Property," aligning with the rule of consistency and the absence of any change in facts. It directed the Assessing Officer to allow the deduction under Section 24(a) of the Income Tax Act. SIGNIFICANT HOLDINGS The Tribunal held that:
Verbatim Quotes of Crucial Legal Reasoning The Tribunal quoted the CIT(A)'s findings, emphasizing the rule of consistency and the distinction between business and house property income. It highlighted the Supreme Court's support for consistency and the absence of any business activity in providing amenities. Final Determinations on Each Issue The Tribunal determined that the rental income should be taxed under "Income from House Property," and the Revenue's appeal was dismissed. The Tribunal directed the Assessing Officer to allow the deductions as per the previous consistent practice.
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