2008 (8) TMI 522 - HC - Income Tax

Property- Business Income- The assessee wascarrying on the business of dealing and investing in properties, flats, warehouses, shops etc., purchased flats for trading purposes but let them out on licence basis for temporary periods and earned monthly rental income as licence fees. The assessee claimed the rental income as income from business but the authorities below treated the income as Income from house Property under section 22 of the Act. Held that- in the light of the decision of East India Housing and Land Development Trust Ltd. 1961 42 ITR 49 (SC), the rental income earned by the assessee was an income from house property.

Summary

Issues:
1. Classification of rental income as income from house property or business income.

Analysis:
The appellant, a private limited company dealing in properties, purchased flats for trading purposes and let them out on a license basis due to a market recession. The appellant treated the rental income as business income, but the Revenue authorities classified it as "income from house property" under section 22 of the Income-tax Act. The Tribunal, relying on the judgment in East India Housing and Land Development Trust Ltd. v. CIT, concluded that the rental income is from property and falls under the specific head described in section 9. The Tribunal emphasized the mutually exclusive nature of the heads of income under the Income-tax Act. The appellant cited the judgment in S. G. Mercantile Corporation P. Ltd. v. CIT, arguing that income from property development and sub-letting should be considered business income. However, the Tribunal found that the appellant's case aligns with the judgment in East India Housing and Land Development Trust Ltd., affirming that the rental income is indeed from house property.

The appellant also relied on the judgment in CEPT v. Shri Lakshmi Silk Mills Ltd., where temporary letting out of a commercial asset was considered business income. However, the Tribunal distinguished this case, noting that the income earned by the appellant was not from a commercial asset used for the same business purpose. Ultimately, the Tribunal dismissed the appeal, upholding the classification of the rental income as income from house property based on the precedent set by East India Housing and Land Development Trust Ltd. The Tribunal emphasized that the ownership of the property by the assessee was a crucial factor in determining the nature of the income. Thus, the Tribunal found no merit in the appellant's argument and upheld the decision of the lower authorities to treat the rental income as income from house property.