2005 (2) TMI 31 - HC - Income Tax

Property rental income - Whether Tribunal was justified to hold that the rental income should be assessed as income from business in place of income from house property assessed by the Assessing Officer? - held that letting out of the premises by the assessee was only temporary to generate income and therefore the rental income should be treated as business income - All the assets were not let out. Only a few of the assets of the business were let out and that too temporarily with an intention of exploiting them. The finding is that there is no intention to close down the business. Nor is there any intention that the assets will cease to be business assets - we find no error in the order of the Tribunal.

Summary

Issues:
Whether rental income should be assessed as income from business or income from house property.

Analysis:
The case involved a company engaged in bidi manufacturing that temporarily let out some properties due to labor problems. The company acquired properties for its business but let out a few godowns and a part of another property. The Assessing Officer treated the rental income as income from house property, limiting repair allowances and disallowing depreciation. The Commissioner of Income-tax (Appeals) upheld this decision, but the Tribunal ruled in favor of treating the rental income as business income.

The legal issue revolved around whether income from letting out business assets should be classified as "income from house property" or "profits and gains of any business." Various legal precedents were cited, emphasizing the importance of the intention behind letting out assets and the temporary nature of such arrangements. The Supreme Court rulings in similar cases highlighted that the intention to exploit assets for business purposes and the temporary nature of letting out assets were crucial factors in determining the nature of rental income.

The Tribunal in this case found that the properties were temporarily let out to maintain them for future business use, indicating the company's intention to grow its business. The company continued its business activities during the years in question, with no intention to cease operations. Therefore, the Tribunal concluded that the rental income should be treated as business income, aligning with the principles established by previous legal judgments.

Based on the facts and legal principles applied, the High Court upheld the Tribunal's decision, ruling in favor of treating the rental income as business income. The Court found no error in the Tribunal's order and answered the legal question raised in favor of the assessee and against the Revenue.