2014 (1) TMI 1440 - AT - Income Tax

Rental income - Business income or income from other sources - Held that - The assessee has developed and prepared the premises as a fitness centre/gymnasium by installing the all requisite equipments, machines and other facilities - The primary purpose and intention of the assessee to lease out the assets comprising the premises as well as the equipments is to earn the income by exploiting the asset being earning apparatus - It is not a simple case of earning the rental income from letting out the premises - The Revenue has accepted the income from lease out the premises as business income for the assessment year 2006-07 to 2010-11 except the assessment year under consideration - When there is no change in the facts and circumstances then the principle of consistency has to be followed - As per the rule of consistency when the Revenue has accepted the claim of the assessee in all other years then treating the rental income in respect of the fitness centre is not justified - Decided in favour of assessee. Disallowance of municipal taxes - Held that - If the amount has been paid on or before the due date of filing the return of income u/s 139, then the same has to be allowed u/s 43B - Decided in favour of assessee. Interest income - Held that - The substantial income of the assessee is from the activity of advancing the loan and in the form of interest - This income has been offered by the assessee as business income which has been accepted by the Revenue since 2003-04 to 2011- 12 except the assessment year 2007-08 - When the Revenue has consistently accepted the interest income as business income of the assessee then in the absence of any change in the facts and circumstances a different view is not permissible for the assessment year under consideration - Decided in favour of assessee.

Summary

Issues involved:
1. Treatment of rental income as income from other sources and disallowance of expenses.
2. Disallowance of municipal taxes.
3. Treatment of interest income as income from other sources.
4. Levy of interest under sections 234B and 234C.

Issue 1: Treatment of rental income as income from other sources and disallowance of expenses:
The appellant's appeal was against the Commissioner of Income Tax (Appeals) order regarding the assessment year 2007-08. The appellant argued that the rental income should be treated as business income due to the nature of services provided in the fitness center. The appellant invested significantly in developing the premises for gymnasium activities. The Tribunal noted that the primary intention was to earn income through commercial activities, not just renting out the premises. The Revenue had previously accepted similar claims in other assessment years, maintaining consistency. Therefore, the Tribunal allowed the appellant's claim, setting aside the lower authorities' orders on this issue.

Issue 2: Disallowance of municipal taxes:
The appellant contended that municipal taxes were paid before the due date of filing the return and should be allowed under section 43B. The Tribunal directed the Assessing Officer to allow the claim if the taxes were paid before the due date of filing the return, as per the Income Tax Act.

Issue 3: Treatment of interest income as income from other sources:
The Assessing Officer treated the interest income as income from other sources under section 56 of the Income Tax Act. The appellant argued that money lending was a regular business activity, and interest income had been consistently accepted by the Revenue in previous years. The Tribunal observed that the interest income was a substantial part of the appellant's business activity and had been treated as business income in previous assessments. Consistency in Revenue's acceptance of this income as business income led the Tribunal to allow the appellant's claim and set aside the lower authorities' orders on this issue.

Issue 4: Levy of interest under sections 234B and 234C:
The Tribunal noted that the levy of interest under sections 234B and 234C was consequential, and no specific finding was required. Therefore, the appeal of the appellant was allowed on this ground as well.

In conclusion, the Tribunal ruled in favor of the appellant on all issues, emphasizing the importance of consistency in treating income and expenses in line with the nature of the business activities conducted by the appellant.