2014 (5) TMI 853 - HC - Income Tax

Treatment of rental income Letting put of building with other amenities Business income OR income from house property Held that - Following COMMISSIONER OF INCOME TAX-III v/s VELANKANI INFORMATION SYSTEMS (P) LTD. 2013 (8) TMI 113 - KARNATAKA HIGH COURT - firstly what is the intention behind the lease and secondly what are the facilities given along with the buildings and documents executed in respect of each of them is to be seen. Thirdly it is to be found out whether it is inseparable or not. If they are inseparable and the intention is to carry on the business of letting out the commercial property and carrying at complex commercial activity and getting rental income therefrom, then such a rental income falls under the heading of profits and gains of business or profession. Decision of tribunal holding that the lease rent received by the assessee from letting out buildings along with other amenities in a Software Technology Park is chargeable to tax under the head income from business is correct - Decided against Revenue.

Summary

Issues:
Income Tax appeals filed by Revenue challenging Tribunal's order categorizing rental income from letting out buildings in Software Technology Park as 'business income' instead of 'Income from house property.'

Analysis:
The High Court of Karnataka heard Income Tax appeals filed by Revenue against the Tribunal's order regarding the classification of rental income received by the assessee from letting out buildings in a Software Technology Park. The Tribunal had dismissed Revenue's appeals and confirmed the order of the First Appellate Authority, which held that such income falls under 'business income' and not 'Income from house property' for the assessment years 1999-2000 to 2004-05. The High Court observed that the common question of law and facts were involved in the appeals, thus clubbing them together for a consolidated decision.

The substantial question of law considered by the High Court was whether the Tribunal correctly categorized the lease rent received by the assessee from letting out buildings in a Software Technology Park as taxable under 'income from business' instead of 'income from house property.' The Court referred to a previous judgment and emphasized the importance of the intention behind the lease, the facilities provided, and whether the activities are part of a business or profession. The Court agreed with the Division Bench's interpretation that if the intention is to carry on the business of letting out commercial property and earning rental income, it falls under the heading of profits and gains of business or profession.

In light of the above analysis, the High Court held that the assessee company was engaged in the business of developing, operating, and maintaining an industrial park, providing infrastructure facilities as part of its business activities. Consequently, the substantial question of law was decided against the Revenue, leading to the dismissal of the appeals. The judgment reaffirmed the principle that income derived from letting out commercial properties for the purpose of carrying on a business activity is classified as 'business income' for taxation purposes.