2016 (4) TMI 873 - AT - Income Tax

Income from house property V/S Profits and gains of business or profession - nature of income - head of income - Held that - The definition of rent includes any payment by whatever name called, for use of buildings including factory buildings, equipment, furniture or fittings. Even if machinery was leased, the consequent rent comes under the definition. But machinery lease can not be considered under income from House property . That indicates that just because TDS was made u/s. 194-I, it cannot be treated as house property income as the rent definition includes lease of equipment, lease of furniture, fittings which cannot be considered as house property . AO s opinion that since TDS made u/s. 194-I, incomes are to be assessed under head income from house property can not be accepted. Moreover, even if assessee has let out property but, when the Memorandum of Association permits the business of letting out of properties as such, the income cannot be brought to tax as income from house property as held in the above said case of Chennai Properties & Investments Ltd., Vs. CIT 2015 (5) TMI 46 - SUPREME COURT . Therefore, both on facts of the case and also on law, as established by the Hon ble Supreme Court in the above said case, receipts of assessee cannot be brought to tax under the head house property . The same is to be assessed under the head Profits and gains of business or profession only. Allowance of expenditure - assessee s contention that AO has arbitrarily, without giving opportunity, restricted the expenditure - Held that - Since this issue was not examined by the CIT(A) in his order and since we are of the opinion that AO arbitrarily arrived at disallowance at a certain percentage, we are of the opinion that allowing of expenditure is to be re-examined by the AO. Assessee is directed to furnish necessary evidence in support of its claims. To that extent, orders of AO and CIT(A) are set aside.

Summary

Issues Involved:
Assessment of income as 'income from business' or 'income from house property', Disallowance of expenditure on a protective basis.

Analysis:
1. The case involved a dispute regarding the classification of the assessee's income as 'income from business' or 'income from house property'. The Assessing Officer (AO) contended that the income should be treated as 'income from house property' due to the absence of a license to run the catering part and outsourcing of food provision. The assessee argued that it was engaged in the business of hospitality since its inception and had agreements with companies for providing accommodation, not lease of property. The Memorandum of Association also supported the assessee's claim of being in the business of hotels, resorts, and guest houses.

2. The Tribunal referred to a Supreme Court case where it was held that if the main object of the company is to acquire properties and earn income by letting them out, such income should be classified as 'income from business' and not 'income from house property'. In the present case, the assessee did not let out any property but provided accommodation on a rental basis charged per day. The agreements with companies were for occupancy only, not for lease of property. Therefore, the income received by the assessee could not be assessed under the head 'house property' but under 'Profits and gains of business or profession'.

3. Regarding the disallowance of expenditure, the Tribunal found that the AO had arbitrarily restricted the expenditure without giving the assessee an opportunity to provide evidence in support of its claims. As the CIT(A) did not examine this issue, the Tribunal directed the AO to re-examine the allowance of expenditure based on the evidence furnished by the assessee. The Tribunal set aside the orders of the AO and CIT(A) on this issue.

4. In conclusion, the Tribunal decided in favor of the assessee on the classification of income, holding that it should be assessed under the head 'Profits and gains of business or profession'. The issue of allowance of expenditure was remanded to the AO for fresh consideration based on the evidence to be provided by the assessee. The appeal was allowed for statistical purposes.