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2016 (8) TMI 903 - AT - Income TaxIncome from letting of property - income from business and not as income from house property - Held that - In the present case, the asset is a commercial asset, has not been controverted by the Revenue. The property under consideration let out by the assessee is a commercial property, which can only be exploited commercially, the income earned therefore, on account of letting, deserves to be taxed as income from business and not as income from house property. If an assessee derived income form a commercial assets which is capable of being use as a commercial asset, then it is income from his business. Whether he uses that commercial asset himself for lets it out to somebody else to be used. The asset would not cease to be commercial asset simply because temporarily it was put out of use or it was let out to another person for his use. Thus it is concluded that as the property under consideration before us let out by the assessee being a commercial property, can only be exploited commercially and the income earned there from, on account of letting, deserves to be taxed as income from business. - Decided in favour of the assessee
Issues Involved:
1. Factual aspect of the lease agreement. 2. Nature of income derived from the lease agreement. Detailed Analysis: 1. Factual Aspect of the Lease Agreement: The Revenue raised an appeal following the Hon'ble High Court's directive in I.T.A.No. 1117/2008 dated 02.04.2008. The High Court observed that the tribunal had erred in reaching conclusions without discussing factual aspects, including contentions and clauses of the lease and maintenance agreements. The High Court remitted the issue to the tribunal to decide afresh, examining the nature, character, and type of letting, and applying the legal ratio from the Supreme Court's decision in Universal Plast Ltd. Vs CIT (237 ITR 454). The assessee, engaged in the business of indenting and trading timber, shifted its branch office and let out its industrial property at Okhla Industrial Area for three years to ASL Ltd. The rent received was shown under 'Income from Business,' but the Assessing Officer considered it under 'Income from House Property.' The CIT(A) and the tribunal initially upheld the assessee's contention, leading to the Revenue's appeal to the High Court, which remitted the issue back for re-verification. 2. Nature of Income Derived from the Lease Agreement: The Supreme Court in Universal Plast Ltd. laid down several propositions to determine whether income falls under 'Income from Business' or 'Income from House Property.' These include: - No general principle applies to all cases; each case must be decided on its own facts. - Income classification should align with practical and reasonable notions. - The distinction between commercial exploitation and letting out for rent is narrow and fact-dependent. - Income from a commercial asset remains business income if the asset is capable of commercial use, whether used by the owner or let out. - If the asset ceases to be a commercial asset, income derived from it is 'Income from House Property.' Applying these tests, the tribunal found that the assessee had not rented out all business assets and continued trading timber. The property was let out temporarily during the branch office shift, retaining its commercial nature. The lease agreement was for a short period of three years, and the property was not leased out again after the agreement expired. The tribunal concluded that the property remained a commercial asset, and the income from letting it out should be taxed as 'Income from Business.' This conclusion was supported by judicial precedents, including decisions from the Gujarat High Court and Calcutta High Court, which held that income from letting out commercial properties should be treated as business income. Conclusion: The tribunal, respecting the judicial pronouncements and applying the tests from Universal Plast Ltd., determined that the property let out by the assessee was a commercial property. Therefore, the income earned from letting it out deserved to be taxed as 'Income from Business,' not 'Income from House Property.' The issue was resolved in favor of the assessee, and the order was pronounced on 13th July 2016.
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