2016 (11) TMI 1255 - HC - Income Tax

Rental income derived from the constructed building from letting out the property - income from house property or income from business - Held that - The income of the appellant from letting out the property of Pandooi Place at Boring Road, Patna is an income from business. See Chennai Properties and Investments Ltd. V. CIT, 2015 (5) TMI 46 - SUPREME COURT and Rayala Corporation Pvt. Ltd. Vs. Assistant Commissioner of Income Tax, 2016 (8) TMI 522 - SUPREME COURT

Summary

Issues:
1. Determination of rental income as income from house property or income from business.

Analysis:
The judgment pertains to an appeal under Section 260A of the Income Tax Act, 1961, arising from an order passed by the Income Tax Appellate Tribunal, Patna Bench, for the assessment year 1998-99. The appellant, an assessee drawing rental income from a commercial complex named Pandooi Place in Patna, faced assessment proceedings due to a discrepancy in the status of the assessee. The Assessing Officer assessed the rental income as income from the house property instead of business income, leading to subsequent appeals. The Commissioner of Income Tax (Appeals) relied on specific judgments to support the classification of rental income as income from house property. However, the appellant contested this classification, citing recent judgments by the Hon'ble Supreme Court to argue that income from a building constructed for earning revenue should be treated as income from business, not house property.

In framing the substantial question of law, the Court considered whether the rental income derived from the property in question should be categorized as income from house property or income from business. The appellant's counsel referenced key Supreme Court judgments to support their argument that income from a building constructed for revenue generation should be classified as business income, not house property income. The Court examined the precedents cited by both parties, particularly focusing on the judgments in Chennai Properties and Investments Ltd. v. CIT and Rayala Corporation Pvt. Ltd. v. Assistant Commissioner of Income Tax. These judgments emphasized that the nature of the activity, i.e., whether it constitutes a business or mere property exploitation, determines the income classification.

The Court analyzed the precedents and concluded that the income derived from letting out the property in question should indeed be treated as income from business, not house property. By referencing the recent judgments and the specific circumstances of the case, the Court found in favor of the appellant, allowing the appeal and holding that the appellant's income from the commercial complex should be classified as business income. The judgment emphasized the importance of the nature of the activity and the purpose of income generation in determining the appropriate income classification for tax purposes.