2020 (11) TMI 481 - AT - Income Tax

Revision u/s 263 - Correct head of income - rental income from letting out of the shop - why the rental income received may not be treated as income from House Property rather than considering the same as Income from business and profession ? - According to the Ld. Pr. CIT, merely because there was an entry in the object clause of the business showing a particular object, would not be the determinative/conclusive factor to arrive at a conclusion that the income was to be treated as income from business - HELD THAT - Main object of the assessee in its MOA was to carry on the business of real estate dealers developers including purchase sale of land, land development, colonization, opurchase, sale construction letting out of houses, flats, farm houses. However as per Clause 19 of the aforesaid MOA the assessee was authorized to sell, improve, alter, manage, develop exchange, lease, mortgage, dispose of etc of the business lands, property, assets etc in whole or in part in such manner and on such terms as the Directors may think fit. Therefore the income of the assessee received on lease out property was its business income. In the instant case, the assessee furnished a Chart before the authorities below explaining that if the income received by it was to be treated as income from house property instead of business income there would be an increase in the loss. The said Chart had been reproduced in the former part of this order. Pr. CIT by considering the wrong calculations, was of the view that there was a profit instead of loss claimed by the assessee, if the rental income to be considered as income from house property and not as business income while adopting the said calculation, the Pr. CIT did not allow the depreciation and the other expenses on this basis that the assessee was not involved in any business activity during the year under consideration he ignored this explanation of the assessee that there was lull in business, but the business activity was not closed and the assessee was having stock in trade. It is well settled that there is a difference between discontinuation of business and the closure of business - if there was no closure of the business, therefore, it cannot be said that the assessee was not allowed to claim expenses if those were incurred for the business purposes. The assessee was not finding the buyer to sell the property which were kept as stock in trade, so it cannot be said that the assessee closed the business, therefore the expenses incurred for the purposes of business as well as the depreciation claimed were allowable to the assessee as business expenses, as such the Ld. Pr. CIT was not justified in not considering the depreciation as well as the expenses to work out the income / loss of the assessee. In the present case, it can be said that by considering the rental income received by the assessee as business income which was consistently claimed by the assessee in the preceding years also and the department had accepted the same, the assessment order passed by the A.O. was not prejudicial to the interest of the revenue, particularly when the loss would have been more at ₹ 7,70,160.40 instead of ₹ 3,89,226/- if the rental income was to be considered as income from House Property , instead of business income , as declared by the assessee. Assessment order passed by the A.O. was not prejudicial to the interest of the Revenue. In that view of the matter, the impugned order passed by the Ld. Pr. CIT under section 263 of the Act is quashed. - Decided in favour of assessee.

Issues Involved:
1. Whether the rental income should be assessed as "Income from Business & Profession" or "Income from House Property".
2. Whether the depreciation and vehicle expenses claimed by the assessee are allowable.
3. Whether the assessment order passed by the A.O. was erroneous and prejudicial to the interest of the Revenue.

Issue-wise Detailed Analysis:

1. Rental Income Classification:
The primary contention was whether the rental income of ?26,63,438/- should be treated as "Income from Business & Profession" or "Income from House Property". The assessee argued that their business involved the purchase, sale, and renting of immovable properties, which should classify the rental income as business income. The Pr. CIT, however, contended that the income should be classified as "Income from House Property" based on the nature of the property and the activities undertaken.

The Tribunal noted that the assessee's Memorandum of Association (MOA) included the letting out of properties as one of its main objectives. The Tribunal referenced the Supreme Court's judgment in Chennai Properties & Investments Ltd. and Rayala Corporation Pvt. Ltd., which supported the classification of rental income as business income when the business objective includes property letting. The Tribunal concluded that the rental income should indeed be classified as "Income from Business & Profession".

2. Depreciation and Vehicle Expenses:
The Pr. CIT disallowed depreciation and vehicle expenses on the grounds that no business activity was conducted during the relevant assessment year. The assessee countered that the business was ongoing, with properties held as stock-in-trade, and that the market slump prevented sales.

The Tribunal emphasized that the existence of stock-in-trade and the ongoing business interest indicated that the business was not discontinued. The Tribunal cited the Kerala High Court's judgment in K Sreedharan & Co. v. CIT, which differentiated between a temporary lull in business and the closure of business. Consequently, the Tribunal held that the depreciation and vehicle expenses were allowable as business expenses.

3. Erroneous and Prejudicial Assessment Order:
The Pr. CIT exercised revisionary powers under Section 263, arguing that the A.O.'s assessment was erroneous and prejudicial to the Revenue's interest. The Tribunal examined whether the A.O.'s view was a possible and permissible legal view. It was noted that the A.O. had followed a consistent approach in line with past assessments, treating the rental income as business income.

The Tribunal reiterated that an order cannot be deemed erroneous if the A.O. has adopted one of the permissible legal views, even if the Pr. CIT disagrees. The Tribunal referenced the Supreme Court's decision in CIT v. Max India Ltd., which stated that an order is not prejudicial to the Revenue if the A.O.'s view is sustainable in law. The Tribunal found that the A.O.'s view was consistent with legal precedents and thus, the assessment order was neither erroneous nor prejudicial to the Revenue.

Conclusion:
The Tribunal allowed the assessee's appeal, quashing the Pr. CIT's order under Section 263. The rental income was rightfully classified as "Income from Business & Profession", and the depreciation and vehicle expenses were deemed allowable. The A.O.'s assessment was upheld as it was not erroneous or prejudicial to the Revenue's interest.

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