2021 (4) TMI 294 - AT - Income Tax

Lease income from property let out - to be assessed as business income or income from house property - HELD THAT - In the original return of income filed by the assessee, it had offered it as business income. During the scrutiny proceedings, the assessee filed revised return of income wherein claimed the rent received as income from house property and claimed depreciation as per the Act for the whole year. On careful reading of the agreements, we find that the assets leased out to the Thumbay Hospital India Pvt. Ltd. were using as commercial assets before letting it out by the assessee. Therefore, subsequently, the rent receipts on these commercial assets is to be treated as business income under Chapter - IV-D under the head profits and gains of business or profession but not under Chapter VI-C under the head income from house property as claimed by the assessee. As decided on M/S ULTRAVISION ASSOCIATES AND VICE-VERSA 2016 (3) TMI 1109 - ITAT RAJKOT there was a dispute between the assessee and the AO, as the AO treated the income of the assessee as income from house property whereas the assessee had offered it as business income . On appeal, before the ITAT, the coordinate bench has decided the issue in favour of the assessee that letting out of commercial assets is to be treated as business income. We uphold the order of the CIT(A) in treating the rental receipts from the leased out commercial assets of the assessee as business income and dismiss the grounds raised by the assessee on this issue. The authorities below have rightly taxed the rental income as business income. - Decided against assessee.

Summary

Issues:
1. Assessment of lease income as business income or income from house property for AY 2016-17.

Analysis:
The appeal was filed against the CIT(A)'s order regarding the assessment of lease income from property let out as business income. The assessee, a firm running a hospital, leased its business assets to another healthcare facility due to business slowdown. The AO assessed the income as business income, contrary to the assessee's claim of income from house property. The CIT(A) upheld the AO's order, leading to the appeal before the Tribunal.

The main contention was whether the lease income should be treated as business income or income from house property. The assessee argued that the primary objective was not to let out assets but due to business challenges. The revenue authorities, however, emphasized that claiming depreciation on business assets implies the income should be categorized as business income. The Tribunal analyzed the lease agreement, noting that the assets were commercial before being leased out. Referring to a similar case, the Tribunal upheld the CIT(A)'s decision, treating the rental receipts as business income.

The Tribunal's decision was based on the nature of the assets leased out and their commercial exploitation. It cited precedents and tests to determine the classification of rental income. Relying on the decision of a coordinate bench, the Tribunal dismissed the appeal, affirming the treatment of rental receipts from commercial assets as business income. The authorities' decision to tax the rental income as business income was deemed appropriate, considering the commercial nature of the assets leased out.

In conclusion, the Tribunal upheld the CIT(A)'s order, dismissing the appeal and confirming the assessment of rental receipts from the leased commercial assets as business income for AY 2016-17. The judgment highlighted the importance of the nature and use of assets in determining the tax treatment of rental income, emphasizing commercial exploitation as a key factor in classification.