2021 (6) TMI 452 - AT - Income Tax

Rental Income received by the assessee on leasing properties - income from house property OR profits and gains of business/profession - HELD THAT - As decided in own case 2019 (5) TMI 1875 - ITAT HYDERABAD we uphold the order of the CIT(A) in directing the AO to treat rental income of the assessee as income from house property, as the decision of the CIT(A) is in consonance with the decision of the ITAT and dismiss the ground raised by the revenue on this issue.

Summary

Issues Involved:
1. Validity of reopening of assessment.
2. Classification of rental income as either 'business income' or 'income from house property'.

Detailed Analysis:

1. Validity of Reopening of Assessment:
The assessee filed its return for AY 2011-12 on 31/10/2011, declaring total income under normal provisions and book profits under section 115JB of the Income Tax Act, 1961. The return was processed under section 143(1). The Assessing Officer (AO) later noticed discrepancies in the income classification and issued a notice under section 148 on 19/09/2017. The AO completed the assessment under section 143(3) read with section 147, assessing the total income higher than declared by the assessee. The assessee challenged the reopening of the assessment, but the Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the AO's action. The Income Tax Appellate Tribunal (ITAT) did not find any specific discussion on this issue in the provided text, suggesting that the focus was more on the classification of income rather than the validity of reopening.

2. Classification of Rental Income:
The primary issue was whether the income received from leasing properties should be classified as 'business income' or 'income from house property'. The AO treated it as 'business income', but the CIT(A) directed the AO to treat it as 'income from house property', following a previous ITAT decision in the assessee's own case.

The ITAT reviewed the rival submissions and past decisions, including the assessee's consistent treatment of rental income as 'income from house property' in previous years, which was accepted by the Revenue until AY 2011-12. The ITAT noted that the AO's change of stance in AY 2012-13 was pursuant to an order under section 263 of the Act, which was not upheld as a final determination by the ITAT.

The ITAT examined the objects clause in the assessee's Memorandum of Association, which included activities related to leasing properties. However, the ITAT emphasized that the mere inclusion of leasing in the business objects did not automatically classify rental income as 'business income'. The Tribunal considered various judicial precedents, including the Supreme Court's judgment in Sultan Brothers (P.) Ltd. vs. CIT, which highlighted the importance of the primary intention behind property exploitation.

The ITAT found that the assessee's primary intention was to enjoy rental income on a long-term basis rather than engaging in systematic commercial exploitation. The Tribunal also noted that the assessee provided significant infrastructure and services to tenants, which did not amount to a business activity but rather supported the classification of income as 'house property income'.

The ITAT concluded that the facts of the case were materially identical to the earlier decision in the assessee's own case, which treated rental income as 'income from house property'. Consequently, the ITAT upheld the CIT(A)'s order and dismissed the Revenue's appeal.

Conclusion:
The ITAT dismissed both appeals of the Revenue, confirming that the rental income should be treated as 'income from house property' and not 'business income'. The decision was pronounced in the open court on 11th June, 2021.