2023 (1) TMI 37 - AT - Income Tax

Rent receipts - Income from house property OR Income from Business and Profession - rule of consistency - AR contended that the Assessee since several years has let out the property involved in this case to various tenants who are paying rent to the Assessee, which the Assessee has been offering under the head income from house property - HELD THAT - Fact of the instant year under consideration are exactly similar to the preceding 07 years and there is no change at all. Therefore, in view of the dictum laid down by the Hon ble Apex Court in the case of Radhasoami Satsang 1991 (11) TMI 2 - SUPREME COURT qua rule of consistency, we are inclined to delete the addition under challenge. We may clarify that in case of change in facts and circumstances, this order shall not be taken as precedence - Assessee s appeal stands allowed.

Summary

Issues:
1. Whether rental income should be considered as income from business and profession or income from house property.
2. Whether the rule of consistency should be followed in assessing rental income.

Analysis:

Issue 1:
The Assessee earned income from renting property and sale of maintenance services. The Assessing Officer considered the rental income as income from business and profession based on the main objective of the Assessee company being letting out properties. The Commissioner affirmed this decision, stating that the rent received was taxable under "Income from House Property" and not "Business Income." The Commissioner referred to the Memorandum of Association (MOA) of the Assessee, highlighting the objective of letting out properties. The Commissioner also cited legal precedents, including the East India Housing and Land Development Trust Ltd. case, emphasizing that the nature of the company's activities determines the tax treatment of rental income. The Commissioner dismissed the appeal, following the Supreme Court's decision in Chennai Properties and Investments Ltd. case, which held that income should be treated as income from business and not as income from house property. However, on appeal, the Tribunal observed that the facts of the current year were consistent with the previous years, where rental income was assessed under "House Property." Citing the rule of consistency, the Tribunal deleted the addition of rental income under challenge.

Issue 2:
Regarding the rule of consistency, the Tribunal noted that the Assessee had consistently offered rental income under "Income from House Property" in previous assessments, which different Assessing Officers had accepted. The Tribunal emphasized the importance of maintaining consistency in tax assessments unless there is a change in facts and circumstances. Relying on the Supreme Court's decision in Radhasoami Satsang case, the Tribunal allowed the Assessee's appeal, deleting the addition of rental income. The Tribunal clarified that this decision should not set a precedent in case of changes in facts and circumstances.

In conclusion, the Tribunal ruled in favor of the Assessee, deleting the addition of rental income under the rule of consistency, emphasizing the importance of assessing income based on the nature of the company's activities and objectives as outlined in the Memorandum of Association and legal precedents.