2000 (12) TMI 223 - AT - Income Tax

Summary

Issues Involved:
1. Classification of rental income as 'Income from house property' vs. 'business income'.
2. Disallowance of various business expenses.

Detailed Analysis:

1. Classification of Rental Income:
The primary issue in this appeal is whether the rental income received by the assessee should be classified under 'Income from house property' or 'business income'. The assessee contended that the rental income should be considered as business income due to the commercial exploitation of the property and the resolution passed to carry on the business in immovable property.

Ownership and Nature of Property:
The assessee argued that they were not the owner of the property since it was built on leased land and was to be returned to the landlord after the lease term. However, the tribunal noted that the assessee had incurred significant expenditure on constructing the building and claimed depreciation on it, indicating ownership. The tribunal concluded that the brick-built shed covered with GC sheets constituted a building, satisfying the conditions under section 22 of the Income Tax Act for classification as 'Income from house property'.

Business Activity:
The assessee claimed that letting out the property was part of its business activity, citing a resolution and the memorandum of association. The tribunal examined the objects of the company and noted that dealing in immovable properties was not the main object but an incidental one. The tribunal referred to precedents, emphasizing that isolated transactions do not constitute business activity. It was determined that the solitary act of letting out the property did not amount to carrying on a business.

Precedents and Consistency:
The tribunal referred to the Supreme Court judgments in S.G. Mercantile Corpn. (P.) Ltd. v. CIT and East India Housing & Land Development Trust Ltd. v. CIT, which supported the view that income from property owned by the assessee should be taxed under 'Income from house property'. The tribunal also addressed the principle of consistency, noting that past assessments do not bind subsequent years if they contradict statutory provisions.

Conclusion on Rental Income:
The tribunal upheld the CIT (Appeals) decision, confirming that the rental income should be taxed under 'Income from house property'.

2. Disallowance of Business Expenses:
The assessee also contested the disallowance of various expenses claimed to be incurred for business purposes. The tribunal observed that the CIT (Appeals) had not elaborated on this claim and noted that the assessee was engaged in import and export business activities.

Remand for Fresh Consideration:
To ensure justice, the tribunal set aside the impugned order on this issue and remanded the matter to the Assessing Officer. The AO was directed to reassess the expenses related to the business activities after providing the assessee an opportunity to present their case.

Final Decision:
The appeal was partly allowed for statistical purposes, with the classification of rental income as 'Income from house property' being upheld and the issue of business expenses being remanded for fresh consideration.