2004 (7) TMI 26 - HC - Income Tax

High Court sets aside rental income assessment, emphasizes ownership proof

Commissioner of Income-Tax Versus Sanmar Holdings Ltd. (No. 2).

The High Court allowed the appeal, setting aside the order assessing rental income from a building under 'Profits and gains of business.' The court ... Income from letting out of building - 'Whether, Tribunal was right in holding that the income from letting out of building is assessable as business income?' - According to Revenue, as per section 22, any income from letting out of a building has to be assessed under the head 'Income from house property', and therefore, the income of the respondent/assessee is liable to be assessed as an income from house property. - From a perusal of the assessment order as well as that of the appellate authorities, we do not see any finding that the respondent/assessee is the owner of the building in question, which goes to the very root of the issue and there is a further failure on the part of the revenue authorities as to the finding whether the assessee had exploited the property as owner by leasing out the same and realising income by way of rent. - even though we are unable to allow the appeal, we are constrained to set aside the impugned order and remit the matter to the Assessing Officer Issues involved:Assessment of rental income under the head 'Income from house property' or 'Profits and gains of business'Analysis:The case involved an appeal against an order assessing rent from two sister concerns under the head 'Income from house property' despite a request for assessment under 'Profits and gains of business.' The Commissioner directed the Assessing Officer to assess the income as business income, leading to an appeal by the Revenue to the Tribunal. The Tribunal upheld the direction to assess under 'Profits and gains of business,' prompting the current appeal.The substantial question of law admitted by the court was whether the Tribunal was correct in assessing the income from letting out a building as business income. The appellant argued that as per Section 22 of the Income-tax Act, income from letting out a building should be assessed under 'Income from house property.' They cited a relevant case to support their position.On the other hand, the respondent argued that ownership of the building and the exploitation of the property as an owner should be established before assessing rental income. They referred to a previous decision by the court and emphasized the importance of determining whether the building is a commercial asset or house property before assessing rental income.The court noted that each case must be examined to determine if the letting out of a property constitutes a business activity or property exploitation. It highlighted the burden on revenue authorities to establish ownership of the property before assessing rental income as house property income. The court found a lack of findings regarding ownership and property exploitation in the assessment order and appellate authorities' decisions.The court distinguished a previous case where ownership and property exploitation were clearly established, emphasizing the need for clear factual findings. It referenced relevant legal precedents to support its decision. Consequently, the court set aside the previous order and remitted the matter to the Assessing Officer for a fresh consideration based on the factual questions highlighted.In conclusion, the court allowed the appeal, setting aside the impugned order and directing a reevaluation of the matter by the Assessing Officer to address the factual aspects concerning ownership and property exploitation before assessing rental income.