2003 (1) TMI 52 - HC - Income Tax

Rental income from long-term lease commercial complex-taxed as house property income u/s22, not business profits u/s28.

Income from letting out a commercial complex constructed on land held under a long-term registered lease was whether assessable as 'Income from house ... Long-term lease of 36 years under a registered lease-deed - built a commercial complex - earned income therefrom - Whether the income derived by the assessee from letting out of the house property should be assessed under the head 'Income from house property' under section 22 or 'Income from business' under section 28 of the Act. - HELD THAT:- Admittedly, the commercial complex has been constructed by the assessee and the rental income is being derived by the assessee alone in its own right. Therefore, for the purpose of section 22 of the Act, as explained and declared by the Supreme Court in the case of CIT v. Podar Cement (P.) Ltd.[1997 (5) TMI 2 - SUPREME COURT], the assessee has to be viewed as the owner. That being the legal position, irrespective of the fact that that one of the objects of the assessee-company is to derive income by leasing sites and constructions thereon, the income has to be necessarily assessed under the head 'Income from house property'. The latter aspect is also squarely covered by a decision of a three-judge Bench of the Supreme Court in the case of East India Housing and Land Development Trust Ltd. v. CIT [1960 (11) TMI 7 - SUPREME COURT]. Accordingly, we set aside the order of the Tribunal. The appeals are allowed. Issues:Assessment of income from letting out house property under 'Income from house property' or 'Income from business'Analysis:The case involved a dispute regarding the assessment of income derived from letting out a commercial complex under the Income-tax Act, 1961. The primary issue was whether the income should be assessed under the head 'Income from house property' or 'Income from business.' The assessee, a private limited company, had acquired leasehold rights to land and constructed a commercial complex on it, earning income from rentals. The Commissioner of Income-tax initiated revisional proceedings under section 263, contending that the income should be assessed under the head 'Income from house property.' The Tribunal, however, ruled in favor of the assessee, determining that the income should be treated as income from business due to the leasehold nature of the land.The Tribunal's decision was challenged before the High Court, which referred to the Supreme Court's ruling in CIT v. Podar Cement (P.) Ltd. The Supreme Court had clarified that for the purposes of section 22 of the Income-tax Act, the term 'owner' should be interpreted as a person entitled to receive income from the property in their own right. Applying this interpretation to the present case, where the assessee had constructed the commercial complex and earned rental income directly, the High Court concluded that the assessee should be considered the owner of the property. Therefore, the income had to be assessed under the head 'Income from house property.'The High Court also addressed the arguments based on previous judgments, such as S.G. Mercantile Corporation (P.) Ltd. v. CIT and Balaji Enterprises v. CIT. It noted that these judgments did not directly apply to the current case and that the interpretation of the term 'owner' as per the Supreme Court's ruling in Podar Cement (P.) Ltd. was the determining factor. Consequently, the High Court set aside the Tribunal's order and allowed the appeals, affirming that the income derived from the commercial complex should be assessed under the head 'Income from house property.'