Rental income from commercial properties deemed business income by High Court

The High Court determined that the rental income derived by the assessee from shops, godowns, and Puja Bazar should be assessed as business income, not income from house property. The court held that the assessee, being in actual physical control and receiving rental income directly, should be considered the owner for tax purposes. The Tribunal and High Court ruled in favor of the assessee in various tax cases, dismissing the revenue's appeals and affirming that the rental income is to be treated as business income.

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Issues Involved:

1. Whether the rental income derived from shops and godowns should be assessed as business income or income from house property.
2. Whether the assessee can be considered the owner of the property for tax purposes despite not owning the land.

Summary:

Issue 1: Assessment of Rental Income

In Tax Case No. 19 of 1987, the assessee-company derived income from subletting shops and claimed it as business income. The Assessing Officer disagreed, but the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal held that the rental income should be assessed as business income. The Tribunal concluded that the lease was for market development, and the lessee could not be considered the owner of the building. The Tribunal referred the question of law u/s 256(1) of the Income-tax Act, 1961, to the High Court.

In Tax Case No. 36 of 1987, the assessee-company leased land, constructed godowns, and let them to the Food Corporation of India. The Assessing Officer and Commissioner of Income-tax (Appeals) assessed the rental income as income from house property. However, the Tribunal held it as business income, stating the assessee was a lessee, not the owner. The High Court initially ruled in favor of the revenue, but the Supreme Court remitted the matter back for reconsideration.

In Tax Case Nos. 66, 67 & 68 of 1987, the assessee derived rental income from Puja Bazar and claimed it as business income. The Commissioner of Income-tax (Appeals) disagreed, but the Tribunal ruled in favor of the assessee. The Tribunal referred the question of law to the High Court.

In Misc. Appeals 560 and 567 of 2000, the assessee rented godowns to the Food Corporation of India and claimed the rental income as business income. The Assessing Officer and Deputy Commissioner of Income-tax (Appeals) disagreed, but the Tribunal ruled in favor of the assessee. The revenue appealed, and the High Court considered whether the rental income should be treated as business income or income from house property.

Issue 2: Ownership for Tax Purposes

The High Court examined whether the assessee could be considered the owner of the property for tax purposes. It concluded that the assessee, in actual physical control and receiving rental income in their own right, should be deemed the owner for tax purposes. This view was supported by the Supreme Court's judgment in CIT v. Podar Cement (P.) Ltd. [1997] 226 ITR 625.

Conclusion:

The High Court concluded that the rental income derived by the assessee should be assessed as business income, not income from house property. The references were answered in the affirmative, in favor of the assessee, and the revenue's appeals were dismissed.

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