2013 (4) TMI 263 - AT - Income Tax

Commission Income: Business or Property? CIT(A) and ITAT rulings (A)

The case focused on the treatment of commission income as either 'income from house property' or 'income from business or profession.' The CIT(A) ruled in ... Receipt of commission income from tenant - nature of receipt - 'income from business or profession' OR 'income from house property' - Held that:- The decision of CIT Vs. Faith Real Estate (P) Ltd. [2008 (4) TMI 669 - DELHI HIGH COURT] would be squarely applicable to the facts of the assessee's case because here also, the assessee had given the premises owned by it to M/s Sant Enterprises and is getting 3% commission on the sales made by M/s Sant Enterprises. Before the CIT(A), partner of M/s Sant Enterprises affirmed that the staff member of the assessee used to check and supervise daily sales. There is no doubt about the genuineness of the franchise agreement between the assessee firm and M/s Sant Enterprises. Therefore, the CIT(A) rightly followed the above decision of Hon'ble Jurisdictional High Court and held that the income of commission received from M/s Sant Enterprises is to be assessed as business income. Issues:1. Treatment of commission income under different heads - business or house property.2. Tax effect below Rs.3 lakhs and applicability of CBDT's Instruction No.3/2011.3. Opportunity for cross-examination of a witness.4. Applicability of legal precedents in determining the nature of income.Analysis:1. The primary issue in the case revolved around the treatment of commission income received by the assessee. The Assessing Officer classified the income as 'income from house property,' while the assessee contended it should be treated as 'income from business or profession.' The learned CIT(A) accepted the assessee's argument based on the franchise agreement's nature and the involvement of the assessee in the business activities, following the precedent set by the Hon'ble Delhi High Court in a similar case.2. The tax effect in all three years was below Rs.3 lakhs, prompting the assessee to argue against admitting the Revenue's appeals based on CBDT's Instruction No.3/2011. However, the ITAT decided to admit the appeals due to the common issue across the years and its cascading effect, allowing consideration on merits.3. A significant aspect of the case involved the opportunity for cross-examination of a witness, Shri Amanpreet Singh, partner of M/s Sant Enterprises. The Assessing Officer's statement based on Singh's testimony was challenged by the assessee, alleging lack of opportunity for cross-examination. The learned CIT(A) intervened, directing the Assessing Officer to provide the opportunity, which was eventually fulfilled by summoning Singh and recording his statement.4. The judgment extensively relied on legal precedents, notably the decision of the Hon'ble Jurisdictional High Court in a similar case involving the treatment of commission income. The court emphasized the genuine nature of the franchise agreement, the involvement of the assessee in business activities beyond mere rent, and the applicability of treating the income as 'business income' rather than 'income from house property.' This precedent was crucial in upholding the CIT(A)'s order and dismissing the Revenue's appeals and the assessee's cross-objections.