2014 (11) TMI 633 - HC - Income Tax

Tax Tribunal Upheld Income Classification for Leased Properties as 'House Property Income'

M/s. Keyaram Hotels P. Ltd. Versus The Deputy Commissioner of Income Tax

The High Court upheld the Income Tax Appellate Tribunal's decision to assess the appellant's income from leasing commercial properties as 'income from ... Income derived from commercial properties – Business income or income from house property - The assessee company is deriving rental income from letting out a commercial complex apart from income from other sources – Held that:- The assessee had given its premises for rent and did not engage in any business activity at all – the AO computed the income under the head 'income from house property' - in East India Housing and Land Development Trust Ltd Vs. CIT [1960 (11) TMI 7 - SUPREME Court] the similar matter has been decided - If the income from a source falls within a specific head set out in S.6 the fact that it may indirectly be covered by another head will not make the income taxable under the latter head - The income derived by the company from shops and stalls is income received from property and falls under the specific head described in S.9 - even if the assessee's business was in real estate, the income on letting out of the property was to be assessed as 'income from house property - the rental income would not have been realised, but for the letting out of the machinery, plant or furniture along with such building and therefore, the rental received for the building had to be assessed under the head 'Income from other sources' - where the owner of the property exploited the property by leasing out the same and realised income by way of rent, the same was to be assessed under the head 'Income from house property' and not as 'business income' – the order of the Tribunal is upheld – decided against assessee. Issues:1. Determination of income from leasing of commercial properties as business income or income from house property.2. Justification of assessing income as 'income from house property' despite being a business activity.3. Assessment of lease income under the head 'income from house property' instead of 'business' due to amenities and services provided.4. Consideration of assessing a portion of income under 'income from business' based on amenities and services provided.Analysis:1. The appellant, deriving rental income from a commercial complex, filed returns claiming income under the head 'business' for assessment years 2004-05, 2005-06, 2007-08, and 2008-09. The Assessing Officer, deeming the activity as renting premises without engaging in business, assessed income under 'Income from house property.' Appeals to higher authorities were unsuccessful, leading to the current appeal challenging the Income Tax Appellate Tribunal's decision.2. The High Court noted that the appellant did not present evidence contradicting the finding that no business activity was conducted, leading to income assessment under 'income from house property.' Despite claims of a different plea from the appellant's counsel, the absence of supporting court decisions hindered further arguments against the Tribunal's order.3. Referring to precedents like East India Housing case, the Court emphasized that income from property letting, even for a real estate business, is classified as 'income from house property.' Exceptions exist only when property letting is inseparable from machinery or furniture rental. The Court upheld this principle, citing earlier judgments and dismissing the appellant's contentions.4. The Court further highlighted the Supreme Court's stance on income from leasing assets, emphasizing the need for case-specific analysis. The decision in East India Housing case was applied to the current scenario, affirming the correctness of assessing income as 'income from property' due to the absence of business activities. The Tribunal's order was upheld, dismissing the Tax Case (Appeals) and connected petitions.In conclusion, the High Court upheld the Income Tax Appellate Tribunal's decision to assess the appellant's income from leasing commercial properties as 'income from house property' based on the absence of business activities, in line with established legal precedents and interpretations of relevant tax laws.