2015 (2) TMI 397 - AT - Income Tax

Appellate Tribunal Rules Rental Income as House Property, Not Business Income, Remands for Re-evaluation

The Appellate Tribunal classified the rental income as 'income from house property' rather than 'business income,' emphasizing the income source as the ... Assessment of the rental income - ‘income from house property’ OR 'business income' - entire building was leased to tenants registered under the Software Technology Parks Scheme. Amenities/services by way of standby power (DG set), air conditioning, water storage and supply (both for drinking and general purposes), fire fighting, lifts, cables for communication and CCTV, were also provided by the assessee - Held that:- The same being essentially rental income from a house property, the fact of it being carried on in an organized manner, by an entity which is incorporated, and perhaps for that purpose, would by itself be of no moment; the said activity or business being categorized as a separate source of income, i.e., from house property, under the Act. The ratio of the decision in the case of CIT vs. Shambhu Investments P. Ltd. [2001 (3) TMI 77 - CALCUTTA High Court], since upheld by the apex court in [2003 (1) TMI 99 - SUPREME Court] would squarely apply in the facts and circumstances of the present case. The impugned income, thus, in our view is assessable u/s.22 of the Act. - Decided against the assessee. Eligibility of the said income u/s.80-IA(4)(iii) - Held that:- assuming its maintainability, the location of the building, as pointed out by the ld. CIT(A), would be of little relevance in determining the nature of the income there-from, or its assessability under the Act, so that the fact of its location in a notified industrial park, or being let to entities falling in a particular class or industry/s, is by itself largely irrelevant and of little moment. At this stage, however, the ld. AR would inform us that it is not the case of the assessee owning a building, but of the said building itself being a notified park, toward which deduction u/s.80-IA(4)(iii) stands provided for by the statute, drawing our attention to the said Notification (No. 191/2006 dated 24.07.2006) issued by the CBDT u/s.80-IA(4)(iii) to the assessee (PB pgs. 1-3), and the letter by the CBDT to the assessee company conveying the said Notification (PB pgs. 4-8) as well as the communications in its respect to the assessee dated December 5 and 20, 2006. If the assessee’s building is itself a notified park, which it is operating and maintaining, as claimed, the matter would have to be necessarily examined in that light. There having been no such examination, which has all through been considered as a case of building located in a software park let to software units, i.e., providing IT and IT enabled services, we only consider it fit and proper that the matter is restored back to the file of the ld. CIT(A) for re-adjudication in light of the facts being now exhibited before us. - Decided in favour of assessee for statistical purposes. Issues Involved:Assessment of rental income under 'income from house property' or as business income.Detailed Analysis:Background Facts:The appellant contested the assessment of rental income under 'income from house property' for the assessment year 2007-08. The original return reported rental income at Rs. 9,34,33,782/-, leading to a net loss of Rs. 34,29,749/-. The Assessing Officer (A.O.) assessed the rental income at Rs. 1,00,91,712/- under section 22 after allowing deductions. The appellant argued that the income should be considered 'business income' due to the organized activities and services provided.Assessment by CIT(A):The Commissioner of Income Tax (Appeals) examined the case in detail. The appellant acquired a building leased to tenants under the Software Technology Parks Scheme for IT services. The CIT(A) upheld the A.O.'s decision, stating that the facilities provided were incidental to property leasing. The CIT(A) also considered the revised return as non est but allowed the claim to be decided on merits.Appellate Tribunal's Analysis:The Appellate Tribunal deliberated on whether the income should be classified as 'income from house property' or 'business income.' It emphasized that the source of income should be ascribed to the building itself. The Tribunal agreed with the Revenue that the facilities provided were essential for property enjoyment, not changing the income source. The Tribunal cited legal precedents to support its decision, including the case of Sultan Brothers (P.) Ltd. vs. CIT.Consideration of Section 80-IA(4)(iii):The Tribunal dismissed the appellant's argument regarding eligibility for deduction under section 80-IA(4)(iii) as the income must first be assessable under section 28. The Tribunal noted the location of the building was irrelevant for determining income nature.New Evidence Consideration:The Tribunal highlighted new documents indicating the building was a notified park. As this aspect was not examined previously, the matter was remanded to the CIT(A) for re-evaluation based on this new information.Final Decision:The Tribunal allowed the appeal for statistical purposes and directed the CIT(A) to re-adjudicate the matter considering the new evidence and issuing definite findings after hearing both parties.This detailed analysis covers the issues involved in the legal judgment regarding the assessment of rental income under different income categories.