2012 (10) TMI 1190 - AT - Income Tax

Tribunal categorizes rental income as business income, rejects deemed dividend claim.

The Tribunal upheld the CIT(A)'s decision, categorizing income from letting out buildings and warehouses as 'Business Income' rather than 'Income from ... - Issues Involved: The judgment involves determining whether the income earned from letting out buildings and warehouses should be classified as 'Income from Business' or 'Income from House Property.' Additionally, it addresses the issue of whether an advance paid to a Director should be treated as deemed dividend under section 2(22)(e) of the Act.Issue 1 - Classification of Income:The Appellate Tribunal ITAT Chennai considered three appeals filed by the Revenue challenging the CIT(A)'s order, which allowed the assessee's appeals for the assessment years 2004-05, 2005-06, and 2007-08. The primary dispute was whether the income from letting out buildings and warehouses by the assessee should be categorized as 'Income from Business' or 'Income from House Property.'The Revenue contended that the income should be treated as 'Income from House Property' based on agreements with lessees and the provision of amenities without separate charges. They relied on relevant case law to support their argument.In contrast, the assessee argued that its main objective, as per the Memorandum of Association, was to establish warehouses and carry on the business of warehousemen. They presented financial records and documents to demonstrate that their primary source of income was from leasing out godowns and warehouses, supporting the classification as 'Income from Business.'After reviewing the submissions and relevant case law, the Tribunal upheld the CIT(A)'s decision, concluding that the income derived from letting out warehouses and godowns should be considered 'Business Income' rather than 'Income from House Property.'Issue 2 - Deemed Dividend to Director:The second issue pertained to an advance paid to one of the Directors of the company, which the Revenue argued should be treated as deemed dividend under section 2(22)(e) of the Act. The Director had received substantial funds from the company without interest, and the Revenue contended that this amount should be classified as deemed dividend.The assessee defended against this claim, stating that the alleged deemed dividend could not be assessed in the hands of the company. The CIT(A) had already made a ruling on this issue, which the Revenue failed to challenge effectively.Upon examination of the documents and arguments presented, the Tribunal affirmed the CIT(A)'s findings, dismissing the Revenue's appeal on this matter.In conclusion, the Tribunal dismissed all three appeals of the Revenue, upholding the CIT(A)'s decisions on both the classification of income from letting out buildings and warehouses and the treatment of the advance to the Director as deemed dividend.