2016 (6) TMI 427 - AT - Income Tax

Tribunal decision: Allocation of rental income between house property and business income

The Tribunal dismissed the Revenue's appeal for the assessment year 2003-04 and allowed the assessee's appeals for the assessment years 2010-11, 2006-07, ... Classification of rental income received by the assessee from the commercial complex - income from business v/s income from house property - Held that:- Since the assessee itself claims 75% of rental income has to be classified as income from house property, the CIT(Appeals) has rightly found that 75% of the rental income for assessment year 2003-04 as income from house property. Therefore, this Tribunal is of the considered opinion that the CIT(Appeals) has rightly found that 75% of the rental income has to be assessed as income from house property and the balance 25% as income from business. By respectfully following the law laid down by the Apex Court in Chennai Properties and Investments Ltd. (2015 (5) TMI 46 - SUPREME COURT), we hold that the rental income has to be bifurcated and 75% of the same has to be classified as income from house property and 25% has to be classified as income from business. Issues Involved:1. Classification of rental income as 'income from house property' vs. 'income from business.'2. Applicability of the Apex Court's judgment in Chennai Properties and Investments Ltd. to the present case.Detailed Analysis:Issue 1: Classification of Rental IncomeThe primary issue in these appeals is the classification of rental income received by the assessee from a commercial complex. The assessee argued that the rental income should be bifurcated, with 75% classified as 'income from house property' and 25% as 'income from business' due to the provision of various amenities and services. The Revenue, however, contended that the entire rental income should be classified as 'income from house property' based on previous judgments by the Madras High Court in the assessee's own case for the assessment years 2001-02, 2004-05, 2005-06, 2007-08, and 2008-09.For the assessment year 2003-04, the CIT(Appeals) accepted the assessee's claim that 75% of the rental income should be classified as 'income from house property' and 25% as 'income from business' due to the systematic and regular provision of services such as maintenance of common areas, lift operation, internal security, and other amenities. This classification was based on the nature of the activities carried out by the assessee, which were deemed to amount to business activities.For the assessment years 2010-11, 2006-07, and 2009-10, the CIT(Appeals) upheld the Assessing Officer's decision to classify the entire rental income as 'income from house property,' relying on the Madras High Court's earlier judgments. However, the Tribunal found that these judgments were based on the now-reversed decision in Chennai Properties and Investments Ltd.Issue 2: Applicability of the Apex Court's JudgmentThe Tribunal noted that the Apex Court in Chennai Properties and Investments Ltd. v. CIT (2015) 373 ITR 673 reversed the Madras High Court's judgment, holding that the nature of the activities and operations carried out by the assessee should be the deciding factor in classifying rental income. The Apex Court emphasized that systematic and regular provision of services related to the property constitutes business activity, thereby classifying part of the rental income as 'income from business.'Given this precedent, the Tribunal concluded that the earlier judgments of the Madras High Court in the assessee's own case were not applicable. The Tribunal emphasized that it is bound by the Apex Court's judgment under Article 141 of the Constitution of India and must follow this ruling.In light of the Apex Court's judgment, the Tribunal held that 75% of the rental income should be classified as 'income from house property' and 25% as 'income from business' for the assessment years in question. The Tribunal confirmed the CIT(Appeals)'s order for the assessment year 2003-04 and directed the Assessing Officer to apply the same bifurcation for the assessment years 2010-11, 2006-07, and 2009-10.Conclusion:The Tribunal dismissed the Revenue's appeal for the assessment year 2003-04 and allowed the assessee's appeals for the assessment years 2010-11, 2006-07, and 2009-10. The Tribunal directed the Assessing Officer to assess 75% of the rental income as 'income from house property' and 25% as 'income from business,' allowing all applicable expenditures as per the provisions of law.Order pronounced on 1st June, 2016 at Chennai.