High Court rules letting out mall shops as business income, not house property; Commissioner's order overturned.

The High Court determined that the income from letting out shops in a Mall should be classified as income from business rather than income from house property. The court upheld the Assessing Officer's decision overruling the Commissioner's order under Section 263 of the Income Tax Act. The High Court emphasized that the Commissioner's revisional powers are limited to correcting orders that are both erroneous and prejudicial to revenue. As there were two plausible views regarding the income classification, the Commissioner lacked jurisdiction to interfere. The appeal was dismissed, affirming the tribunal's decision in favor of the assessee.

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Issues:
1. Classification of rental income from letting out shops in a Mall as income from business or income from house property.
2. Validity of the order passed under Section 263 of the Income Tax Act by the Commissioner.

Issue 1: Classification of Rental Income:
The High Court considered whether the rental income received from letting out shops in a Mall should be assessed as income from business or income from house property. The company, as per its Articles of Association, was primarily engaged in constructing and leasing Multiplexes with commercial complexes. The Assessing Officer initially assessed the income under the head income from business, but the Commissioner, in a revision under Section 263, directed the income to be re-computed under the head income from house property. The High Court relied on the Supreme Court's decision in Chennai Properties and Investment Limited case, stating that if the main source of business for the assessee is letting out properties, the income should be considered as business income. The court found that the main business objective of the company was to construct the Mall and derive income from letting out shops, supporting the Assessing Officer's decision to assess the income under the head income from business.

Issue 2: Validity of Commissioner's Order under Section 263:
The second issue revolved around the validity of the Commissioner's order under Section 263, which set aside the assessment order made by the Assessing Officer. The Commissioner contended that the Assessing Officer did not consider whether the income should fall under income from house property. However, the High Court noted that the Assessing Officer was aware that the main business of the assessee was operating the Mall and earning income from shop rents. The tribunal also highlighted that various documents supported the business income classification. Referring to the Supreme Court's decision in Commissioner of Income Tax Vs. Kwality Steel Supplier Complex, the High Court emphasized that the Commissioner's revisional powers are limited to correcting orders that are both erroneous and prejudicial to revenue. Since two plausible views existed regarding the income classification, the High Court concluded that the Commissioner lacked jurisdiction to interfere. Therefore, the High Court upheld the tribunal's decision to set aside the Commissioner's order under Section 263.

In conclusion, the High Court answered both substantial questions of law in favor of the assessee, confirming that the income derived from letting out shops in the Mall should be treated as income from business. The appeal was dismissed as lacking merit, affirming the tribunal's decision and rejecting the Income Tax Department's contentions.

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