Classification of Rental Income: Business or House Property? Tribunal's Decision on Assessing Income.

The appeal involved the categorization of rental income from leasing property as business income or income from house property for the Assessment Year 2006-07. The assessee, having ceased its textile mill business, leased out factory premises. The Tribunal determined that the rental income was not from house property but from other sources due to the factory building's original purpose for textile business. The Assessing Officer was directed to assess the income accordingly, allowing deductions as per the Income Tax Act. The appeal was partly allowed, with the judgment pronounced on 28th April 2017.

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Issues:
Dispute over rental income categorization - Business income or income from house property.

Analysis:
The appeal concerns the categorization of rental income from leasing property as either business income or income from house property for the Assessment Year 2006-07. The assessee, having discontinued a textile mill business, leased out factory premises and claimed the rental income as business income. However, the Assessing Officer assessed it as income from house property. The CIT (Appeals) upheld this assessment, leading to the appeal.

Before the Tribunal, the assessee's representative argued that leasing the factory premises was a business activity as per the company's Memorandum and Articles of Association. Referring to specific clauses, it was contended that the lease rental constituted business income. Citing a Supreme Court decision, it was emphasized that letting property could be considered a business activity.

On the contrary, the Departmental Representative supported the lower authorities' decisions, stating that since the assessee had ceased its primary business activity, the rental income could not be classified as business income. It was argued that the letting out of property was not the main business objective of the assessee.

After reviewing the submissions and evidence, it was established that the assessee permanently discontinued the textile mill business and leased out the factory premises to various entities. While the leasing of assets was a business object per the company's documents, the factory building was not originally intended for letting but for textile business. Therefore, the rental income was deemed to be from other sources, not house property income. The Assessing Officer was directed to assess the income accordingly and allow deductions as per the Income Tax Act.

Conclusively, the appeal was partly allowed, and the judgment was pronounced on 28th April 2017.

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