2019 (6) TMI 841 - AT - Income Tax

Tribunal rules lease income as 'House Property', dismisses interest disallowance.

The Tribunal ruled in favor of the appellant, holding that the lease rental income should be assessed under 'Income from House Property' rather than ... Correct Head of income - lease rental income - Profits & gains of Business or profession u/s 28 OR Income from House Property u/s 22 - HELD THAT:- It is also not in dispute that the assessee company was primarily engaged in the business of real estate. It is also not in dispute that the assessee has been leasing the property in question and collecting rent since 2010-11 which has been assessed under the head ‘income from house property’. It is also not in dispute that the assessee is owner of the property in question and has leased out the property on the basis of rental agreement. It is also not in dispute that in the subsequent year, the rental income of the assessee has been accepted as income from the house property. Following the decision rendered by the coordinate Bench of the Tribunal and also by following the rule of consistency laid down in the case of Radhasoami Satsang vs. CIT [1991 (11) TMI 2 - SUPREME COURT] and Raj Dadarkar & Associates [2017 (5) TMI 586 - SUPREME COURT] , we are of the considered view that rental income earned by the assessee from leasing out the property owned by it is chargeable to Income-tax under the head ‘income from house property’ under section 22 - Decided in favour of the assessee. Issues:1. Assessment of lease rental income under 'Profits & gains of Business or profession' instead of 'Income from House Property'.2. Disallowance of interest paid on late TDS deposits.Analysis:Issue 1: Assessment of lease rental incomeThe appellant sought to set aside the order assessing lease rental income under 'Profits & gains of Business or profession' instead of 'Income from House Property'. The appellant argued that the income should be taxed under 'Income from House Property' as consistently declared since inception. The Assessing Officer (AO) concluded that the income from leasing property should be taxed as business income due to the nature of the company's operations. The appellant contended that the rental income was accepted as 'income from house property' in previous and subsequent years. The Revenue argued that since the appellant claimed depreciation on the property, the income should be taxed under 'business and profession'. The Tribunal referred to Supreme Court decisions emphasizing that income from leasing premises should be treated as 'income from house property' unless specific conditions dictate otherwise. The Tribunal held that the rental income, being the primary source of revenue for the appellant, should be taxed under 'Income from House Property' based on Section 22 provisions. The Tribunal also noted the lack of evidence to classify the leasing as a commercial trading transaction, further supporting the 'house property' classification. The Tribunal ruled in favor of the appellant, following consistency principles and legal precedents.Issue 2: Disallowance of interest on late TDS depositsThe second issue regarding the disallowance of interest paid on late TDS deposits was dismissed as it was not pressed during arguments. The Tribunal partly allowed the appeal, ruling in favor of the appellant on the first issue related to the assessment of lease rental income. The judgment was pronounced on May 28, 2019, by the Tribunal members.