Tribunal classifies rental income as business profit

The Tribunal ruled in favor of the assessee, directing the income from let out properties to be classified as "profits and gains from business or profession" due to the complex services provided. Additionally, the Tribunal allowed the full deduction of interest on borrowed funds as business expenditure. The decision aligned with previous years' treatment and recognized the systematic business operations of the assessee. The appeal was partly allowed, emphasizing consistency and the nature of the assessee's activities.

---

---

Issues Involved:
1. Taxability of income under the head "Income from House Property" vs. "Income from Business and Profession".
2. Deduction towards interest on borrowed funds.

Issue-wise Detailed Analysis:

1. Taxability of Income:
The primary issue revolves around whether the income earned by the assessee from let out properties should be classified under "Income from House Property" or "Income from Business and Profession". The assessee, engaged in constructing and operating a retail mall, declared this income as business income. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] classified it as income from house property, maintaining consistency with previous years (2010-11 and 2011-12). The Tribunal noted that the assessee's activities involve systematic business operations, including providing various facilities and services to tenants, which require continuous management and attention. The Tribunal referenced its own decisions from earlier years (2009-10, 2010-11, 2011-12) where the income was treated as business income. Citing the Supreme Court's judgment in Radhasoami Satsang v. CIT and other relevant case laws, the Tribunal emphasized that the income should be considered as business income due to the complex and integrated services provided by the assessee. Consequently, the Tribunal directed the AO to treat the income as "profits and gains from business or profession".

2. Deduction Towards Interest on Borrowed Funds:
The second issue pertains to the deduction of interest on borrowed funds. The assessee claimed an interest expenditure of Rs. 6,77,22,853/- incurred on funds used for constructing the property and acquiring equipment. The AO restricted the deduction to Rs. 6,33,14,999/-. Given the Tribunal's decision to treat the income as business income, it held that the interest expenditure should also be considered from the business perspective. Thus, the Tribunal allowed the assessee's claim for the full interest deduction as business expenditure.

Conclusion:
The Tribunal resolved both issues in favor of the assessee. It directed that the income from the let out properties be treated as "profits and gains from business or profession" and allowed the full deduction of interest on borrowed funds. The appeal was thus partly allowed, aligning with the principle of consistency and the assessee's systematic business operations. The order was pronounced on November 21, 2019.

---