Court determines rental income as business income

The High Court remanded the matter to the Tribunal to determine if rental receipts should be treated as business income or income from house property. The Tribunal upheld the approach that rental income should be assessed as business income if the company's main objective is property acquisition. Additional evidence was admitted by the CIT(A) as it was crucial for adjudication. The delay in filing the appeal was condoned due to the Chartered Accountant's ill health. The Tribunal directed the AO to verify the company's main objects for assessing income from construction and sale of residential apartments as business income. The appeal by the Revenue and cross objection by the assessee were dismissed, with specific issues remanded for further verification.

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Issues Involved:
1. Treatment of rental receipts from letting out property as business income or income from house property.
2. Admissibility of additional evidence under Rule 46A of the Income Tax Rules, 1962.
3. Condonation of delay in filing the appeal.
4. Assessment of income from construction and sale of residential apartments under the head 'business income'.
5. Allowance of depreciation and other expenses related to the operation of a shopping mall.

Detailed Analysis:

Issue 1: Treatment of Rental Receipts
The Hon'ble High Court remanded the matter to the Tribunal for a fresh consideration of whether rental receipts should be treated as business income or income from house property. The Tribunal noted that the CIT(A) had directed the AO to verify the Memorandum of Association and main objects of the assessee company in accordance with the decision of the Hon'ble Supreme Court in Chennai Properties & Investments Ltd., which held that rental income should be assessed as business income if the main objective of the company is to acquire and hold properties. The Tribunal upheld this approach, dismissing the Revenue's appeal on this issue.

Issue 2: Admissibility of Additional Evidence
The Revenue argued that the CIT(A) admitted additional evidence, such as the Memorandum of Association, in violation of Rule 46A of the Income Tax Rules, 1962. The Tribunal found that these documents were vital for adjudication and were available in the public domain with the Registrar of Companies. Therefore, the Tribunal found no infirmity in the CIT(A)'s direction to the AO to verify these documents and dismissed the Revenue's appeal on this ground.

Issue 3: Condonation of Delay
The assessee's appeal was time-barred by 72 days due to the ill health of their Chartered Accountant. The Tribunal found the cause for the delay reasonable and condoned the delay, admitting the appeal.

Issue 4: Assessment of Income from Construction and Sale of Residential Apartments
The Revenue contested the CIT(A)'s direction to the AO to verify the Memorandum of Association and assess the income from construction and sale of Victoria Towers as business income. The Tribunal noted that the CIT(A) had followed the Supreme Court's decision in Chennai Properties & Investments Ltd. and directed the AO to verify the company's main objects. The Tribunal agreed that the CIT(A) had no power to set aside the assessment but upheld the direction for verification, dismissing the Revenue's appeal on this issue.

Issue 5: Allowance of Depreciation and Other Expenses
The assessee argued that the CIT(A) failed to adjudicate specific grounds related to the allowance of depreciation on parking facilities and plant and machinery in the shopping complex Coromandal Plaza. The Tribunal agreed that once the income from the shopping mall is assessed as business income, the related expenses and depreciation should be allowed. The Tribunal remanded this issue to the AO for verification and decision on the genuineness of the expenses.

Conclusion:
The appeal filed by the Revenue and the cross objection filed by the assessee were dismissed. The appeal filed by the assessee was allowed for statistical purposes, with specific issues remanded to the AO for further verification. The order was pronounced on 22nd February 2022 at Chennai.

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