Rental income from mall space classified as business income, not house property; depreciation disallowance overturned.

The ITAT affirmed the classification of income earned from letting out space in a mall as "business income" rather than "income from house property." The decision was based on consistency with prior rulings and the complex nature of services provided beyond mere property letting. Consequently, the disallowance of depreciation on the let-out building was also overturned. The Department's appeal was dismissed, and the ITAT's decision was pronounced on 16-06-2023.

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Issues Involved:
1. Classification of income from letting out property as "income from house property" vs. "profits and gains from business or profession".
2. Disallowance of depreciation claimed on let-out building.

Summary:

Issue 1: Classification of Income
The primary issue was whether the income earned by the assessee from letting out space in a mall should be classified as "income from house property" or "profits and gains from business or profession." The Assessing Officer (AO) classified it as "income from house property," whereas the assessee claimed it as "business income."

The Commissioner of Income Tax (Appeals) [CIT(A)] ruled in favor of the assessee, referencing prior decisions by the Hon'ble ITAT for assessment years 2010-11 to 2013-14, which had consistently treated similar income as "business income." The CIT(A) noted that the AO had made similar additions in previous years, which were deleted by the ITAT, and despite the Department's appeal to the High Court, the CIT(A) followed the ITAT's precedent.

The ITAT upheld the CIT(A)'s decision, citing the consistency in previous rulings and the principle of res judicata, as established by the Hon'ble Supreme Court in *Radhasoami Satsang v. CIT [1992] 193 ITR 321 (SC)*. The ITAT emphasized that the income from the mall involved a complex web of services beyond mere property letting, aligning with the Supreme Court's rulings in *Chennai Properties & Investments Ltd. [2015] 56 taxmann.com 456 (SC)* and *Rayala Corporation (P.) Ltd. [2016] 72 taxmann.com 149 (SC)*, which classified such income as "business income."

Issue 2: Disallowance of Depreciation
The AO had disallowed the depreciation claimed by the assessee on the let-out building, contingent on the classification of the income. Since the income was ruled as "business income," the disallowance of depreciation was also directed to be deleted by the CIT(A).

The ITAT confirmed this decision, stating that there were no fundamental changes in the facts from previous years and thus, the AO was directed to treat the income under "profits and gains from business or profession" and allow the depreciation claimed.

Conclusion:
The ITAT dismissed the Department's appeal, affirming that the income from letting out space in the mall should be treated as "business income" and not "income from house property," and upheld the allowance of depreciation on the let-out building. The order was pronounced in the open court on 16-06-2023.

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