2024 (3) TMI 1079 - HC - Income Tax

Rental income from house property qualifies for Section 32AB deduction when part of unified business operations

Indian Express Newspapers (Bombay) Ltd. Versus The Commissioner of Income Tax, City I, Mumbai

The Bombay HC ruled that rental income assessed under 'Income from house property' qualifies for deduction under Section 32AB. The court held that rental ... Deduction u/s. 32AB - rental income earned by the Appellant and assessed under the head ‘Income from house property’ not qualify for deduction u/s. 32AB as per ITAT - whether appellant is entitled to deduction on the entire income which would include income from house property or it should be restricted only to the income chargeable to tax under the head “profits and gains of business or profession”? - HELD THAT:- The activity of income from house property has to be construed as forming part of the same business as there is one account for the printing business and for income from house property and the business is conducted under a common management. There is one profit and loss account and one balance sheet. It is the perception of the activities from the point of view of businessman that is material. As such perception that is recognised in Part II and Part III of the Sixth Schedule to the Companies Act, 1956. In Section 32AB(3) or Section 32AB (1)(ii) the expression “chargeable to profits and gains of business” is conspicuous by its absence. Hence, the dichotomy as between the income from printing and rental income from house property is not warranted in terms of Section 32AB(3) of the Act. In our view, all eligible business or profession shall include every income except that which is excluded specifically in the definition of eligible business or profession. We find support for this view in Apollo Tyres Ltd. [1998 (8) TMI 68 - KERALA HIGH COURT] of Kerala High Court and [2002 (5) TMI 5 - SUPREME COURT] Hon’ble Apex Court. It is not the case of the Revenue or the findings of the ITAT that appellant has in its account not shown rental income as part of the business income. Infact as per the assessment order, these charges have been considered as part of business income but the AO has excluded it for the purpose of profits to arrive at the eligible business income for the purpose of Section 32AB of the Act. Therefore, so long as the rental income is part of the business income, it will be included in the term of eligible business because the rental income is not excluded in the definition of eligible business. The question of law, as framed, is answered in negative. The rental income earned by appellant and assessed under the head “Income from house property” will qualify for deduction u/s 32AB of the Act. Issues Involved:1. Whether the rental income assessed under the head 'Income from house property' qualifies for deduction under Section 32AB of the Income Tax Act, 1961.Summary:Issue 1: Deduction u/s 32AB for Rental Income- The appellant contested the ITAT's judgment denying deduction u/s 32AB for rental income assessed under 'Income from house property.'- The Assessing Officer restricted the deduction to Rs. 2,85,024/- against the appellant's claim of Rs. 76,97,918/-, excluding Rs. 1,27,11,742/- rental income from the computation.- The CIT(A) and ITAT upheld this view, stating rental income does not qualify as 'profits of eligible business or profession' for Section 32AB.Appellant's Arguments:- The term 'eligible business or profession' in Section 32AB (2)(i) includes all activities resulting in profits except those specified.- The rental income's assessment under 'Income from house property' does not alter its inherent character as business income.- Cited precedents: Commissioner of Income Tax V/s. Diners Club India Ltd. and Apollo Tyres Ltd. V/s. Commissioner of Income Tax, supporting the inclusion of such income for Section 32AB deduction.Respondent's Arguments:- Section 32AB pertains specifically to 'profits and gains of business or profession,' excluding income from house property, capital gains, and other sources.- The computation of business income must adhere strictly to Sections 28 to 44D, and deductions under Section 32AB cannot extend to other income heads unless explicitly provided.Court's Analysis:- The court examined Sections 32AB (1), (2), and (3) of the Act, noting the requirement for income to be chargeable under 'profits and gains of business or profession.'- The court emphasized the broad definition of 'eligible business or profession,' which includes various business activities beyond manufacturing or production.- The appellant's accounts, prepared per the Companies Act, included rental income as business income, aligning with the definition of eligible business.- The court rejected the dichotomy between rental and business income for Section 32AB purposes, noting the unified management and accounting treatment.Conclusion:- The court ruled that rental income, as part of business income, qualifies for deduction under Section 32AB.- The question of law was answered in the negative, favoring the appellant's claim for deduction on rental income.Disposition:- The appeal was disposed of accordingly, allowing the rental income assessed under 'Income from house property' to qualify for deduction under Section 32AB.