Rental Income from Property to Be Assessed Under House Property, Not Business Profits, Says Tribunal.

The Tribunal determined that the rental income from Scindia House should be assessed under "Income from house property" rather than "Profits and gains of business," as the property was owned by the assessee and the income derived was due to ownership, not business activity. The issue regarding the allowance of maintenance expenses under "Profits and gains of business" was deferred to the Division Bench for resolution. The Tribunal's decision favored the Revenue, ruling against the assessee's contention.

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Issues Involved:

1. Whether the rental income from Scindia House should be assessed under the head "Income from property" or "Business income."
2. Whether the expenses incurred for the maintenance of the property should be allowed under "Profits and gains of business" and if the resultant loss can be adjusted against the "Income from house property."

Issue-wise Detailed Analysis:

1. Rental Income Assessment:

The main issue was whether the rental income from Scindia House should be assessed under "Income from property" or "Business income." The assessee, a company incorporated in 1978, argued that the property was acquired as stock-in-trade for commercial exploitation and not merely for earning rental income. The company had shown the rental income as "Income from business" in its returns, which was initially accepted by the Tribunal for assessment years 1980-81 to 1991-92. However, for the assessment year 1992-93, the Tribunal noted a material change as the company had become the owner of the property and held that the rental income should be assessed under "Income from house property."

The Tribunal's earlier decisions were based on the premise that the property was acquired for commercial exploitation. However, in the assessment year 1992-93, the Tribunal reconsidered the issue and concluded that the property was not stock-in-trade and even if it was, the rental income should be assessed under "Income from house property." The Tribunal relied on the Supreme Court decisions in CIT vs. Chugandas & Co. and S.G. Mercantile Corporation (P) Ltd. vs. CIT, which held that rental income from property owned by the assessee should be assessed under "Income from house property."

The learned counsel for the assessee contended that the intention behind acquiring Scindia House was commercial exploitation, not earning rental income. The property was shown as stock-in-trade, and the rental income was incidental to the business. The counsel cited several cases, including Universal Plast Ltd vs. CIT and CIT vs. New India Industries Ltd., to support the argument that the nature of the income should be determined from the perspective of a businessman.

The learned Departmental Representative argued that the assessee became the owner of the property in May 1980, and the rental income should be assessed under "Income from house property." The representative cited several judicial pronouncements, including East India Housing & Land Development Trust Ltd. vs. CIT and Shambhu Investment (P) Ltd. vs. CIT, to support the argument that rental income from property owned by the assessee should be assessed under "Income from house property."

The Tribunal concluded that the rental income from Scindia House should be assessed under "Income from house property." The property was owned by the assessee, and the rental income was received because of ownership, not because of any business or commercial activity. The Tribunal held that the rental income was chargeable to tax under the head "Income from house property" and not under "Profits and gains of business."

2. Expenses for Property Maintenance:

The alternative contention raised by the assessee was that the expenses incurred for the maintenance of the property should be allowed under "Profits and gains of business" and the resultant loss should be adjusted against the "Income from house property." The Tribunal held that this issue was beyond the scope of the question referred to the Special Bench and should be raised before the Division Bench, which would deal with it in accordance with the law.

Conclusion:

The Tribunal held that the rental income from Scindia House should be assessed under "Income from house property" and not under "Profits and gains of business." The issue of allowing expenses for property maintenance under "Profits and gains of business" was left to be decided by the Division Bench. The Tribunal answered the question in favor of the Revenue and against the assessee.

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