2024 (10) TMI 1209 - HC - Income Tax

Company rental income classified as business profits when property letting is main business activity per memorandum of association

National Leasing Limited, National Realty Pvt. Ltd., National Realty Pvt. Ltd. [Formerly, National Leasing Ltd.], Versus The Assistant Commissioner of Income, Circle 3 (6), Mumbai, The Deputy Commissioner of Income, Circle 5 (2), Mumbai, The I.T.O. Ward-3 (5), Mumbai.

National Leasing Limited, National Realty Pvt. Ltd., National Realty Pvt. Ltd. [Formerly, National Leasing Ltd.], Versus The Assistant Commissioner of ... Issues Involved:1. Classification of rental income: Whether the rental income received by the assessee from leased properties should be assessed as 'Income from House Property' or 'Income from Profits and Gains of Business or Profession'.2. Consistency in assessment: Whether the principle of consistency should apply given the varied treatment of the assessee's income in different assessment years.Issue-wise Detailed Analysis:1. Classification of Rental Income:The primary issue in these appeals was the classification of rental income derived by the assessee from its properties. The assessee contended that the income should be classified under 'Income from Profits and Gains of Business or Profession' as its main business activity was leasing properties. The Tribunal, however, classified the income under 'Income from House Property,' relying on the Supreme Court's decision in East India Housing and Land Development Trust Ltd. v. CIT, where rental income was deemed to fall under 'Income from House Property' if derived from immovable property owned by the assessee, despite the business being in real estate.The court examined the nature of the assessee's business, as outlined in its memorandum of association, which specified the primary business objective as leasing properties. The court emphasized that the nature of the business activity and the operations related to it should determine the income classification. The Supreme Court's decision in Chennai Properties & Investments Ltd. was cited, where income from letting properties was considered business income due to the company's main objective being property leasing.The court concluded that the Tribunal's reliance on East India Housing was misplaced, as the facts of the assessee's case aligned more closely with Chennai Properties, where leasing was the primary business activity. Therefore, the rental income should be classified as 'Income from Profits and Gains of Business or Profession.'2. Consistency in Assessment:The court also addressed the issue of consistency in the treatment of the assessee's income over different assessment years. It was noted that for several years, the income was assessed as 'Income from Profits and Gains of Business,' while for other years, it was classified as 'Income from House Property.'The court highlighted the principle of consistency, as established in Radhasoami Satsang v. CIT and reiterated in subsequent cases, which dictates that a consistent approach should be maintained unless there is a material change in circumstances. The court observed that the revenue's inconsistent treatment of the assessee's income over the years was unjustified, as there were no changes in the nature of the assessee's business activities.Thus, the court ruled that the principle of consistency should apply, and the income should be assessed under 'Income from Profits and Gains of Business or Profession,' aligning with the treatment in several previous assessment years.Conclusion:The appeals were allowed, and the court set aside the Tribunal's orders, holding that the rental income derived by the assessee from leasing its properties should be assessed as 'Income from Profits and Gains of Business or Profession.' The court's decision was based on the nature of the assessee's business activities and the principle of consistency in tax assessments.