Commercial exploitation of property taxed as business income where letting out formed part of the company's core objects and activity.

Rental receipts from commercial spaces were taxable as business income, not income from house property, because the company's memorandum and actual conduct showed acquisition, development, letting out, and commercial exploitation of properties as part of its business, with facilities and services provided to occupiers. The receipts had also been consistently assessed as business income in earlier scrutiny proceedings. An estimated disallowance of expenses could not be sustained where the assessee produced head-wise details, invoices, PANs, and TDS particulars, no specific defect was identified, the books were not rejected, and the estimation lacked adequate verification. The additions were deleted in full.

---

---

Issues: (i) Whether rental receipts from commercial spaces were taxable as business income or income from house property; (ii) Whether the estimated disallowance of expenses was sustainable.

Issue (i): Whether rental receipts from commercial spaces were taxable as business income or income from house property.

Analysis: The assessee's main objects in the memorandum permitted acquisition, development, letting out, and commercial exploitation of properties, including provision of facilities and amenities to occupiers. The commercial units were let out along with utilities and services in an organized business manner, and the income had been consistently assessed as business income in earlier scrutiny assessments. Following the settled principle that the character of receipts from property depends on the dominant object and commercial exploitation of the asset, the rental receipts were held to arise from the assessee's business activity.

Conclusion: In favour of the assessee. The rental receipts were rightly assessable as business income and not as income from house property.

Issue (ii): Whether the estimated disallowance of expenses was sustainable.

Analysis: The assessee furnished head-wise expense details, supporting invoices, names, PANs, and TDS particulars. No specific defect in any item of expenditure was pointed out, nor were the books of account rejected. The premise of an excessive 25% increase in expenses was not supported by the comparative figures on record, and the disallowance was made on estimation without adequate verification.

Conclusion: In favour of the assessee. The estimated disallowance of expenses was deleted.

Final Conclusion: Both additions failed on merits, and the assessee's claim was accepted in full.

Ratio Decidendi: Where a company's memorandum and actual conduct show that letting out and commercial exploitation of property is part of its business, rental receipts are taxable as business income; an estimated disallowance of expenses cannot be sustained without specific defects, verification, or rejection of the books of account.

---