Tuesday, 15 April 2014

Whether income from letting out property is to be treated as business income merely because property is commercial in nature and rental is exorbitantly high - NO: ITAT

THE issue before the bench is - Whether income from letting out of property can be treated as business income and not as income from house property just because rental income was too high and the property was commercial in nature. NO is the Tribunal's answer.
Facts of the case

AO noted that the assessee had disclosed income from house property of Rs. 104,887,980/-
and claimed deduction u/s. 24(1) of 30%. The AO held that the rental income was treated as business income and deduction claim of Rs. 31466394/- u/s. 24(1) was not allowable. The CIT(A) deleted the addition of Rs. 3,14,66,394/- by treating income from business of letting out of property as rental income and allowed deduction u/s. 24(a).

The CIT(A) gave part relief of Rs. 1,07,238/- u/s. 57(iii) under the head income from other sources.

On Appeal before the Tribunal the DR submitted that the CIT(A) had not examined the partnership deed of the assessee. He had not examined the object clause of the assessee. The DR further submitted that assessee had itself accepted that the property was a commercial property hence; the income in this regard cannot be treated as income from house property. The AR submitted that as per the Income Tax Act the income from house property has to be taxed as income from house property irrespective of the fact that the property was commercial property or otherwise. The AR submitted that there is no distinction between commercial property or other property in the Income Tax Act. The AR further submitted that the AO’s presumption that rental income was very high can not be the reason.

Having heard the parties, the Tribunal held that,

++ the AO’s observation that rental income is too high is not at all a reason to treat the income as income from business. AO has not made out any case that assessee has been providing services and hence, the claim of rental income is to be disallowed. The Income Tax Act does not make any distinction between commercial property and other property for the classification of income from house property;

++ on the issue of the CIT(A) granting part relief of Rs. 1,07,238/- u/s. 57(iii) under the head income from other sources, it is not the case that the expenses have been found to be bogus or the concerned vouchers were lacking. There is no infirmity in the order of the CIT(A) in this regard. 

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