The Bombay High Court has held that the rental income from leasing of its properties was assessable as income from profits and gains of business.
The bench of Justice G. S. Kulkarni and Justice Firdosh P. Pooniwalla has observed that the Assessing Officer, for almost 11 Assessment Years has consistently held that income of the assessee is required to be treated as “income from business” and not the “income from house property”. This has been the consistent approach of the department, therefore, the principles of consistency, as the law recognizes, are required to be accepted.
Table of Contents
Background
The appellant has challenged the orders passed by the Income Tax Appellate Tribunal. The question of law which arises for consideration in the appeals, was whether the rent income derived by the appellant from its properties was assessable under the head ‘Income from house property’ or as claimed by the assessee under the head ‘Income from Profits and Gains of Profession or Business’.
The assessee was incorporated in the year 1983 under the Companies Act, 1956, with the main object to carry on the business of leasing of immovable properties including land and buildings, plant and machinery etc. as discernible from its memorandum of association, a copy of which is part of the paper-book.
The assessee is engaged in the business of purchasing and renting properties, as also the entire income of the assessee is based on the income received from leasing its properties. It had no other source of income. It is stated that since 1989 till date, the assessee has leased about 85 properties. The business model of the assessee is stated to be such, that it obtains loan from financial institutions for the purchase of properties, it purchases properties and then provides the same on lease. The lease income is thus the only income of the assessee.
The assessee contended that from the year 1983 to 1989, its lease income as derived from its properties was assessed by the respondents under the head “Income from Profits and Gains of Profession or Business”.
For the Assessment Year 1989-90, the assessee filed its return of income under Section 139 of the Income Tax Act, 1961, under the head “income from house property”.
On 30 January 1992, the Assessing Officer issued a notice to the assessee under Section 143(2) and 142(1) of the Act to show cause as to why the annual letting value of the leased premises should not be the higher figure. The assessee responded to the said show cause notice, by its letter dated 17 February 1992, disputing such contentions (although such issue is not the subject matter of the lead appeal).
On 30 March 1992 the Assessing Officer passed an Assessment Order for assessment year 1989-90 (relevant to the lead appeal) under Section 143(3) of the Act whereby the Assessing Officer inter alia calculated the annual value of the property on the basis of gross rent instead of actual rent issued by the assessee as shown in its returns.
The assessee being aggrieved by the assessment order filed an appeal before the Commissioner of Income Tax (Appeal) on the ground that the Assessing Officer ought to have calculated the annual value of the property on the basis of the actual rent/license received by the assessee.
Arguments
The assessee contended that the Assessing Officer has consistently taken a view that the income as derived by the assessee from letting out the house properties was “income from profits and gains of business”, hence, on such ground applying the principles of consistency, the impugned order is rendered bad and illegal. It is submitted that in fact the Revenue itself having accepted such a position for almost 11 assessment years, it now cannot turn around and contest the present appeal on the ground that the Tribunal was justified in passing the order.
The department contended that although the main object of the assessee is to carry on the business of leasing of properties and there is no other business, however, as held by the Supreme Court in East India Housing, the assessee ought not to claim that the income derived from its business needs to be treated as income from business.
Conclusion
The court held that the orders passed by the Tribunal are set aside to the extent that the rent income derived by the assessee from lease of its properties was assessable as income from profits and gains of business.
Under which head the Rental Income From Leasing can be taxed?
The Bombay High Court in the case of National Leasing Limited Versus The Assistant Commissioner of Income has held that the rental income from leasing of its properties was assessable as income from profits and gains of business.
Case Details
Case Title: National Leasing Limited Versus The Assistant Commissioner of Income
Case No.: Income Tax Appeal No. 685 Of 2007
Date: 21 October 2024
Counsel For Appellant: Rohaan Cama
Counsel For Respondent: Suresh Kumar
