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2024 (3) TMI 532 - ITAT AHMEDABADRevision u/s 263 - Classification of rental income - House property v/s business income - as per CIT AO has not made any inquiries as to why such rental income should not be classified as “income from business” and failed to make detailed inquiries on certain aspects like why the property was classified as investment, whether the assessee has claimed depreciation on such property for income tax purposes and once AO has already held such income as income from business in earlier years, such treatment ought to have been followed HELD THAT:- Assessee is not engaged in the business of earning rental income, but is engaged in providing IT Services, it cannot be inferred that the rental income earned by the assessee on such house property held as “non-current investment”, would qualify as it’s business income - also seen from the financial statements of the assessee that the aforesaid rental income has been reflected as “non-operational income” and not as the “business income” of the assessee. Accordingly, from the instant facts assessee has not taken an incorrect position by offering the rental income earned by the assessee on aforesaid property “income from house property”. In various judicial precedents, a distinction has been drawn as to when the rental income earned by an assessee can be classified as it’s business income and under what circumstances, such rental income would qualify as “income from house property”. The Courts have held that whether the income earned from property would qualify as business income or income from house property would primarily depend upon the objects / main business of the assessee company. If the assessee company is primarily engaged in the business of real estate / construction of which letting out properties on rent, alongwith facilities part of its regular business, then the income from letting out would qualify as “business income”, however, in case the assessee is engaged at other business activities and the rental income has been earned by the assessee, not on it’s business assets but on other investments, then such rental income should normally qualify as income from house property. In the case of Raj Dadarkar & Associates (2017 (5) TMI 586 - SUPREME COURT] held that where assessee having obtained a property on lease, constructed various shops and stalls on it and gave the same to various persons on sub-licencing basis, since assessee was not engaged in systematic or organized activity of providing service to occupiers of shops/stalls, income from sub-licensing was to be taxed as “income from house property” and not as “business income”. Also held in M/S MEERAJ ESTATE AND DEVELOPERS [2019 (10) TMI 1002 - ALLAHABAD HIGH COURT] since assessee did not indulge in any kind of recurring, systematic and organized business activity and, moreover, in respect of maintenance and upkeeping of let out premises, it appointed only one person, Assessing Officer was justified in treating rental income assessable as “income from house property”. Thus claim of the assessee that such rental income qualifies as “income from house property” has been accepted, looking into the instant facts - order passed u/s 263 of the Act is directed to be set-aside. Decided in favour of assessee.
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