2010 (11) TMI 567 - AT - Income Tax

Warehousing charges - Whether income from letting out of warehouse/office is to be taxed under the head Income from house property or under the head Income from business or profession - Deduction under section 24 - Revision of orders - The Assessing Officer has changed the head of income of letting out of the property from Income from house property to Income from business - Held that - While framing the assessment for the assessment year under consideration the Assessing Officer has not brought on record any new facts as at why any departure from the earlier stand of the Department was required - It is relevant to state that the assessments framed for earlier years were never disturbed by the ld. CIT by exercising revisionary powers under section 263 of the Act - It is true that the revenue has no right of appeal to the ld. CIT(A) against any order passed by the Assessing Officer - Therefore section 263 of the Act has been brought on the Statute to arm the CIT with the power of revising any order of the Assessing Officer where the order is erroneous and the error has resulted in prejudice to the interests of the Revenue - Ino such step has been taken by the ld. CIT - Therefore the Assessing Officer was not justified in departing from the stand taken in the earlier years particularly when there was no material change in the facts and circumstances of the present case as compared to earlier years - Hence the ld. CIT(A) was justified in directing the Assessing Officer to tax warehousing charges under the head Income from house property and allow deduction as per section 24 after verification - Decided in favour of assessee.

Summary

Issues Involved:
1. Classification of warehousing charges as 'Income from house property' vs. 'Income from business'.
2. Application of the principle of res judicata in income-tax proceedings.
3. Consistency in tax treatment over different assessment years.

Detailed Analysis:

1. Classification of Warehousing Charges:
The primary issue was whether the warehousing charges received by the assessee should be taxed as 'Income from house property' or 'Income from business'. The assessee, a partnership firm, had been letting out portions of a building (previously used for cold storage) as warehouses and offices since 1990. Historically, this income was taxed under the head 'House property'. However, for the assessment year 2006-07, the Assessing Officer (AO) reclassified this income as 'Income from business', leading to the disallowance of deductions under section 24 of the Income-tax Act.

The AO's rationale included:
- The audit report listed the nature of the business as "warehousing".
- Warehousing charges were shown in the Profit & Loss account.
- The premises were leased out as commercial assets with fittings and fixtures.
- TDS certificates indicated contract payments under section 194C, not rent.

The CIT(A) reversed the AO's decision, directing that warehousing charges be taxed under 'Income from house property' and allowing deductions under section 24, citing consistency with previous years' assessments.

2. Principle of Res Judicata:
The revenue argued that the principle of res judicata does not apply to income-tax proceedings, referencing the Supreme Court's ruling in CIT v. Realest Builders & Services Ltd. and Municipal Corporation of City of Thane v. Vidyut Metallics Ltd. However, the Tribunal emphasized the principle of consistency, as outlined in Radhasoami Satsang v. CIT, where it was held that a consistent treatment over the years should not be changed without justifiable reasons.

3. Consistency in Tax Treatment:
The Tribunal upheld the principle of consistency, noting that the income from letting out warehouses had been consistently taxed under 'Income from house property' from 1990 onwards. The AO did not provide new facts or changes in circumstances to justify a departure from this established practice. The Tribunal referenced several cases, including Goel Builders and Dr. Narendra Prasad, to support the argument that consistency should be maintained unless there are compelling reasons to change the tax treatment.

Conclusion:
The Tribunal concluded that the AO was not justified in reclassifying the warehousing charges as 'Income from business' without new evidence or changes in circumstances. The CIT(A)'s decision to tax the warehousing charges under 'Income from house property' was upheld, and the principle of consistency was reinforced. The appeal by the revenue was dismissed, and the cross-objection by the assessee was also dismissed as infructuous.