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2016 (12) TMI 44 - ITAT PUNE

2016 (12) TMI 44 - ITAT PUNE - TMI - Receipt of rental income - Nature of income - income from house property or income from business - Held that:- Since in the instant case the assessee has shown the shops under the head ‘investment’ and has received rental income from such shops which were let out, therefore, such income in my opinion should be held as ‘income from house property’ and not as ‘business income’. The various decisions relied on by the CIT(A) are distinguishable and not applicable .....

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nged the order of the CIT(A) in treating the income from house property as income from business. 3. Facts of the case, in brief, are that the assessee is a partnership firm engaged in the business of Promoter and Builder. It filed its return of income on 21-03-2011 declaring total income of ₹ 11,06,420/-. During the course of assessment proceedings the AO observed that assessee has not effected any sales during the year. However, it has credited office rent at ₹ 27,03,280/- and prope .....

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ived by the assessee is because of ownership of the property and not by exploitation of the property by way of complex commercial activity. Various decisions were also cited before the AO to this proposition. 4. However, the AO was not satisfied with the explanation given by the assessee. He noted that the assessee vide letter dated 10-12-2012 has admitted that it has debited the expenses to the profit and loss account for maintenance of unsold stock and property and the unsold property is shown .....

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f the property as business income . He also relied on the decision in the case of CEPT Vs. Shri Lakshmi Silk Mills Ltd. reported in (1951) 20 ITR 451. 5. Before CIT(A) the assessee submitted that the firm had developed a commercial property by the name City Jewel Building which consisted of ground floor and 3 upper floors and 2 parking floors on the 4th floor and the terrace as per the PMC requirement. The assessee had leased out part of the said premises and earned rental income therefrom by vi .....

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the office on the upper floor which was unsold appearing as stock in trade whereas the shops leased out to Vishal Retail Ltd. are appearing under the head investment in the balance sheet every year. Relying on various decisions the assessee submitted that the rental income should be considered as income from house property. 7. However, the CIT(A) also was not satisfied with the explanation given by the assessee and upheld the action of the AO. While doing so, she noted that the assessee is enga .....

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nd noted that clause 4.2 clearly states the nature of the property as a commercial building constructed as one by the licensor and was let out to the licensee under leave and license agreement as a commercial building. There is no iota of any investment in the house property for the purpose of earning rental income within the provisions of section 22 to 24 of the I.T. Act. On the other hand the very nature of business activities carried out by the assessee holding of commercial property and let .....

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n 44 ITR 362. 8. As regards the submission of the assessee that shops leased out to Vishal Retail Ltd. are shown in accounts under the head investment is concerned she noted that the very object of the assessee is not the construction of the property for holding the same as investment and thereafter earning rental income by letting it out. Relying on various decisions she held that such rental income has to be assessed as income from business and not as income from house property . 9. Aggrieved .....

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book he submitted that shops at ₹ 43,07,975/- has been declared under the head investment whereas closing stock under the head current assets has been shown at ₹ 92,22,084/-. Referring to the copy of the balance sheet for the year ending 31-03-2010, copy of which is placed at page 10 of the paper book he submitted that under the head investments shops have been shown at ₹ 43,07,975/- and closing stock has been shown under the head current assets at ₹ 92,22,084/-. He submi .....

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hops leased out to Vishal Retail Ltd. are appearing under the head investment in the balance sheet every year and some of the offices above the shops leased to Vishal Retail Ltd. are appearing as stock in trade. We are enclosing herewith copy of our trading, profit & loss account and balance sheet, wherein we have duly highlighted the shops appearing under the head investment 12. Referring to the copy of the leave and license agreement with Vishal Retail Ltd., copy of which is placed at page .....

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action u/s.147/148 has been initiated. 13. Referring to the decision of Hon ble Delhi High Court in the case of CIT Vs. Ansal Housing Finance and Leasing Company Ltd. and others reported in 354 ITR 180 he submitted that the assessee in that case was engaged in the business of Development of Mini Townships, Construction of house property, commercial and shop complex etc. In the assessment proceedings the AO assessed the annual letting value of the properties of the flats which the assessee had c .....

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were sold. The capacity of being an owner was not diminished because the assessee carried on the business of developing, building and selling flats in housing estates. The Hon ble Court held that the assessee was liable to pay tax on the annual letting value on the unsold flats owned by it under the head income from house property . 14. So far as the decision of Hon ble Supreme Court in the case of Chennai Properties Ltd. (Supra) is concerned, he submitted that the main objects of the assessee .....

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from house property . The CIT(A) allowed the appeal filed by the assessee holding the same to be business income . The Tribunal dismissed the appeal filed by the Revenue. The Hon ble High Court allowed the appeal filed by the revenue vide order dated 05-09-2002 holding that the income derived by letting out of the properties would not be income from business but could be assessed only as income from house property . On further appeal by the assessee, the Hon ble Supreme Court set aside the orde .....

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Supra). Various other decisions relied on by the CIT(A) are also not applicable to the facts of the present case and are distinguishable. He accordingly submitted that the order of the CIT(A) be set aside and the ground raised by the assessee should be allowed. 15. The Ld. Departmental Representative on the other hand heavily relied on the order of the CIT(A). She submitted that the Ld.CIT(A) has given finding as to why and how the rental income received by the assessee from letting out of the s .....

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tal income. It is the contention of the assessee that such income has to be treated as income from house property whereas it is the case of the revenue that it should be treated as income from business . 17. From the details furnished by the assessee I find the assessee in the instant case is engaged in the business of real estate and had constructed a commercial complex in the name of City Jewel Building at Narayanpeth, Pune. It had sold most of the offices and shops. The ground floor of the pr .....

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rom house property or business income . I find the Ld.CIT(A) while deciding the issue against the assessee and upholding the decision of the AO in treating such income as business income has relied on the decision of Hon ble Supreme Court in the case of M/s. Chennai properties (Supra). However, according to the Ld. Counsel for the assessee, the said decision is not applicable to the facts of the present case and is distinguishable. 18. I find some force in the argument of the assessee. I find in .....

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pheld by the Tribunal. On further appeal by the Revenue the Hon ble Madras High Court reversed the decision of the Tribunal and upheld the action of the AO in treating the same as income from house property . On further appeal by the assessee the Hon ble Apex Court held that the objects of the assessee company are to acquire and hold the properties known as Chennai House and Firavin Estate both in Chennai and to let out these properties as well as make advances upon the security of lands and bui .....

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