TMI Blog2022 (8) TMI 1136X X X X Extracts X X X X X X X X Extracts X X X X ..... was held that each case has to be looked at from businessman s point of view to find out whether the letting was doing of a business or the exploitation of the property by the owner. In view of the settled legal position with which we are duty bound to respectfully agree, more particularly, when we do not find any later and recent contrary view to the aforesaid legal position, no fault can be found with the order of the ITAT. Thus, we are clearly of the opinion that once the property in question is used as business asset and the exclusive business of the assessescompany or firm is to earn income by way of rental or lease money, then such rental income can be treated only as business income of the assessee and not as income from house property . Apart from the above, we notice that no doubt this is a case which falls under the exception laid down in Para 10 (c) of the CBDT Circular dated 20.08.2018. The tax effect otherwise involved in the instant case is barely Rs.8,04,740/- which again dissociates us from interfering with the order passed by the ITAT, more especially, for the reasons as already stated above. - INCOME TAX APPEAL NO. 1 OF 2022 - - - Dated:- 22-8-2022 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imed viz. directors remuneration, depreciation and other expenses resulting into net profit of Rs.28,903/- only. A show cause notice dated 04.10.2018 was issued to the assessee asking to explain as to why the rental income received may not be treated as Income from House Property rather than considering the same as Income from Business Profession . In response the assessee furnished a chart on 28.11.2018 explaining that if the rental income was to be assessed as its Income from Business Profession the resultant loss of Rs.7,70,160.40 would be much higher than the resultant loss of Rs.3,89,226/- declared by the assessee. It was further submitted that since the loss assessed was lesser than the loss to be assessed, if the rental income was to be considered as income from House Property. The assessee also furnished a chart showing the closing stock as on 31.03.2014 of Rs.51,98,161/- pertaining to two different plots of land which were stated to be available for sale being part of its stock in trade. It was submitted that since the assessee was dealing in the business of real estate development and merely because due to slump in the market, the stock in trade remained same at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome from House Property particularly in view of the judgment of the Hon ble Apex Court in he case of M/s Raj Darekar and Associates Vs. CIT reported in 394 ITR 592 (SC) and in the case of M/s Sultan Brothers Pvt. Ltd.(supra). He therefore set aside the assessment order passed by the A.O. and directed the A.O. to reassess or recomputed the income by conducting further enquiry as well as duly taking into account consideration of the fresh evidence brought on record including the MOA of the assessee company and the legal position while replying upon certain case laws, on this issue. 5. Aggrieved by the order of the Pr. CIT, the assessee preferred an appeal before the Income Tax Appellate Tribunal, Chandigarh ( ITAT, Chandigarh ), who vide order dated 11.11.2020 allowed the appeal of the assessee and granted the following reliefs:- (i) The ITAT vide order under consideration held that in the present case, the main object of the assessee in its MOA is to carry on the business of Real Estate Dealers and Developers including purchase and sale of land, land development, colonization, purchase, sale, construction and letting out of houses, flats, farm houses. However, as per Clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been claimed under the head income from business or profession 7. We have heard the learned counsel for the appellant. 8. It has come on record that during the course of the original proceedings, the A.O. had issued a questionnaire to the assessee. In response to the same, the assessee filed reply and attached documents, which were duly considered by the A.O. which is a substantial proof of the fact that the A.O. had made inquires. It is on the basis of the inquiry that it was concluded that the rental income as shown by the assessee was considered to be business income as had been done in the preceding years since the inception of the business of the assessee. However, this finding was not agreed to by the Pr. CIT and the matter was again remitted back to the A.O. 9. However, the ITAT in order to resolve this controversy considered the object and ancillary object as mentioned in the MOA, more particularly, Clauses-3 and 19 thereof and came to the conclusion that the assessee was authorized to lease out the property which in the instant case had been done in respect of First floor and Second floor, SCO Nos. 126 and 127, Sector 8C, Chandigarh. 10. It was further con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o collieries and other companies. Thus, in the said case, the leasing out of the coal fields to the collieries and other companies was the business of the assessee. The income which was received from letting out of those mining leases was shown as business income. Department took the position that it is to be treated as income from the house property. It would be thus, clear that in similar circumstances, identical issue arose before the Court. This Court first discussed the scheme of the Income Tax Act and particularly six heads under which income can be categorised/ classified. It was pointed out that before income, profits or gains can be brought to computation, they have to be assigned to one or the other head. These heads are in a sense exclusive of one another and income which falls within one head cannot be assigned to, or taxed under, another head. Thereafter, the Court pointed out that the deciding factor is not the ownership of land or leases but the nature of the activity of the assessee and the nature of the operations in relation to them. It was highlighted and stressed that the objects of the company must also be kept in view to interpret the activities. In supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the aforesaid dicta laid down in the Constitution Bench judgment. It is for this reason, we have, at the beginning of this judgment, stated the circumstances of the present case from which we arrive at irresistible conclusion that in this case, letting of the properties is in fact is the business of the assessee. The assessee therefore, rightly disclosed the income under the Head Income from Business. It cannot be treated as 'income from the house property'. We, accordingly, allow this appeal and set aside the judgment of the High Court and restore that of the Income Tax Appellate Tribunal. No orders as to costs. 14. The aforesaid decision was thereafter followed by another Bench of the Hon ble Supreme Court in Rayala Corporation Private Limited vs. Assistant Commissioner of Income Tax (2016) 15 SCC 201 in which the position of law was succinctly reiterated and followed and it was held as under:- 9. Upon hearing the learned counsel and going through the judgments cited by the learned counsel, we are of the view that the law laid down by this Court in the case of Chennai Properties and Investments Ltd. v. CIT (2015) 14 SCC 793 shows the correct position of law and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uilding or lands appurtenant thereto. Section 22 of the Act makes annual value of such a property as income chargeable to tax under this head. How annual value is to be determined is provided in Section 23 of the Act. Owner of the house property is defined in Section 27 of the Act which includes certain situations where a person not actually the owner shall be treated as deemed owner of a building or part thereof. In the present case, the appellant is held to be deemed owner of the property in question by virtue of Section 27(iiib) of the Act. On the other hand, under certain circumstances, where the income may have been derived from letting out of the premises, it can still be treated as business income if letting out of the premises itself is the business of the assessee. 18. What is the test which has to be applied to determine whether the income would be chargeable under the head income from the house property or it would be chargeable under the head Profits and gains from business or profession , is the question. It may be mentioned, in the first instance, that merely because there is an entry in the object clause of the business showing a particular object, wou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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