Rental income from letting out commercial complex not a business income- ITAT Hyderabad
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Case Details: |
DCIT vs. Cache Properties Pvt. Ltd. |
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Appeal No.: |
ITA No. 64&65/H/2020 |
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Order pronounced by: |
ITAT Hyderabad |
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Date of Order: |
11-06-2021 |
The issue before the Hon’ble Tribunal is related to the classification of rental income from letting out of the commercial complex by the assessee company. The ITAT rendered its ruling whether the rental income derived by the assessee company is taxable under “Income from House Property” or under “Profits & Gains of Business or Profession”.
While rendering the judgment, the Hon’ble ITAT referred to the following precedents:
Raj Dadarkar and associates (Supreme Court)In the instant cases, the Tribunal has held that the assessee’s income was to be treated as income from house property which was confirmed by the Hon’ble High Court. The Hon’ble Supreme Court confirmed the order of the Tribunal holding it to be income from house property. The ITAT, in this case, has held that the assessee collected 20% of the monthly rent as service charges which were used for services like providing electricity, water, etc. which was inseparable from basic charges on rent. The Tribunal had held that the assessee has not established that he was engaged in any systematic or organized activities of providing services to the occupiers of the shops/ stalls so as to construe the receipts from them as business income and it was held to be “Income from House Property”. |
Keyaram Hotels Private Limited (2015) 63 taxmann.com 301(SC)The Hon’ble Supreme Court held that where the assessee was not engaged in any business activity, rental income earned from letting out of commercial complex would be assessed as income from house property and not as business income. |
Gundecha Builders (2019) 102 taxmann.com 27 (Bombay HC)Held that where the assessee was engaged in the business of development of real estate project, rental income received from an unsold portion of the property constructed by it was assessable to tax as income from house property. For coming to this conclusion, the Hon’ble High Court followed its earlier decision in the case of CIT vs. Sane & Doshi Enterprises (2015) 377 ITR 165/232 Taxman 452/58. |
Batra Palace (P.) Ltd. vs. CIT [2017] 79 taxmann.com 324 (P&H)Held that where it is not shown that the intention was to let out the properties for a temporary period, it was the intention of the assessee to enjoy the rental income from the letting out the property, and hence it was to be treated as income from house property. |
Sultan Brothers (P) Ltd. [1964] 51 ITR 353 (SC)Held that where the property has been let out fully equipped and furnished for running a hotel, it could not be said that letting of building amounts to doing business and rental income could not be assessed as business income. |
Observations of the Tribunal:
- By applying the rationale of the above decisions, we find that the fact that the property let out is a commercial complex is not sufficient to treat the rental income as ‘Business Income’.
- The tests to be applied are; (1) the tenure of the lease, (2) the objects of the company, (3) the intention of the company, and (4) the services provided or activities carried on by the assessee after letting out of the property.
- Though one of the objects of the company is to let out the properties on lease/ rent, it is not clear whether the intention is to earn rental income only from the properties constructed/ developed by it.
- As held by the Hon’ble Bombay High Court in the case of Gundecha Builders (supra), rental income from unsold flats is to be assessed on ‘income from house property’. Further as held by the Hon’ble Courts in the case cited supra, unless the assessee is carrying on a systematic and organized activity to exploit the property commercially, it cannot be taxed as business income.
- We find that except for creating the infrastructure as per the requirement of the lessee, the assessee is not providing any other service during the year as is evident from the P&L A/c of the assessee. The only expenses claimed by the assessee are interest, salaries & administrative expenses. Therefore, it is clear that the assessee’s intention is to enjoy the rental income on a long-term basis by leasing out the premises and not to exploit the same commercially on a short-term basis.
Ruling:
In view of the same, we are inclined to accept the contentions of the assessee that the rental income is to be assessed as ‘income from house property’ as offered by the assessee. Accordingly, the assessee’s appeal is allowed.
