CACHE PROPERTIES PRIVATE LIMITED,HYDERABAD vs. DY. COMMISSIONER OF INCOME TAX, CIRCLE-1(2), HYDERABAD

O R D E R PER BENCH :

This assessee’s appeal for AY.2012-13 arises from the CIT(A)-1, Hyderabad’s order dated 11-01-2019 passed in appeal No.0009/17-18/DCIT, Circle-1(2)/CIT(A)-1/Hyd/18-19 involving proceedings u/s.143(3) r.w.s.263 of the Income Tax Act, 1961 [in short, ‘the Act’]. Heard both the parties. Case file perused.

“7.1 In our considered view, the assessee ought to have submitted relevant information before the AO to substantiate that the income earned on leasing out the properties is assessable to tax under the head “property income”. The AO had not indicated that he has actually called for any information to seek clarification as to whether the impugned income is assessable under the head “income from house property” or under the head “business income”. Ld. Counsel relied upon several cases to contend that income derived by assessee company from tenants of shops and stalls, under such circumstances, is assessable to tax under the head “income from house property” and it could not be altered merely because assessee company has been conferred with the object of setting up and developing landed properties (East India Housing and Land Development Trust Ltd., [1961] 42 ITR 49 (SC) ). However, the fact remains that this can be settled only when the AO applies his mind to the issue. In the backdrop of the available rulings of the Hon’ble Supreme Court, as rightly pointed out by the CIT, the Hon’ble Supreme Court in the recent past observed (M/s Rayala Corporation Pvt. Ltd. Vs. ACIT, 386 ITR 500) that in the event of leasing out property by a company, such income should be treated as its business income. Similar view has taken in the case of Chennai Properties & Investments Ltd. Vs. CIT (373 ITR 673). Since such matters have to be considered by analysing under broader aspects of law by referring to the facts of each case, it is the duty of the AO to have obtained the relevant information, but, the record does not indicate that the AO applied his mind. Under these circumstances, we are of the view that the case law relied upon by the assessee (Malabar Industrial Co. Ltd., 243 ITR 83 (SC) and other such cases taking a similar view) have no application to the instant case; in the aforecited cases, only AO has taken a specific stand upon application of mind, it is one of the views possible in the circumstances and those case law cannot be applied where the AO has not applied his mind. Having regard to the circumstances and for the detailed reasoning given by the revisional authority, we are of the view that the order passed by the AO is erroneous and prejudicial to the interests of revenue. However, in our considered view, the issue as to whether the said income is assessable under the head “income from house property” or “income from business” has to be considered in the backdrop of the case law on the issue and therefore, the matter deserves to be set aside to the file of the AO instead of directing the AO to treat the income as income from business. Accordingly, we modify the order of revisional authority and direct the AO to reconsider the matter in accordance with law by properly analysing the facts and consider the issue on the touchstone of the case law available on the issue of income earned by a company by leasing out the properties. Accordingly, we modify the order of the revisional authority, though in principle, we agree that it is a fit case of invocation of section 263”.

Order pronounced in the open court on 4th February, 2021