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Facts
The assessee, H&M Housing Finance and Leasing Private Limited, consistently declared rental income from its property (Raheja Woods, Pune) under "Income from House Property" from AY 2005-06, which the Revenue accepted in prior and subsequent years. For AY 2017-18, the Assessing Officer re-characterized this rental income as "Profits and Gains of Business or Profession" based on the Chennai Properties judgment, which was upheld by the Ld. CIT(A). This re-characterization led to the denial of deductions under Section 24(a) and issues with depreciation claims.
Held
The Tribunal held that there was no material change in the assessee's facts or business objects to justify deviating from the consistent treatment of rental income as "Income from House Property" that had been accepted in all previous and subsequent assessment years. Distinguishing the Chennai Properties and Raj Dadarkar judgments, the Tribunal found that the assessee engaged in diverse activities beyond mere property leasing. Therefore, the Tribunal set aside the Ld. CIT(A)'s order and directed the AO to assess the rental income under the head "Income from House Property."
Key Issues
The primary issue was the re-characterization of rental income from 'Income from House Property' to 'Profits and Gains of Business or Profession' by the Assessing Officer, and the consequential impact on deductions and depreciation claims for AY 2017-18. Another issue involved the determination of the correct assessment year for granting depreciation.
Sections Cited
14, 22, 23, 24, 24(a), 28(1), 32, 6, 9, 11, 12
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Income Tax Appellate Tribunal, MUMBAI “E” BENCH : MUMBAI
Before: SHRI VIKRAM SINGH YADAV & SHRI RAJ KUMAR CHAUHAN
Date of Hearing : 01-08-2025 Date of Pronouncement : 15-09-2025 O R D E R PER VIKRAM SINGH YADAV, A.M :
This is an appeal filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (NFAC), Delhi [„Ld.CIT(A)‟], dated 07-02-2024, pertaining to Assessment Year (AY) 2017-18, wherein the assessee has taken the following grounds of appeal: “1) The appellant submits that the Learned Commissioner of Income-Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi ["CIT(A)"] erred in upholding the action of the Deputy Commissioner of Income Tax,
Circle 7 (1)(2), (hereinafter referred to as the "Assessing Officer") in re- characterizing the rental income amounting to Rs.10,62,45,888/- from letting out the property situated at Pune, (hereinafter referred to as the property) under the head "Profit & gains of business or profession" as against income offered by the appellant under the head "Income from house property". 2) The CIT(A) erred in upholding the action of Assessing Officer in taking a contradictory stand for the year under consideration ignoring the fact that the appellant has been consistently offering rental income under the head "Income from house property" for several assessment years and the Revenue has accepted the same. 3) The CIT(A) erred in upholding the action of the Assessing Officer in granting depreciation from assessment year 2014-15 as against assessment year 2005-06 being the first assessment year from which the depreciation ought to be granted. 4) The appellant submits that the Assessing Officer be directed: a) to tax rental income under head "Income from House Property" as against taxing the same under head "Profits and Gains of Business or Profession"; b) without prejudice to what has been stated above, if above contention is not acceptable, since the income is taxed under the head "Profits and Gains of Business or Profession" for the first time in the assessment year under appeal, to grant depreciation based on W.D.V of assessment year 2005-06 and not from assessment year 2014-15; and to modify the assessment in accordance with the provisions of the Act. 5) Each of the above grounds of appeal are independent and without prejudice to each other. 6) The appellant craves liberty to add, to alter and/or amend the grounds of appeal as and when given.”
During the course of hearing, the Ld. AR submitted that the assessee-company was incorporated under the Companies Act, 1956 on 08-03-2004 to inter-alia carry on the business of leasing and finance as per the object clause in the Memorandum of Association. It was submitted that the assessee acquired a property known as Raheja Woods in Pune comprising of the ground floor and six upper office levels with aggregate chargeable area equivalent to 1,58,104 sq.ft. The said property has been let out to HSBC Software Development Private Limited under a lease agreement dated 31-03-2017 for a term of nine years commencing from 01-09-2015, as per clauses 2.2 to 2.4 of the Agreement. Further, clause 2.7(iii) inter-alia stipulates that the lessee bears all utility charges and maintenance costs of the leased premises indicating a pure leasing arrangement. Based thereon, it was submitted that, the present is a case of simplicitor letting out of building including land appurtenant thereto without providing any other service or facilities to the Lessee.
It was further submitted that for the AYs. 2005-06 and 2006-07, the assessee received lease rent and an amount from the Lessee towards use of amenities which was offered under the head “income from house property”. The AO accepted the lease rent as income from house property, however, the amount received for amenities was reclassified as income from other sources and not income from house property which position had not been accepted by the Ld.CIT(A), ruling that the amenities were integral to the property let out and could not have been provided without letting out the space. It was also submitted that on appeal by the Revenue, the Tribunal thereafter upheld the decision of the ld CIT(A), confirming the amount received towards amenities also as income from house property. The said appellate order of the Tribunal has since become final in the absence of any challenge by the Income tax department before the High Court.
It was further submitted that from AYs.2007-08 up to AY. 2023-24, the Revenue has accepted the characterization of the rental income and its assessment under the head income from house property. Therefore, except for the year under consideration, i.e., AY.2017-18, in all the earlier as well as the later years, the rental income has been assessed to tax as income from house property. In this connection, the assessee has filed an affidavit, confirming the above and the same is furnished vide letter dated 28-09- 2024.
It was further submitted that during the year under consideration, the assessee received income by way of lease rent of Rs. 10,62,45,888/- interest on loan of Rs.20,27,762/-, interest on debentures of Rs.22,89,000/-, gain on sale of shares/mutual funds of Rs.38,98,794/- and share of profit from firm of Rs.34,086/-, which is evident from page 54 of the profit and loss account and page 66 being the schedule of other income. Therefore, as per the object of the assessee in the MOA, it is carrying on the activity of leasing of property, financing and also investing in shares of companies and units of mutual funds. Emphasis has been laid on these facts as, as explained hereafter in the case of Chennai Properties and Investment Private Limited of the Hon‟ble Apex Court, which was concerned with a case where the company had been formed for the purposes of acquiring specific properties, which find a mention in its objects and the only income that it had realised was from leasing out of such properties. It did not carry out any activity other than leasing and consequently the only source of income was from the same. It was also submitted that the assessee filed its return of income for the AY.2017-18 on 28-10-2017, declaring total income of Rs.8,05,56,540/- and classified rental income as income from house property. However, the AO re- characterized the rental income under the head profits and gains of business, based on the judgment of the Hon'ble Apex Court in the case of Chennai Properties and Investment Limited (Supra), which, as explained hereafter, has no application to its case. As a result, the AO has denied the assessee's claim of deduction u/s.24(a) of the Act, but allowed depreciation as per section 32. The AO proceeded on the basis that such depreciation has been allowed from the FY.2004-05 and thereby reduced such allowance and the depreciation allowance was accordingly determined by the AO.
The assessee thereafter carried the matter in appeal before the Ld.CIT(A), which came to be disposed-off by his appellate order dated 07-02-2024, wherein, in so far as characterization of the rental income and the head of income under which it is to be assessed is concerned, following the judgment of the Hon‟ble Apex Court in the case of Chennai Properties and Investment Limited, the ld CIT(A) has upheld the assessment as profits and gains of business. With respect to the alternative ground of written down value on which depreciation is to be allowed for the year under consideration, the Ld.CIT(A) has held that “the building has been put to use since the year 2005-06 and the written down value has to be computed after allowing depreciation commencing from the said year.” Aggrieved by the aforesaid findings of the Ld.CIT(A), the assessee has filed the present appeal before the Tribunal.
In light of aforesaid factual matrix, it was submitted by the ld AR that in so far as the head of income for assessment of lease rent, it was submitted that a bare perusal of section 14 of the Act shows that all incomes for the purpose of charge and computation has to be classified under one of the specified head viz., salaries, income from house property, profits and gains of business or profession, capital gains or income from other sources. Each of the heads, are mutually exclusive and provides for the principles to be applied for computation of income. It was submitted that, income has to be assessed as per the principles applicable to the respective head of income. In the present case, the assessee had earned rental income from letting out of the Raheja Woods property. Section 22 of the Act dealing with assessment of annual value of a property under the head income from house property provides that, the said section will apply where the assessee is the owner of any property consisting of buildings or land appurtenant thereto. The only exception where the said provision is not applicable is where the property has been occupied by the assessee for the purposes of any business or profession carried by it the profits of which is chargeable to income tax. Therefore, the rule is that annual value of every property consisting of building or land appurtenant thereto and owned by the assessee has to be assessed under the head income from house property unless the assessee's case falls within the exception as specified. In the present case, it is an admitted position that, the said property has been owned by the assessee, and it is entirely leased, it does not fall under the exception.
The Ld.AR relied on judgment of the Hon'ble Supreme Court in the case of East India Housing and Land Development Trust Limited vs. CIT 42 ITR 49, where the Hon‟ble Supreme Court addressed the issue of rental income. In that case, the assessee, a private company incorporated with the object to buy and develop lands and property and to promote and develop markets, generated income by leasing shops and stalls. In that case, the company argued that the rental income should be assessed as profits and gains of business while the Revenue contended it should fall under the head income from house property. The Hon‟ble Supreme Court emphasized that income must be classified under the specific head it falls under, as per Section 6 of the Income Tax Act. The Hon‟ble Supreme Court concluded that “the income from shops and stalls is income received from property and falls under the specific head described in section 9 and taxed accordingly”. This judgment, supported by earlier cases like United Commercial Bank Ltd. vs. CIT (32 ITR 688) and others, and aligns with rulings from House of Lords in the case of Fry v. Salisbury House Estates Co. Ltd. (1930) AC 432 and Hon‟ble Calcutta High Court in Commercial Properties Limited vs. CIT (1928) ILR 55 and prayed before the Bench that the assessee's case is covered by the same.
It was further submitted that both the AO and the Ld.CIT(A) have relied upon the judgment of the Hon‟ble Supreme Court in the case of Chennai Properties and Investment Limited vs. CIT (supra) for the proposition that the rental income in the present case, should be assessed as profits and gains of business. However, this case differs fundamentally from the present one. In this regard, it was submitted that, they have overlooked the fundamental point of distinction between that case and the present one, being that the company in that was formed with the object to acquire and hold the properties known as 'Chennai House' and 'Firhavin Estate' and it had earned income only from those two properties and nothing else, vide paragraphs 5 and 6 of the said judgment. The Hon‟ble Supreme Court emphasized that the nature of income does not change simply because it is earned by a company with a specific objective, as clarified in paragraph 7 of East India Housing and Land Development Trust (page 72) and in paragraph 10 of Sultan Brothers (page 72). In paragraph 11 (page 73), the reference to "the circumstances of the present case" referred to at the beginning of the judgment would be the fact that the only income earned by that company was from letting out of properties. As stated hereinabove, the assessee has earned rental income, interest on loans and advances, interest on debentures, profits from investment in shares and units of mutual funds and share of profit from firm. Further, out of the total assets reflected in the Balance sheet of Rs.67,23,35,590/- the investment in building giving rise to rental income stood at Rs.16,39,11,330/- with the non-current investments at Rs.20,50,50,587/- current investment at Rs.29,36,74,652/- and loans and advances at Rs.63,26,879/- which at the beginning of the year stood at Rs.9,34,39,390/-. Therefore, not only the composition of income but also the composition of assets held by the assessee shows that it is engaged in diverse activities and earning income from various sources. In such circumstances, it was submitted that, the judgment of the Hon'ble Apex Court has no application to its case.
With a view to emphasize on the point of distinction between the case of Chennai Properties and Investment Pvt. Ltd. (supra) and the present case, the Ld.AR also relied on the judgment of the Hon'ble Apex Court in the case of Raj Dadarkar and Associates vs. ACIT 394 ITR 592. In the said case, the assessee, who developed a market and constructed 95 shops and 30 stalls urged that the rental income generated should be assessed as profits and gains of business for which reliance was placed on the object clause in the partnership deed, vide paragraph 8 at pages 78 and 79. However, the Hon‟ble Supreme Court clarified that an entry in the object clause is not determinative of the head under which an income is to be assessed. Lastly, in paragraph 19 at pages 81 and 82 thereof it has been clarified that the earlier judgment in the case of Chennai Properties and Investment Limited was distinguishable as, in that case, the Hon‟ble Court had found "that the entire income of the appellant was through letting out of the two properties it owned and there was no other income of the assessee except the income from letting out of the said properties, which was the business of the assessee. Based thereon and considering the facts as referred to in greater detailed hereinabove, it was submitted that, in the present case the Revenue is not justified in assessing the rental income as profits and gains of business.
11. Apart from the above, the Ld.AR also placed reliance on the judgment of the Hon‟ble Bombay High Court in the case of PCIT vs Banzai Estates Pvt. Ltd. (2024) 165 taxman.com 412. In that case, the assessee was urging that income from letting out of the property be assessed as income from house property, while it was the case of the Revenue that it should be assessed as profits and gains of business for which sole reliance was placed on the aforesaid judgment of the Hon‟ble Apex Court in the case of Chennai Properties and Investment Limited (supra), vide paragraph 8 of the judgment. In paragraphs 12 to 14 (pages 86 and 87) of the said judgment, the Hon‟ble Bombay High Court distinguished the Chennai Properties judgment, emphasizing that the facts were different, as in that case, the assessee had treated the income as business income. In contrast, the assessee in the present case has consistently treated the rental income as income from house property, and the Revenue has accepted this position. In view thereof, it was submitted that, on both the principles i.e., the Revenue has consistently accepted in the assessee's case that the rental income is to be assessed as income from house property and that the judgment of the Hon'ble Apex Court in the case of Chennai Properties and Investment Ltd., (supra) would apply to a case where the assessee is urging that such income should be assessed as profits and gains would apply to the present case, the Ld.AR submitted that Grounds No.1 and 2 of the assessee‟s appeal be allowed, which would render the alternative ground raised as Ground No.3 as academic and infructuous.
12. Per contra, the Ld. DR is heard, who has relied on the order passed by the AO as well as that of the Ld.CIT(A). In this connection, Ld.DR drawn our reference to the findings of the Ld.CIT(A), which are contained in paragraph Nos. 7.3 to 7.13 of the impugned order which read as under:
“7.3 Let us first examine grounds of appeal
No.3, with is with regard to characterizing the income from house property admitted by the appellant in its return of income as income from profit & gains from business or profession in the assessment order appealed against. In this regard, the contention of the appellant is that the assessing officer erred in treating the rental income of Rs. 10,62,45,888/- received by the appellant as income under the head 'profit & gains of business or profession', when the appellant had been consistently admitting the same income under the head 'income from house property' since the assessment year 2004-05, which was accepted by the assessing officer in earlier assessment years. 7.4 In the written submissions made by the appellant, it has been stated that the appellant was the owner of property known as 'Raheja Woods,, situated at kalyani Nagar, Pune. The appellant owns property and the same continues to be let out, to M/s HSBC Sofware Development India Pvt Ltd. The appellant had offered the rental income thereof under the head 'Income from House property. It is further submitted by the appellant that as long as the ownership of the building vests with the appellant, the rental income received as per the leave & license agreement ought to be assessed as income from house property. The appellant submits that it satisfied all the conditions namely, (1) Property comprises of building (2) The appellant was the owner of the property; (3) The office premises in the building was not used by the appellant for its own business purpose; and (4) The appellant was receiving lease rentals. Therefore, the appellant submits that it had correctly officer the rental income under the head Income from house property'. 7.5 In addition to the above, the appellant relied upon the decision of the Hon'ble Supreme Court in the case of Raj Dadarkar & Associates Vs. ACIT, CC-46 [(2017) 394 ITR 592 (SC)]. However, the case law on which the appellant relied upon is distinguishable to the facts of the instant case for the reason that in the case law on which the appellant relied upon, Mr. Raj Dadarkar is not the owner of the property. But has taken the property on lease and subleased it. However, in the instant case, the appellant was the owner of the property and business of leasing house property was the main object of the appellant. In the Memorandum of Association of the appellant also it has been mentioned that the main object of the appellant was to carry on the business of leasing & Finance of all types of housing properties, Buildings Premises, Shop, Shopping Mall, Officer, Godowns Factories, land Flats, Apartments, bungalow. The relevant part of the Memorandum of Association' is affixed here as under: 7.6 As seen from Points IIIA(1) and IIIA(2) of Memorandum of Association, it is clearly mentioned that the main object of the company was to carry on the business of leasing& Finance of all types of housing properties, Buildings, Premises, Shop, Shopping Mall, Offices, Godowns, Factories, Land Flats, Apartments, Bungalow required for residential or commercial purpose. This declaration of objects of the appellant in the Memorandum of Association proves that the appellant was engaged in systematic or organized activity of providing service to occupiers of the property taken on lease. Therefore, it proves that the appellant was engaged in the business of letting out properties as its business activity and accordingly, the contention of the appellant that the assessing officer erred in characterizing the income as 'profit & gains from business or profession' is not acceptable. 7.7 In addition to the above, let us examine the decision of the Hon'ble Supreme Court of India in the case of Chennai Properties & Investments itd V. Commissioner of Income Tax, Central-III, Tamil Nadu in [2015] 56 taxmann.com 456(SC) dated April 9, 2015. The head note of the same is reproduced here as under: "Section 28(1), read with section 22, of the Income Tax Act, 1961 Business Income Chargeable as (Letting out of Properties) - Whether where in terms of memorandum of association, main object of assesse-company was to acquire properties and earn income by letting out same, said income was to be brought to tax as business income and not Income from House Property - held, Yes [Paras 5 & 11] [in favour of assesse]" 7.8 Para-5 & Para-11 of the aforementioned order are reproduced here as under 5. The Memorandum of Association of the appellant-company which is placed on record mentions main objects as well as reidental or ancilary objects in clause III. (A) and (B) respectively. The main object of the appellant company is to acquire and hold the property known as "Chennai House and Firhavin Estate" both in Chennai and to let out those properties as well as make advances upon the security of lands and buildings or other properties or any interest therein, What we emphasize is that holding the aforesaid properties and earning income by letting out those properties is the main objective of the company. It may further be recorded that in the return that was filed, entire income which accrued and was assessed in the said return was from letting out of these properties. It is so recorded and accepted by the assessing officer him self in his order.
We are conscious of the aforesaid dicta laid down in the Constitution Bench 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 assesse. 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 Appeallte Tribunal. No order as to costs."
7.9. In view of the above discussion and also respectfully following the ratio of the above case law, I do not find any reason to interfere in the order of the assessing officer in assessing the Income of the appellant under the head 'Profit & Gains of Business or Profession. Accordingly, this grounds of appeal
No.3a of the appellant is required to be dismissed. 7.10 In respect of grounds of appeal Nos. 3ba & 3c, it is contended by the appellant, that the appellant had been consistently admitting the income from the said property under the head Income from House Property', but not as 'profit & gains from business or profession' and the same was accepted by the assessing officer since the assessment year 2004-05. Therefore, it requests to admit the same policy of admission of income under the head 'Income from House Property for the assessment year 2017-18 also. The contention of the appellant in this regard is not acceptable for the reason that when it is dealt with facts of the case, the principle of taking identical stand for the year under consideration as the stand taken for preceding years is not applicable because on applying ratio of Hon'ble Supreme Court's decision in the case of Chennai Properties & Investments Ltd V. Commissioner of Income Tax, Centre-III, it is held that the income from lease rentals is to be treated as 'Income from Business or Profession'. Therefore, the contentions of the appellant raised in these grounds of appeal Nos. 3b & 3c are also accordingly not acceptable. 7.11 In respect of grounds of appeal No.4, it is contended by the appellant that the depreciation granted depreciation for the assessment year 2014-15 as against assessment year 2005-06 being the first year from which the depreciation ought to be granted. In this regard, the contention of the appellant is not acceptable for the reason that though the income of the appellant was categorized as "Profit & Gains of Business or Profession' for the first time, it cannot be denied that the asset was put to use since the assessment year 2005-06 and the written down value of the asset should be allowed after allowing depreciation commencing from the assessment year 2005-06. Therefore, the contention of the appellant to allow compute the allowable depreciation treating the asset put to use for the first time during the year under consideration is not acceptable. 7.12 Further, as seen from the assessment order, it is noticed that the assessing officer allowed depreciation relevant to the assessment year 2014-15 instead of allowable depreciation for the assessment year 2017- 18 as computed in the table furnished in the assessment order. Therefore, the assessing officer is directed to allow correct allowable depreciation for AY 2017
18. (the impugned assessment year) while giving consequential effect to this order.
7.13 In respect of grounds of appeal No. 5 the contention of the appellant is that the assessing officer while computing the income under the head 'Profits & Gains of business or profession', the assessing officer did not grant deduction in respect of municipal taxes and insurance paid amounting to Rs.17,01,686/- and Rs.1.90.477/-. In this regard, the assessing officer is directed to allow the same after examining the documentary evidence with regard to the above deductions claimed by the appellant. Therefore, this grounds of appeal No.5 is allowed for statistical purpose.”
13. We have heard the rival contentions and perused the material available on record. The relevant facts under consideration are that the assessee is the owner of a property known as 'Raheja Woods, situated at Kalyani Nagar, Pune comprising of the ground floor and six upper office levels with aggregate area of 1,58,104 sq.ft. which has been let out to HSBC Software Development India Pvt Ltd. The said property had been let out to HSBC Software Development India Pvt Ltd since assessment year 2005-06 and rental income has consistently been offered to tax by the assessee in its return of income under the head 'Income from House property. The said treatment of rental income has been accepted by the AO all through the earlier assessment years right from AY.2005-06 and in the subsequent assessment years as recent as AY.2023-24 except for the assessment year under consideration. To buttress the said factual position, the assessee has also filed an affidavit stating that except for the year under consideration, i.e., AY.2017-18, in all the earlier as well as the later years, the rental income has been assessed to tax as income from house property and the contents of the affidavit so filed are not disputed before us by the Revenue. For the year under consideration, the assessee continued with its past practice and offered the rental income under the head “Income from house property”. The Assessing officer has however not accepted the said treatment and brought the rental income under the head “Income from business/profession” by placing reliance on the decision of the Hon‟ble Supreme Court in case of Chennai Properties (supra) which has been confirmed by the Ld.CIT(A). Evidently, both the AO as well as Ld. CIT(A) except for placing reliance on the decision of the Hon‟ble Supreme Court has not disputed the consistent position so taken by the assessee in offering rental income all through these years under the head “Income from House property” and which has been accepted as such by the Revenue. At this stage, we refer to the decision of the Hon‟ble Bombay High Court in the case of Banzai Estates (P.) Ltd. (Supra) wherein the Hon‟ble Bombay High Court has referred to the decision of the Hon‟ble Supreme Court in case of Radhasoami Satsang and Bharat Sanchar Nigam Ltd. and following its earlier decision in case of Quest Investment Advisors (P.) Ltd. has upheld the principle of consistency and held that such principles are appropriately applied by the Tribunal and the relevant findings read as under: “11. Section 22 of the Act, making a provision for "income from house property" ordains that the "annual value" of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried out by him, the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head "income from house property". Section 23 provides the manner in which "annual value" would be determined. Section 24 provides for deductions from income from house property.
In the present case, the assessee has availed of deduction under Section 24, which appears to be one of the reasons that the Assessing Officer thought it appropriate to disallow, what was accepted in the earlier three Assessment Years 2005-06, 2006-07 and 2007-08. On a bare reading of Section 22, we find that in the present case, the basic requirements for the assessee to consider the income as received from MBC Tower property as "income from house property" stands clearly satisfied, as the assessee derives income from house property "owned by it" Even if the assessee is to be in the business of letting or subletting of properties and deriving income therefrom, there is no embargo on the assessee from accounting the income received by it, from the property "owned by assessee" (MBC Tower) as "income from house property" and at the same time. categorizing the rental income from other properties not of assessee's ownership under the head income from business. The Revenue's reading of Section 22 differently to those who are in the business of letting out properties as in the present case namely in combination of a property of assessee's ownership and also to have income from properties which are not of assessee's ownership from which rental income is derived, would amount to reading something into Section 22, than what the provision actually ordains. The legislature does not carve out any such categorization/exception. Thus, we do not find that the Revenue is correct in its contention that, in the circumstances in hand, a straight jacket formula is required to be applied, namely, that Section 22 is unavailable to an assessee, who is in the business of letting out properties.
In the prior Assessment Years, the Assessing Officer had accepted the assessee's treatment of such income as an income from house property, which is one of the factors which has weighed with the Tribunal to allow the Appeals filed by the assessee, on the principle of consistency. We are of the opinion that such principles are appropriately applied by the Tribunal. The Supreme Court has held it to be a settled principle of law that although strictly speaking res judicata does not apply to income tax proceedings, and as such, what is decided in one year may not apply in the following year. Thus, when a fundamental aspect permeating through different assessment years has been treated in one way or the other and that has been allowed to continue such position ought not be changed without any new fact requiring such a direction. (See: Radhasoami Satsang v. Commissioner of Income-tax [1991160 Тахтап 248/193 ITR 321/(1992) 1 SCC 659 (SC). The decision of the Supreme Court in Radhasoami Satsang (supra) has been referred in a decision of a recent origin in Godrej & Boyce Manufacturing Company Ltd. v. Deputy Commissioner of Income-tax (2017) 81 taxmann.com 111/247 Taxman 361/394 ITR 449/201717 SCC 421.
We may also usefully refer to a decision of this Court in the case of Principal Commissioner of Income-tax v. Quest Investment Advisors (P.) Ltd. [2018) 96 taxmann.com 157/257 Taxman 211/409 ITR 545 (Bombay). in which this Court referring to the decision of the Supreme Court in Bharat Sanchar Nigam Ltd. v. Union of India [2006] 282 ITR 273 (SC) which followed the decision in Radhasoami Satsang (supra) accepted the rule of consistency. The following observations of the Supreme Court are required to be noted:- "15. The question in Radhasoami Satsang v. Commissioner of Income-tax [1992] 1 SCC 659/Radhasoami Satsangv. Commissioner of Income-tax (1991) 60 Taxman 248/193 ITR 321 (SC): [19911.60 Taxman 248/193 ITR 321 (SC) (also cited by the State of U. P. was whether the Tribunal was bound by an earlier decision in respect of an earlier assessment year that the income derived by the Radhasoami Satsang, a religious institution, was entitled to exemption under sections 11 and 12 of the Income-tax Act, 1961. The court said: "We are aware of the fact that, strictly speaking, res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year, unless there was any material change justifying the Revenue to take a different view of the matter."
15. Insofar as Revenue's reliance on the decision in Chennai Properties & Investments Ltd (supra) is concerned, the same is not well founded for the reason that in such case, the assessee itself had chosen to account such income derived by the assessee, as an income under the head "income from business". This was a case where the Revenue was of the contrary view, namely that such income ought not to be allowed as an income from business and must be treated as income from house property. The Supreme Court thus held that the income was rightly disclosed by the assessee under the head gains from business, and it was not correct for the High Court to hold that it needs to be treated as income from house property. The situation being quite different in the said case, the same would not be applicable in the present facts. This is not a case where the assessee itself had taken a position that such income be treated as income from business.
16. In the light of the above discussion, we are of considered opinion that the Appeals do not give rise to any substantial question of law.”
14. Applying the legal proposition so laid down in the instant case, we find that nothing has been brought on record by the Revenue as to any material change in the transaction entered into by the assessee with the tenant, HSBC Software Development India Pvt. Ltd. except for the contract renewal or for that matter, any material change in the business objects of the assessee company of leasing, financing and investing which warrants reclassifying the lease rental income from one head of income to another head of income for the impugned assessment year as compared to earlier years. The decision of the Hon‟ble Supreme Court in case of Chennai Properties was pronounced on 09-04-2015 and even thereafter, we find that the assessment proceedings were completed for other assessment years and the Assessing officer continued to accept the earlier settled position and didn‟t take a different position. Even looking at the facts of the said case in case of Chennai Properties, we find that the said decision doesn‟t support the case of the Revenue as it was rendered in the context of its peculiar facts where the entire income of the appellant was through letting out of two properties and there were no other income except the income from letting out. The Hon‟ble Supreme Court in its subsequent decision in case of Raj Dadarkar and Associates (supra) has taken note of these distinguishing facts. In the instant case as well, we find that the assessee has not just earned lease rental income besides that, it has earned interest on loans and advances, interest on debentures, profits from investment in shares and units of mutual funds and share of profit in a firm as evident from its audited financial statements placed on record. Therefore, as held by the Courts, where the fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by accepting the said position, it would not be at all appropriate to allow the position to be changed in a subsequent year, unless there was any material change justifying the Revenue to take a different view of the matter. In the instant case, as we have noted above, there is no material change in the facts and circumstances of the case and therefore, we are not inclined to allow the Revenue to deviate from a position which has been accepted consistently in the earlier and subsequent years. Therefore, respectfully following the decision of the Hon‟ble Bombay High Court in case of Banzai Estates (P.) Ltd. (supra), we set aside the order of the Ld.CIT(A) and direct the AO to treat and accept lease rental income under the head „Income from house property” as done by the assessee in its return of income.
In the result, ground No. 1 and 2 of the assessee‟s appeal is allowed. In view thereof, Ground No. 3 has become academic and dismissed as infructuous.
In the result, appeal of the assessee is allowed.