GLOBAL PERSPECTIVES LTD.,GURGAON vs. DCIT, CIRCLE-1(1), GURGAON

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ITA 7800/DEL/2017Status: DisposedITAT Delhi21 December 2018AY 2014-155 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the rental income should be assessed as income from house property, following the principle of consistency due to prior years' assessments. The Tribunal noted that the Supreme Court's later decision in Raj Dardarkar & Associates clarified that the object clause alone is not determinative and each case must be examined on its facts.

What were the facts?

The assessee company earned rental income from a building leased to its holding company and sister concern, which it declared as income from house property. The AO re-characterized this income as business income, disallowing standard deduction, a view upheld by the CIT(A).

What were the issues?

Whether rental income from leased property should be treated as income from house property or business income, and the applicability of the principle of consistency in assessment.

Which sections of the Income-tax Act were involved?

Section 24(1)

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(3)Show list

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Income Tax Appellate Tribunal, DELHI BENCH “SMC” NEW DELHI

For Appellant: Adv & Sh

The aforesaid appeal has been filed by the assessee against the impugned order dated 27.10.2017 passed by Ld. CIT(A)-1, Gurgaon for the quantum of assessment passed under section 274 for the assessment year 2014-15. The assessee is mainly aggrieved by disallowance of standard deduction of Rs. 1,20,42,749/- under section 24(1) by re- characterizing the income from house property as business income.

2.

Facts in brief are that the assessee company is earning income from rent from a building leased out to its holding company and sister concern is into business of Real Estate business and related activities. The assessee has shown the rental income as income from house property. The AO has treated the said income as business income after applying the ratio of the Hon’ble Supreme Court in the case of Chennai Properties and Investment Limited vs. CIT 2015 373 ITR 673 and thereafter disallowed the standard deduction claimed under section 24(1). The learned CIT(A) too has confirmed the said addition. He has held that the ancillary objects of the assessee was to lease out business centres, commercial complex, residential complex, shopping arcades etc., and therefore, the contention of the assessee is that its objects does not include giving the property on rent is factually incorrect.

3.

Before us, the learned counsel submitted that in the earlier years, the income shown from the house property has been accepted by the AO and assessment passed under section 143(3) and therefore, as a matter of consistency different view could not have been taken. In support, he gave us the following chart:- S. Assessment Amount of Rent Status of Assessment No. Year (INR) 1. 2007-08 87,26,630 Allowed as house property income u/s 143(3) 2. 2008-09 3,49,06,518 Allowed as house property income u/s 143(3) 3. 2009-10 3,49,06,518 Allowed as house property income u/s 143(3) 4. 2010-11 3,49,06,518 Allowed as house property income u/s 143(3) 5. 2011-12 3,49,06,518 Allowed as house property income u/s 143(3)

6. 2012-13 3,49,06,518 Allowed as house property income u/s 143(3) 7. 2013-14 3,62,15,513 Allowed as house property income u/s 143(3) 8. 2014-15 4,01,42,496 Impugned AY, Taxed as business income 9. 2015-16 4,01,42,496 Allowed as house property income u/s 143(3)

4.

Apart from that, he submitted that now the decision of Chennai properties (supra) and Rayla Corporation Pvt. Ltd., vs. ACIT 2016 72 taxmann.com 149 has now been explained by the Hon’ble Supreme Court in the case of Raj Dardarkar & Associates vs. ACIT reported in 394 ITR 592, wherein the Hon’ble Supreme Court on an income from lease of shops held to be rental income assessable under the head income from house property. On the other hand, learned DR strongly relied upon the order of the AO and CIT(A).

5. From the facts as discussed above and the material referred to before us, it is seen that the assessee all throughout has been showing rental income from a building leased out to its sister concerned as income from house property and such a income has already been assessed in all the earlier years by the AO and the scrutiny proceedings under section 143(3). No material facts or circumstances which are different from the earlier years have been brought on record either by the AO or learned CIT (A) and therefore principle of consistency has to be followed. The sole basis for treating the rental income as business income is on account of the judgment of Hon’ble Supreme Court in the case of Chennai Properties and Rayla Corporation Pvt. Ltd. These two judgments have now been considered by the Hon’ble Supreme Court in the case of Raj Dardarkar & Associates (supra), wherein the Hon’ble Supreme Court held that mere object clause would not be the determining factor and observed that, whether the income is to be treated as income from business and the same has to be examined on the facts of the each case and the activities carried thereto. No facts have been brought on record that the assessee was carrying out any systematic activity of exporting commercial asset for earning of income albeit it is a case of pure lease of premises for rental income.

5.

Accordingly, I hold that rental income received by the assessee from the lease of the premises is to be assessed as income from house property and accordingly the assessee is liable for deduction of @ 30% under section 24(1). Appeal of the assessee is allowed.

6.

In the result, appeal of the assessee is allowed.

Order pronounced in the open court on 21st December, 2018.

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