By TIOL News Service

NEW DELHI, AUG 03, 2016: THE issue is - Whether rental income received from business assets is business income and not income from house property. YES is the answer.

Facts of the case

The assessee, was a partnership firm engaged in the business of warehousing. It filed return for relevant AY, declaring certain amount of rental income as business income in its profit and loss account. Assessment was completed. Re-assessment process was initiated as AO believed that rental income should be treated as "income from house property". Assessee filed appeal before CIT(A), who also passed order in favour of Revenue. Aggrieved assessee filed appeal before Tribunal and submitted that it took a loan from Bank for construction of go down and capitalized the same in its books. It had considered the said go down as its business assets and claimed depreciation on the same. The assessment originally framed was reopened only on the premises that the income from letting of go down should have been assessed under the head "house property" instead of "business income". The assessee submitted that in the original assessment proceedings, the AO had consciously accepted the said income as business income. The recorded reasons to believe nowhere reflect that there was failure on the part of the assessee in fully and truly disclosing all material facts. Thus, the reopening was not valid as it was based on change of opinion only.

After hearing parties, Tribunal held that,

++ we find that the contention of the assessee that it no other business than letting out the warehouse has not been rebutted by the Revenue and under almost similar facts the jurisdictional Allahabad High Court in the case of CIT vs. Goel Builders has been pleased to decide the issue in favour of the assessee. In that case also, the assessee had earned income from letting of a commercial assets and the High Court held that the income derived from letting of commercial assets will constitute business income and not income from house property. The CIT(A) in the present case before us has followed the decision of Madras High Court in the case of CIT vs. Chennai Properties & Investments Ltd. – 266 ITR 685 (Mad.) to come to the conclusion that the rental income from letting out warehouse in the present case was not business income as claimed by the assessee but it was income from house property. The said decision has been reversed by the Supreme Court reported in 2015-TIOL-93-SC-IT holding that income derived from letting of a business assets will constitute business income. In that case also, the assets let out was a business asset and the assessee had earned its entire income from said letting out and there was no other income as in the present case before us. We are thus of the view that the authorities below in the present case were not justified in holding the rental income received from the business assets as income from house property. Respectfully following the ratios laid down in the above cited decisions by the AR direct the Assessing Officer to accept the claimed rental income from warehouse as business income. The grounds questioning the validity of the orders of the authorities below in treating the claimed business income as income from house property are thus allowed. In view of this finding on the merits of the case, the validity of initiation of reopening proceedings questioned by the Assessing Officer during the hearing of the present appeal does not require adjudication as having become academic only.

(See 2016-TIOL-1356-ITAT-DEL)