If main is to carry on the business of leasing of immovable properties then resultant income is Business Income and not House Property Income: Bombay HC
The Bombay High Court (HC) in the case of National Leasing Limited (‘Assessee’) has held that the income derived from leasing of immovable properties should be categorized as ‘Income from Business’ and not ‘income from house property’ under the provisions of the Income Tax Act, 1961.
Key summary:
Assessee’s main objective, its memorandum of association was to carry on the business of leasing of immovable properties including land and buildings, plant and machinery etc.
Assessee’s entire income was based on the income from leasing its properties. Assessee had leased about 85 properties and the business model was to obtain a loan from financial institutions for the purchase of properties, and then provide the same on lease.
During the course of assessment, the tax officer treated the income from leasing of immovable properties as ‘income from house property’. Similarly, CIT(A) held the same view. On appeal before the Tribunal, it relied on the Supreme Court (‘SC’) decision of East India Housing and Land Development Trust Limited (‘East India Housing’) and held leasing income to be ‘income from house property’.
On further appeal, Bombay HC held that the leasing income should be categorized as ‘income from business’ basis the below arguments:
Assessee’s only source of income was derived from letting out its properties. Further, letting out properties was outlined as a main object in the Memorandum of Association (‘MOA’).
It was not the case that the business was of a nature that the income from house property was required to be treated as an incidental income, when the fact was that it was derived from the main business of letting out its properties.
There was certainly a difference between the two situations, firstly where the main object was to earn income from letting out properties, and secondly, where an assessee incidentally earns income from letting out its house properties, both these situations were totally distinct.
In the case of East India Housing and Land Development Trust Limited, SC had held rental income as ‘income from house property’, as letting out the property was not the main objective of East India Housing. However, such was not the facts in the current case.
Relied on the SC decision in the case of Chennai Properties & Investments Ltd, wherein it was held that if the main objective as per the MOA was to acquire, hold and lease out the properties, then the rental income derived from such properties shall be treated as ‘income from business’ and not ‘income from house property’.
Principles of consistency need to be followed, as the tax department themselves had rightly held the income as ‘income from business’ for a few other/ different financial years.
With the above, Bombay HC has concluded that income derived from leasing of immovable properties should be categorized as ‘income from business’ and not ‘income from house property’ under the provisions of the Income Tax Act, 1961.
The copy of the order is as under:
