Rental Income from let out of 80 properties – Whether Business Income or Income from house property – Issue before Bombay HC
The Bombay High Court recently delivered judgment in National Leasing Co. Ltd. vs. ACIT. The assessee owned and let out about 80 properties and earned rental income which was offered as business income. The AO treated the income as income from house property. The issue was decided in favour of the assessee by holding that the income be treated as business income.
Now, there are two distinct heads of income and the question is under which head must the income fall for chargeability to tax? Is the rental income profit and gain from business as defined under Section 28? Can it be so when there is a specific head of ‘income from house property’? Importantly, what sets the assesses’ case apart from those who have income from house property and have declared income under that head?
The assessee’s case inter alia seems to be that if there is an independent business, then the rental income earned from some other source may qualify as income from house property. However, if the assessee’s income is only rental income from leasing out property and that is the main activity of the assessee, it should be categorized as business income.
Running a business presupposes that there is some stock in trade. In the present case, the assessee’s properties may be assumed to be its stock in trade. Now, is income ‘derived’ from that stock in trade also business income when there is a specific head of taxation i.e. house property? If the stock was sold, the income realized would be business income. But anything derived from stock in trade would fall under another head.
In Maxopp, the Supreme Court was considering the applicability of Section 14A on inter alia investment held as stock in trade. It held that income derived i.e. dividend, from investments held as stock in trade was exempt and S.14A would be applicable. This in effect means that the dividend income was not to be treated as business income as it is a derivative and not income from business. On the other hand income from buying and selling of shares which are held as stock in trade would certainly constitute business income.
Similarly, can it be said that if the assessee was buying and selling property any income therefrom would constitute income from business, and if the assessee is leasing property to earn rental income, this income has been derived from that property and since there is a specific head of income to deal with such a situation the income cannot be income from business?
The Bombay HC 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.
The copy of the order is as under:
