Rental income from properties should be classified as business income when leasing is the primary business activity of the assessee.

JUDGMENT :

(Per G. S. Kulkarni, J.)

1. This batch of appeals under Section 260A of the Income Tax Act 1961, filed by the common appellant are directed against orders passed by the Income Tax Appellate Tribunal (for short ‘the Tribunal’). The question of law which arises for consideration in these appeals, is whether the rent income derived by the appellant (for short ‘the assessee’) from its properties was assessable under the head ‘Income from house property’ or as claimed by the assessee under the head ‘Income from Profits and Gains of Profession or Business’.

2. The nine assessment years in question relevant to each of these appeals and the date of the impugned orders passed by the Tribunal are as follows:-

3. The facts in relation to each of the aforesaid period not being different, for convenience we refer to the facts as set out in the lead appeal [Income Tax Appeal No.685 of 2007].

4. The assessee was incorporated in the year 1983 under the Companies Act, 1956, with the main object to carry on the business of leasing of immovable properties including land and buildings, plant and machinery etc. as discernible from its memorandum of association, a copy of which is part of the paper-book.

5. It is assessee’s case that since inception, the assessee is engaged in the business of purchasing and renting properties, as also the entire income of the assessee is based on the income received from leasing its properties. It had no other source of income. It is stated that since 1989 till date, the assessee has leased about 85 properties. The business model of the assessee is stated to be such, that it obtains loan from financial institutions for the purchase of properties, it purchases properties and then provides the same on lease. The lease income is thus the only income of the assessee.

6. The assessee contended that from the year 1983 to 1989, its lease income as derived from its properties was assessed by the respondents under the head “Income from Profits and Gains of Profession or Business”.

7. For the Assessment Year 1989-90, the assessee filed its return of income under Section 139 of the Income Tax Act, 1961 (for short “the Act”), under the head “income from house property”. On 30 January 1992, the Assessing Officer issued a notice to the assessee under Section 143(2) and 142(1) of the Act to show cause as to why the annual letting value of the leased premises should not be the higher figure. The assessee responded to the said show cause notice, by its letter dated 17 February 1992, disputing such contentions (although such issue is not the subject matter of the lead appeal). On 30 March 1992 the Assessing Officer passed an Assessment Order for assessment year 1989-90 (relevant to the lead appeal) under Section 143(3) of the Act whereby the Assessing Officer inter alia calculated the annual value of the property on the basis of gro