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2022 Supreme(HP) 377
IN THE HIGH COURT OF HIMACHAL PRADESH AT SHIMLA
TARLOK SINGH CHAUHAN, VIRENDER SINGH, JJ.
Pr. Commissioner of Income Tax-1, Chandigarh - Appellant
Versus
M/s Noor Resorts Private Limited - Respondent
Income Tax Appeal No. 1 of 2022
Decided On : 22-08-2022
Advocate Appeared:
For the Appellant :Sh. Vinay Kuthiala, Senior Advocate with Sh. Diwan Singh Negi.
Point of Law: Where the assessee is a company whose main object of business is to acquire properties and to let out properties, the rental income received therefrom was taxable as “income from business” and not “income from house property”.
Headnote:
Income Tax Act - Section 143(1), 143(3), 40(a)(ia) and 263 - Condonation of delay – Business of renting of immovable properties – Assessment - Assessee had been engaged in business of renting of immovable properties and A.O. allowed income received from letting out of shops as business income. Later on, Revenue Audit Party has raised an objection that income derived from letting out of shops is not business income but income from house property - Court opinion that once property in question is used as business asset and exclusive business of assesses-company or firm is to earn income by way of rental or lease money, then such rental income can be treated only as “business income of assessee” and not as income from “house property”. (Para 16)
Finding of the court: A commercial asset is only an asset used in a business and nothing else, and business may be carried on with practically all things - On the basis of the inquiry that it was concluded that the rental income as shown by the assessee was considered to be “business income” as had been done in the preceding years since the inception of the business of the assessee. However, this finding was not agreed to by the Pr. CIT and the matter was again remitted back to the A.O - It is settled legal position with which we are duty bound to respectfully agree, more particularly, when we do not find any later and recent contrary view to the aforesaid legal position, no fault can be found with the order of the ITAT. Thus, we are clearly of the opinion that once the property in question is used as business asset and the exclusive business of the assesses-company or firm is to earn income by way of rental or lease money, then such rental income can be treated only as “business income of the assessee” and not as income from “house property”.
Result: Appeal dismissed
JUDGMENT :
OMP(M) No. 39 of 2022.
The appeal is deemed to be filed within time in view of the order passed by the Hon’ble Supreme Court. Therefore, this application seeking condonation of delay in filing the appeal is misconceived and dismissed as such.
OMP No.563 of 2022.
2. For the reasons stated in the application, the delay in re-filing the appeal after removing objections, is condoned. The application stands disposed of.
INCOME TAX APPEAL NO.1 OF 2022.
3. The facts giving rise to the instant appeal are that the assessee is a Private Limited Company engaged in the business of renting of immovable properties. The assessee electronically filed its return of income for the Assessment Year 2014-15 on 26.09.2014 declaring NIL income and claiming refund of Rs.1,96,140/-. The return was processed under Section 143(1) of the Income Tax Act (for short ‘Act’) and later the case was selected for scrutiny. The Assessing Officer (‘A.O.’) assessed the income of the assessee under Section 143(3) of the Act at Rs.1,34,832/- after making two additions: (1) Rs.34,832/- under Section 40(a)(ia) of the Act and (2) Rs.1,00,000/- out of expenses debited to the tune of Rs.9,48,281/- in the P & L Account under the heads of Telephone and vehicle expenses by observing element of personal usage. The assessee had been engaged in the business of renting of immovable properties and the A.O. allowed income received from letting out of shops as business income. Later on, the Revenue Audit Party has raised an objection that income derived from letting out of the shops is not business income but income from house property.
4. Thereafter, the Principal Commissioner of Income Tax (in short ‘Pr. CIT’) exercised its revisionary powers under Section 263 of the Act and observed that the assessment order dated 16.09.2016 was not only erroneous but also prejudicial to the interest of Revenue by making following points:-
(a) It was noticed that the assessee had earned rental income of Rs.26,63,438/- which had been shown as “Income from Business & Profession” rather than showing the same as “Income from House Property” and that the said income was further set off against the various expenses claimed viz. directors remuneration, depreciation and other expenses resulting into net profit of Rs.28,903/- only. A show cause notice dated 04.10.2018 was issued to the assessee asking to explain as to why the rental income received may not be treated as “Income from House Property” rather than considering the same as “Income from Business & Profession”. In response the assessee furnished a chart on 28.11.2018 explaining that if the rental income was to be assessed as its “Income from Business & Profession” the resultant loss of Rs.7,70,160.40 would be much higher than the resultant loss of Rs.3,89,226/- declared by the assessee. It was further submitted that since the loss assessed was lesser than the loss to be assessed, if the rental income was to be considered as income from House Property. The assessee also furnished a chart showing the closing stock as on 31.03.2014 of Rs.51,98,161/- pertaining to two different plots of land which were stated to be available for sale being part of its stock in trade. It was submitted that since the assessee was dealing in the business of real estate development and merely because due to slump in the market, the stock in trade remained same at the beginning and at the end of the year, it could not be held that the business was discontinued.
(b) The Pr. CIT observed that the assessee was owner of shops on the ground floor and basements in SCO Nos. 126 & 127, Sector 8C, Madhya Marg, Chandigarh. First floor and second floors of these SCOs were stated to be already sold by the assessee within a year of its purchase in the year 2005-06. The said shops and basements were let out during the year under consideration against which it has earned rental income of Rs.26,63,438/- as disclosed in the return of income. He further observed that in the balance shee
