Rental income from letting out commercial properties is assessable as business income if the main objects of the company include letting out properties and the activity is carried out systematically, consistently with past treatment, to earn profit.

ORDER / आदेश

Per Rajesh Kumar, AM:

The present appeal filed by the assessee is against the order dated 21.11.2025 passed by the National Faceless Appeal Centre, Delhi [hereinafter referred to as 'Ld. CIT(A)'] u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as the 'Act') which is in connection with the assessment order passed u/s 143(3) of the Act dated 20.04.2021 for Assessment Year 2018-19.

2. The issue raised in Ground No. 1 of the appeal is whether the rental income earned by the assessee deserves to be assessed under the head ‘Profits & Gains from Business’ instead of ‘Income from House Property’ as assessed by the AO.

3. Brief facts of the case are that, the assessee had filed its return of income on 30.10.2018 for A.Y. 2018-19 declaring income of Rs.NIL. The case of the assessee was selected for scrutiny by issue of notice u/s 143(2) of the Act dated 22.09.2019. During the course of assessment proceedings, the ld. AO noted that, though an amount of Rs.16,93,24,009/- was credited to the P&L Account on account of rental income under the head ‘Revenue from Operation’ but no income was disclosed under the head ‘House Property’. The ld. AO vide notice u/s 142(1) of the Act dated 29.12.2020 required the assessee to furnish complete factual details relating to the rental receipts reflected in Form 26AS. The assessee furnished its reply dated 07.01.2021 wherein it was submitted that, the asseessee company was formed in the year 1988 and since then, it has been engaged in the business of real estate development and sale/ lease of real estate properties. As part of its real estate business, the appellant had acquired commercial properties in a shopping complex named City Centre, Salt Lake for commercial exploitation. It was also submitted that since F.Y. 2004-05, the assessee has been letting out these commercial properties and has derived rental income in the form of license fees and utility charges. The assessee further submitted that, the lease rental income was offered to tax under the head business & profession as leasing of property was one of the main objects of the company and that the nature & character of commercial spaces owned by the assessee was in the nature of business assets/stock in trade. It was also brought to notice of the ld. AO that the assessee has been consistently offering such rental receipts from properties under the head ‘Profits & Gains from Business’ since FY 2004-05. In support of the submission, the assessee placed reliance on the decision of the Hon’ble Supreme Court in the case of Chennai Properties & Investments Ltd (373 ITR 673), Karanpura Development Co. Ltd. (44 ITR 362) and Hon’ble Calcutta High Court in the case of Shyam Burlap Company Ltd (61 taxmann.com 121). However the ld. AO was not agreeable to the explanation offered by the assessee. According to him, merely because there is an entry in the object clause of the business in Memorandum of Association showing a particular object would not be the determinative factor to arrive at a conclusion that the rental income is to be treated as income from business. He further observed that, the leasing activity was not the principal business activity of the assessee and that the assessee had other business segments as well and therefore in his view, rental receipts were assessable under the head ‘house property’. The ld. AO further was of the view that, the separate agreements entered between the assessee and the lessees in respect of rental receipts and utilities charges was a mechanism and smokescreen to classify the entire receipts as business receipts instead of income chargeable under the head ‘house pr