Saturday, May 2, 2015

Rental income taxable as business income if main object of Co. as per MOA is to earn income by letting out properties

Where in terms of memorandum of association, main object of assessee-company was to acquire properties and earn income by letting out same, said income was to be brought to tax as business income and not as income from house property.


a)The assessee-company was incorporated with main object, as stated in the Memorandum of Association (MOA)of acquiring the properties and letting out of those properties.

b)It had rented out such properties and shown the rental income received therefrom as income from business.The Assessing Officer (AO) held that since the income was received from letting out of the properties, it was in the nature of rental income. He, thus, treated it as income from house property and taxed accordingly.

c)Assessee filed appeal before CIT(A) who treated such rental income as income from business, which was confirm by the Tribunal. d)On further appeal, the High Court set-aside orders of lower authorities. The aggrieved-assessee filed instant appeal before the Supreme Court.

The Supreme Court held in favour of assessee as under:

1)The main object of the company was to acquire and hold the properties and to let out those properties.

2)In 'Karanpura Development Co. Ltd. v. Commissioner of Income Tax, West Bengal' [44 ITR 362 (SC)] the leasing out of the coal fields to the collieries and other companies was the business of the assessee. The income received from letting out of those mining leases was shown as business income. Department took the position that it was to be treated as income from the house property. The Court pointed out that the deciding factor was not the ownership of land or leases but the nature of the activity of the assessee and the nature of the operations in relation to them. It was highlighted and stressed that the objects of the company must also be kept in view to interpret the activities. It held that such income was to be treated as business profits.

3)The judgment in case of Karanpura Development Co. Ltd (Supra)was squarely applied to the facts of the present case. Thus, after applying the aforesaid principle to the facts, which were there before the Court, it came to the conclusion that income had to be treated as income from business and not as income from house property.

4)In the instant case, in the return of income that was filed by the assessee,the entire income was shown through letting out of properties. There was no other income of the assessee except the income from letting out of these two properties.Thus, assessee had rightly disclosed the income under the Head Income from Business as it could not be treated as 'income from the house property'. - CHENNAI PROPERTIES & INVESTMENTS LTD. V. CIT[2015] 56 456 (SC)