In a recent ruling, the Apex Court held that the income from sub-letting Shop Rooms and Stalls are assessable under the head “Income from House Property” under the Income Tax Act when the assessee has no proof to show that their principal business activity was to sub-let the property.
The appellant-Firm obtained a building on lease from Maharashtra housing and Development Authority (MHAD) and was permitted to carry out additions and alterations and to sub-let the shops and stalls in the building. During the year under consideration, the appellant offered the income from the aforesaid shops and stalls sub-licensed by it under the head “business income”. However, the Department assessed the income of the assessee under the head “income from house property”.
Though the appellant successfully appealed the assessment order before the first appellate authority, the findings of the department were upheld by the ITAT and High Court. The High Court found that the appellant is a “deemed owner” within the provisions of Section 27 (iiib) of the Income Tax Act and therefore, the income is chargeable as “income from house property”. Aggrieved by these orders, the appellant approached the Apex Court.
Before the Court, the appellant contended that their main business was to take the premises on rent and to sub-let those premises. Since sub-letting the premises was the business of the appellant firm, the income earned must be treated as their business income.
After analyzing the scheme of the Act, Justice A.K Sikri and Justice Ashok Bhushan clarified that merely because there is an entry in the object clause of the business showing a particular object, would not be the determinative factor to arrive at a conclusion that the income is to be treated as income from Business.
The Court observed that the appellant had not produced any relevant material other than the partnership deed, to show that the main business of the Firm was sub-letting the premises.
The bench relied on the specific finding of the Appellate Tribunal that the assessee has not established that he was engaged in any systematic or organized activity of providing service to the occupiers of the shops/stalls so as to constitute the receipts from them as business income. In the absence of any evidence to show that its entire income was from letting out of the property which was the principal business activity of the appellant, the bench upheld the view taken by the ITAT and the High Court.
Rejecting the arguments of the appellants, the bench also found that the facts of Rayala Corporation (P) Ltd. and Chennai Properties & Investments Ltd are not applicable to the present case.
Read the full text of the Judgment below.
