The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has held that the income from giving commercial properties for compensation as per Memorandum of Association (MOA) would be taxable as business income.
The assessee Jay Properties Private Limited was engaged in the business of dealing in real estate properties, development, construction, etc and was investing funds in properties directly or indirectly by acquisition of shares or by joint ventures. The assessee company also had earnings from taking on compensation, commercial properties and giving such property for compensation with no profit or loss.
The assessee’s case was selected for scrutiny and passed order determining the total income as income from business services under the head ‘income from other sources’ on the ground that the assessee company was not the owner of the properties in which the assessee had alleged to have received the rental income, and also disallowed the deduction claimed by the assessee under Section 23(1A) and under Section 24A of the Act.
The Commissioner of Income Tax Appeal CIT(A) passed an order treating the rental income and interest income as ‘business income’.
Jay Bhansali on behalf of the assesse submitted that in earlier years in assessee’s case, the same was treated as ‘income from business’ and not income from other sources. He further stated that the expenses incurred were exclusively for the purpose of business and relied on the decision of the Tribunal in the case of Nisarg Realtors Pvt. Ltd. vs. ACIT
Yashwant Kumar Bhaskar on behalf of the assessee submitted that the impugned income received by the assessee was in the nature of rental income and the same could not be assessed as ‘business income’.
The Division Bench of Prashant Maharishi, (Accountant Member) And Kavitha Rajagopal, (Judicial Member) dismissed the appeal observing that the assessee company had been engaged in the business of real estate and had been giving commercial properties for compensation as per the objectives of the Memorandum of Association (MOA) of the assessee company. It was also observed that the assessee was having incidental and ancillary objects of renting out of the properties, which were not owned by the assessee company.
The Bench further referred to the decision of the Hon’ble Supreme Court in the case of Chennai Properties & Investments Limited and Rayala Corporation Private Limited vs. ACIT which allowed the proposition that the impugned income was to be treated as ‘business income’ and not as ‘income from house property’.
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