The Income Tax Appellate Tribunal (ITAT), Mumbai has held that the income received from the property given on leave and license basis till the approval of real estate project is in the nature of the business income.
Initially, the Assessee was engaged in the business of manufacturing of engineering goods/ components/ spares which was discontinued later. Thereafter, the assessee changed its business for development of real estate and converted its land into stock in trade. The assessee entered into the development agreement with Rajesh Real Estate Development P. Ltd. on 12.07.2010 for the development of the land. Earlier the assessee also agreed to alienate the larger portion of the land to Rajesh Estate and Nirman Limited by virtue of letter dated 20.12.2007. The assessee has also converted its land from industrial zone to residential use and necessary permission was also taken.
The assessee declared the rental income received by it under the head business income. However, the Assessing Officer rejected the return and held that the no activity of business was going on, therefore, the said rental income was treated as income from house property.
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While allowing the contentions of the assessee, the Tribunal observed that all the activity done by them speaks that the assessee was in the business activity.
“The assessee was maintaining the office and also the paying the salary to its employee and also incurring the other expenses such as traveling and other administrative expenses etc. The assessee temporarily letting out the premises to Broker India P. Ltd. by virtue of leave and license agreement dated 17.04.2009. The property was given on leave and license basis till the approval of the real estate project. The memorandum and Articles of Association permit letting and leasing of property which is the business of the appellant company. The CIT(A) has relied upon the case decided by Hon’ble Apex Court titled as Chennai Properties & Investment Ltd. V. CIT (2015) 277 CTR 0185 (SC). It also came into notice that in the earlier assessment order u/s 143(3) of the Act, the revenue has accepted the rent as business income. The facts are not distinguishable at this stage also,” the Tribunal observed.
“There is no other distinguishable material on record to which it can be assumed that the income of the assessee on letting out the property falls within the purview of house property. Taking into account, all the facts and circumstances, we are of the view that the finding of the CIT(A) is quite correct and in accordance with the law which is not liable to interfere with at this appellate stage. Accordingly, these issues are being decided in favor of the assessee against the revenue,” the Tribunal said.
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