Rent received by an Association of Co-Owners Whose only Objective is to Derive Income from Letting out of Property is Taxable as ‘Income from House Property’: ITAT [Read Order]

While hearing the case between Manek Lodge Properties vs. Additional Commissioner of Income Tax, Mumbai bench of Income Tax Appellate Tribunal (ITAT) recently held that rent received by an association of co-owners with only an objective to derive income from letting out of property is taxable under the head Income from House Property.

Assessee in the instant case being a resident association of person filed its return of income for the relevant assessment year and declared a total income at Rs. 92.48 lakhs.

During the course of assessment proceedings the Assessing Officer (AO) noticed that Assessee was an Association of Persons (AOP) consists of 18 members who were co-owners of a property named as Manek Lodge Properties and the Assessee earned rental income from the said property and the same was offered under the head income from house property by the AO while completing the assessment.

Thereafter the Assessee was on appeal before the CIT(A) and complied that the AO wrongly treated the rental income from the said property under the head income from house property instead of business income. After analyzing the facts and circumstances of the issue the authority rejected the contention of the Assessee and upheld the action of the AO.

However, the Assessee approached the Tribunal on further appeal against the order passed by the authority and submitted that since the assessee’s only source of income was rental income and its objective was to earn rental income in business-like manner and therefore, the same was assessable as Business Income.

On the other hand the Revenue opposed the ground raised by the Assessee and contended that  the only objective of the AOP assessee was to earn rental income from the property which has been accepted over several years by the assessee as well as revenue and therefore, the same was rightly assessed as Income from House Property.

After considering the rival submissions of both the parties, the Tribunal bench comprising of Judicial Member Mahavir Singh and Accountant Member Manoj Kumar Aggarwal objected the ground rose by the Assessee and observed that “the assessee has, over the past several years, derived rental income from the properties and offered the same under the head Income from House Property. This stand is well accepted by the assessee as well as revenue since its inception, which is an admitted fact. Although the principles of res-judicata do not apply to Income Tax Proceedings yet there being no change in facts or circumstances, the revenue as well as assessee is precluded from shifting stands without any cogent reasons in view of rule of consistency.  ”

The division bench further observed that “in the present case the assessee is nothing but association of co-owners of certain properties whose only objective is to derive income from letting out of property and nothing more. The bench also held that if the contention of Assessee is to be accepted, then every assessee exclusively deriving rental income would necessarily be assessed under Business Head as against specific head of Income from House Property. Therefore the contention of the Assessee is not admirable in the present issue.  Therefore the bench dismissed the appeal of the Assessee”.