In a recent decision, the Bombay High Court maintained that Rent Income from the profit and gains of a leasing company derived through the lease of its owned properties can be assessed as ‘income from profits and gains of business’.
Eleven Income Tax Appeals were filed by National Leasing Limited (NLL) against various authorities of the Income Tax Department, Mumbai in light of Orders passed by the Income Tax Appellate Tribunal (ITAT) pertaining to the financials of the Appellant for nine Assessment Years between 1989 and 2009.
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The Assessee is involved in, and derives income from the lease of immovable properties including land and buildings, plant and machinery. NLL obtains loans from financial institutions for the purchase of properties and thereafter provides the same on lease.
Crux of the case follows the Assessment of the Appellant’s income for the Assessment Years between 1990 to 1993 under the head “income from house property”, while the incomes received by the Assessee during the Assessment Years between 1993 to 2000 were assessed as “income from profits and gains from business” which were approved by the Assessing Officer (AO) but Appealed by the Revenue before the Commissioner of Income Taxes (Appeals) [CIT(A)].
The CIT(A) deflected from the course taken by the AO and held the Incomes for Assessment Years between 1993 and 2000 as ‘Income from house property’ under Section 250 of the Income Tax Act, 1961, additionally vitiating the Assessee’s claims for raising additional grounds in the Appeal Stage.
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The CIT (A) judgment was challenged by the Appellant before ITAT, adducing that peculiarly, the incomes for Assessment Years between 2000 and 2005 had once again been deemed “income from profits and gains of business” without there being any change of circumstances in regard to the assessee’s income.
The Division Bench of the Bombay High Court comprising Justice G. S. Kulkarni and Justice Firdosh P. Pooniwalla observed that “it is a settled principle of law that the Assessing Officer, in assessing the income of assessee, is required to be conscious about the nature of the assessee’s business and apply his mind to the source of income, for the income being taxed as the law mandates.”
The Bench noticed that the AO had not made any contravening observations regarding change in the nature of income derived by the Assessee by course of its main business.
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Reference was made to the decision passed by the Supreme Court in the case of M/s. Chennai
Properties & Investments Ltd., Chennai vs. The Commissioner of Income Tax, Central-III, Tamil Nadu (2015) to reaffirm that the deciding factor is not the ownership of land or leases, but rather the nature of activity and operations of the Assessee as is contained in the Memorandum of Association.
In light of the observation that the Assessee’s principal business involves letting out of properties, the Bombay High Court set aside the impugned decisions of the ITAT to the extent that rent income derived by the assessee from lease of its properties was assessable as income from profits and gains of business.
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