ITAT Upholds Rule of Consistency: Rental Income from Leased Property Taxable as 'House Property', Not 'Business Income [Read Order]

IHDP Globals Pvt Ltd, a private limited company primarily engaged in the business of carpet fabrication, which had also earned rental income from leasing out its building situated in Noida to various tenants during the assessment year 2017-18.

The dispute arose when the Assessing Officer observed that the company had received significant rental income from Alstom India Ltd but had declared it under the head 'House Property' in its income tax return.

The Assessing Officer, however, treated this income as 'Business Income' and denied the company’s claim for deduction under section 24(a) of the Income Tax Act. The company appealed against this decision before the Commissioner of Income Tax (Appeals) [CIT(A)], who ruled in favour of the company, holding that the rental income should be taxed as income from house property, as had been done in previous years.

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The department challenged the CIT(A)’s order before the ITAT, arguing that the rental income should be classified as business income. In response, the counsel for IHDP Globals Pvt Ltd presented records showing that the company had consistently offered the rental income to tax under the head 'House Property' since 2007. The counsel also highlighted that scrutiny assessments for earlier years, including assessment years 2010-11 and 2011-12, had accepted this treatment. It was contended that the rule of consistency must be maintained unless there is a significant change in facts or circumstances, which was not the case here.

The counsel further relied on several Supreme Court judgments, including Radhaswami Satsang vs. CIT (1992), CIT vs. Excel Industries Ltd. (2013), and CIT (E) vs. Hamdard National Foundation (2022), to bolster the argument that consistency in tax treatment is essential when facts remain unchanged. The counsel also cited Raj Dadarkar & Associates vs. ACIT (2017) and Shambhu Investments vs. CIT (2003), where the Supreme Court held that rental income from property should be taxed under the head 'House Property' unless the main business itself is letting out properties.

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After hearing both sides, the ITAT bench comprising Challa Nagendra Prasad, Judicial Member, and Naveen Chandra, Accountant Member, examined the facts and previous assessments. The bench noted that the company's main business was manufacturing and trading of carpets, and leasing property was only an incidental activity.

The Tribunal also emphasized that the department had not brought any new facts to justify a departure from the earlier approach. The Bench observed that the mere provision of amenities like lift, parking, and maintenance does not convert rental income into business income if the primary business is not property letting.

In conclusion, the Tribunal upheld the CIT(A)’s order, directing that the rental income should continue to be assessed under the head 'House Property' and dismissed the revenue’s appeal.

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