Object clause alone cannot be a basis to determine head of income

MLC Properties LLP Vs DCIT (ITAT Bangalore)

Object clause alone cannot be a basis to determine the head of income, intention of Assessee will decide the head of tax liability

The issue under consideration is whether the rental income earned by the assessee is taxable under the head “Income from House Property” as claimed by the assessee in the return of income or under the head “Income from Business” as held by the AO in the assessment order.

ITAT find that there is no other basis of the action of the AO that the rental income is assessable as business income apart from some clauses of the partnership Deed. In partnership deed of a firm and Memorandum of Association of a company, objects are generally very wide so that in course of business, the said firm or company can choose from those objects to conduct its activities and such object clause alone cannot be a basis to determine the head of income under which the income is to be assessed. In the facts of the present case, the judgment of Hon’ble Apex Court rendered in the case of Raj Dadarkar & Associates vs. ACIT (Supra) is required to be followed because the facts are similar and in this case, Hon’ble Apex Court has duly considered its earlier judgment rendered in the case of Chennai Properties and Investment Limited vs. CIT (Supra) followed by the AO in the present case in which, it was held that each case has to be looked at from a Businessman’s point of view to find out whether the letting was the doing of a business or exploitation of his property by an owner. When ITAT examine the facts of the present case in the light of the lease deeds available in the paper book, ITAT find that the assessee has simply let out the properties owned by it for exploitation of his property by an owner and it is not doing any such activity based on which, it can be said that the letting out of the properties was the doing of a business. In view of above discussion, ITAT respectfully follow the judgment of Hon’ble Apex Court rendered in the case of Raj Dadarkar & Associates vs. ACIT (Supra) and decide the issue in favour of the assessee and hold that the rental income is taxable under the head “Income from House Property” as claimed by the assessee in the return of income.

In the result, the appeal of the assessee is allowed.

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