National Leasing Limited Vs ACIT (Bombay High Court)
Conclusion: Income of assessee was derived from letting out of the properties, which was the principal business of assessee as seen from its main objectives contained in its memorandum of association, therefore, assessee was correct in accounting such income under the head ‘income from profits and gains of business’, and not as ‘income from house property’.
Held: Assessee was engaged in the business of purchasing and renting properties, as also the entire income of the assessee was based on the income received from leasing its properties. It had no other source of income. It was stated that since 1989 till date, assessee had leased about 85 properties. The business model of the assessee was stated to be such, that it obtained loan from financial institutions for the purchase of properties, it purchased properties and then provided the same on lease. The lease income was thus the only income of the assessee. Assessee contended that from the year 1983 to 1989, its lease income as derived from its properties was assessed by the Respondents under the head “Income from Profits and Gains of Profession or Business”. AO show caused as to why the annual letting value of the leased premises should not be the higher figure. Later, AO calculated the annual value of property based on gross rent instead of actual rent issued by assessee as shown in its returns. When the appeal challenging the action of AO was pending consideration before CIT(A), assessee filed its revised returns computing the lease / rental income under the head “income from profits and gains of business”. CIT(A) however passed an order u/s 250, holding that additional grounds could not be raised by assessee at the appeal stage to raise a contention that the income of the assessee was required to be taxed under the head “profits or gains from business or profession”. It was held that the income of the assessee was derived from letting out of the properties, which in fact, was the principal business of the assessee as seen from its main objectives of the assessee as contained in its memorandum of association, therefore, assessee was correct in accounting such income under the head ‘income from profits and gains of business’, and not as ‘income from house property’. For such reasons, there was an apparent error of law in the Tribunal holding that the assessee’s income was required to be treated as “income from house property” and not the “income from profits and gains of business”.
