Punit Deora Trust Vs Income Tax Department (ITAT Mumbai)
The Income Tax Appellate Tribunal (ITAT) in Mumbai addressed an appeal filed by Punit Deora Trust, contesting an order from the Additional/Joint Commissioner of Income Tax (Appeals). The dispute centered on the assessment of rental income received by the trust from its property. The trust, established for the benefit of five beneficiaries, had declared “Nil” income in its return for the assessment year 2018-19, distributing the rental income among the beneficiaries, who then included it in their individual income tax returns. However, the Income Tax Department, in its assessment, treated the trust’s rental income as business income and applied the maximum marginal tax rate, resulting in a substantial tax liability for the trust. The trust argued that the rental income should be classified as “income from house property,” as it stemmed from leasing out a property without providing any additional services.
The ITAT, after reviewing the case, agreed with the trust’s contention. The tribunal emphasized that the trust’s primary activity was renting out its property, and there was no evidence of any business operations. Citing the Supreme Court’s ruling in Raj Dadarkar & Associates, the ITAT reiterated the established principle that rental income derived from leasing property should be assessed under the head “income from house property.” Furthermore, the tribunal noted that the trust’s beneficiaries had consistently included the rental income in their individual returns and paid taxes accordingly. The ITAT also addressed the department’s attempt to tax the trust as a “representative assessee” under Section 166 of the Income Tax Act, ruling that this was incorrect since the income had already been taxed in the hands of the beneficiaries. The tribunal concluded that the rental income should be treated as “income from house property” and that the trust was entitled to proportionate Tax Deducted at Source (TDS) credit for the beneficiaries. Consequently, the ITAT allowed the trust’s appeal, overturning the lower authority’s order.
