Case Law Details
Heritage Hospitality Ltd. Vs DCIT (ITAT Hyderabad)
Definition of rent includes any payment by whatever name called, for use of buildings including factory buildings, equipment, furniture or fittings. Even if machinery was leased, the consequent rent comes under the definition. But machinery lease can not be considered under ‘income from House property’. That indicates that just because TDS was made u/s. 194-I, it cannot be treated as ‘house property income’ as the rent definition includes lease of equipment, lease of furniture, fittings which cannot be considered as ‘house property’. AO’s opinion that since TDS made u/s. 194-I, incomes are to be assessed under head ‘income from house property’ can not be accepted. Moreover, even if assessee has let out property but, when the Memorandum of Association permits the business of letting out of properties as such, the income cannot be brought to tax as ‘income from house property’ as held in the above said case of Chennai Properties & Investments Ltd., Vs. CIT [56 taxguru.in 456] (SC). Therefore, both on facts of the case and also on law, as established by the Hon’ble Supreme Court in the above said case, receipts of assessee cannot be brought to tax under the head ‘house property’. The same is to be assessed under the head ‘Profits and gains of business or profession’ only.
FULL TEXT OF THE ITAT JUDGMENT
This is an assessee’s appeal against the order of the Commissioner of Income Tax(Appeals), Vijayawada dt. 26-03-2012.
2. Briefly stated, assessee is a company in which public are not substantially interested. Assessee is in the business of running guest houses and has a property at Hyderabad in which it has seven rooms. Assessee has entered in to various agreements with various companies for accommodating their employees from time to time in these rooms and received rental receipts to the extent of Rs. 87,70,615/- during the FY. 2006-07 relevant for AY. 2007-08. Assessee was incorporated in the year 2002 and such incomes have been accepted up to AY. 2006-07 as ‘income from business’. However, in the impugned year Assessing Officer (AO) asked assessee to show cause why the income should not be treated as ‘income from house property’ as against ‘profits and gains of business or profession’. Assessee submitted that it is carrying the business of hospitality since inception i.e., 19-04-2002 and its main object as per Clause-I of Memorandum of Association is that of ‘carrying on of business of hotels, resorts, boarding and lodging, houses, guest houses, holiday homes, Inns, resorts, café, bar, resorts, health clubs etc’. It also submitted that it is running a lodging and providing food to guests. It was submitted that in earlier years, assessee’s incomes were accepted under head business and there is no change in the line of business activity or method of account. It was submitted that due to recession, number of employees employed by assessee was reduced when the Inspector visited the premises for enquiry. The Ld. AO was, however, of the opinion that assessee has let out the property and does not have any license to run the catering part and on enquiry, it was found out that assessee is not running a kitchen but providing food by outsourcing, on cost to cost basis and accordingly, he was of the opinion that the income received by assessee should be brought to tax as ‘income from house property’. In coming to that decision, AO also noted that TDS by various companies was made u/s. 194-I of the Act, consequently, the rentals received should be assessed as ‘income from house property’. In addition to treating the income from house property, AO also opined that in case assessee’s incomes are to be assessed as ‘business income’ the expenditure cannot be allowed fully. Therefore, he has substantially disallowed the amounts on a protective basis.
Please become a Premium member. If you are already a Premium member, login here to access the full content.
