Rental Income from Real Estate Business is Business Income

Income Tax Officer Vs. M/s Zever Tower Pvt. Ltd. (ITAT Delhi)

With regard to ground no. 1 relating to assessing the rental income as business income as claimed by the assessee is concerned, we find that assessee had filed the return income of Rs. 3,57,0899/- and the case was taken up for scrutiny. Shri Ghanshyam Agrawal and Smt. Anita Gupta are the Directors of the The assessee is in the business of real estate and property development and purchase and sale of lands and flats etc. During the year the assessee had received the rental income of Rs. 49,20,000/- which the assessee had declared as income from real estate business. The AO has treated the rental income as income from house property u/s 22 and has allowed the statutory deduction u/s 24. Against the AO’s action, the assessee filed the appeal before the Ld. CIT(A) and submitted that the AO is not justified to assess the business income from the rental income as house property income, because the assessee is in the real estate business and all the income are part of the business activity of the assessee and accordingly the income of the assessee should be assessed as normal business income. We further find that there is no proper justification in the order of the AO for converting the rental income from the real estate business to house property income and allow statutory deduction u/s 24 @ 30%. We note that the assessee is in the real estate business and also in the jewellery business and as such the income of the assessee is to be assessed as business income. Moreover, if the action of the AO is confirmed the assessee will be claiming additional deduction u/s 24 @ 30% in addition to the business and administrative expenses as the assessee is in the real estate business and the income of the assessee will be assessed lower than the returned income. In view of the above, we are of the view that that there is no proper justification for changing the head of income which will result in reduction of return income and accordingly the Ld. CIT(A) has rightly directed the AO to assess the rental income as business income as claimed by the assessee, which does not need any interference on our part, hence, we uphold the action of the Ld. CIT(A) on the issue in dispute and reject the ground no. 1 raised by the Revenue. This view is fortified by the decision of the Hon’ble Supreme Court of India in the case of Chennai Properties & Investments Ltd. vs. CIT reported [2015] 56 taxmann.com 456 (SC) wherein, it has been observed that “Section 28(i), read with section 22, of the Income Tax Act, 1961 – Business income – chargeable as (letting out of properties) – Whether where in terms of memorandum of association, main object of assessee- company was to acquire properties and earn income by letting out same, said income was to be brought to tax as business income and not as income from house property.” (Heads Notes only).