PCIT Vs Classique Associates Ltd. (Bombay High Court)
The Bombay High Court dismissed the Revenue’s Income Tax Appeal concerning the treatment of rental income earned by a real estate development partnership firm from properties held as stock-in-trade. The respondent-assessee, a partnership firm engaged in real estate development, had filed its return for Assessment Year 2006-07. During scrutiny, the Assessing Officer noted that the assessee had earned approximately Rs.1.51 crores by leasing certain flats. The assessee had treated the receipts as business income and claimed various expenses as business expenditure, whereas the Assessing Officer treated the receipts as income from house property. The Revenue challenged the Tribunal’s decision before the High Court.
The first question before the High Court was whether the Tribunal was justified in not upholding the Assessing Officer’s finding that income from letting out properties held as stock-in-trade represented income from house property. The Revenue relied on the distinction between the assessee’s real estate development business and the facts in Chennai Properties and Investments Ltd. V/s. Commissioner of Income-Tax. The Tribunal had noted that the assessee was principally engaged in real estate development, had declared total income of approximately Rs.10.45 crores, and had leased only a small portion of the units constructed. It therefore considered the letting activity to be ancillary to the assessee’s main real estate development business.
