Professional Update

(Income Tax Case laws)

Civil Appeal 685 of 2007 (Bombay High Court).

                        National Leasing Limited

vs

The Assistant Commissioner of Income, Circle 3(6).

Ratio.

The Bombay High Court held that Object in the memorandum determine the activity which the company would undertake. Activity will determine whether the rental income is to be treated as “Income from House property” or “Income from Business or Profession”.

Facts.

The appellant has filed an appeal u/s 260A of the Hon’ble Tribunal. The question of law arises that rental income derived by the appellant is to be treated as “Income from House Property” or “Income from Business & Professional”.  

Issue.

Whether the rental income should be treated as “Income from House Property” or “Income from Business & Professional”

Held.

The Bombay High Court held the Court is to consider the main objective of the assessee as contained in the Memorandum of Association, and that the deciding factor, is not the ownership of land or leases but the nature of the activity of the assessee and the nature of the operations in relation to them.

In the present case, the income of the assessee is derived from letting out of the properties, which in fact, is the principal business of the assessee as seen from its main objectives of the assessee as contained in its memorandum of association, therefore, the 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 is required to be treated as “income from house property” and not the “income from profits and gains of business”.

Further, the court held that the principle of consistency also bear in mind. Once the department accepted the contention of the assessee that the rental income was treated as income from business for 11 assessment years, it is imperative that these case are to be treated consistent.

Therefore, the appeal were allowed by the high court.  

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CA Manoj Garg

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