Pr. Commissioner of Income Tax-3 Mumbai v. Banzai Estates P. Ltd.

1. These three Appeals under Section 260A of the Income Tax Act, 1961 (“the Act”) are directed against an order dated 31st May, 2017 passed by the Income Tax Appellate Tribunal (“Tribunal”) whereby the appeals filed by the respondent-assessee have been allowed. The issue before the Tribunal was as to whether the income received by the respondent-assessee from the property owned by it be accepted as “income from house property” or as contended by the Revenue, it should be treated as “business income”. July 09, 2024 Ashwini Vallakati

2. The Assessment Years in question are Assessment Years 2008-09, 2009-10 and 2010-11.

3. The facts subject matter of these proceedings are identical for all the three Assessment Years. The assessee is engaged in the business of hiring and leasing of properties. The assessee declared an income from a self-owned property situated at MBC Tower, TTK Road, Chennai (for short “MBC Tower property”) as income from house property. Apart from such income, the assessee also declared rental income received from sub-letting of four other properties not owned by the assessee, as income from business. The Assessing Officer did not accept the income earned from the MBC Tower property as “income from house property” and held such income necessarily to be a “business income”.

4. Being aggrieved by such order passed by the Assessing Officer, the assessee filed an appeal before the Commissioner of Income Tax Appeals (“CIT-A”). The CIT-A confirmed the view taken by the Assessing Officer in assessing the income earned by the assessee from the self-owned property, as income from business (“profits and gains from business”).

5. Being aggrieved by the orders passed by the CIT-A, the assessee approached the Tribunal. Before the Tribunal the assessee contended that in the past the assessee was consistently treating rental income from the MBC Tower property as income from house property, which was accepted by the Revenue. The Tribunal was of the view that the Revenue was consistent in accepting assessee’s income derived from MBC Tower property as “income from house property”, it was observed that the Assessing Officer however had taken a reverse position, for the assessment years in question, by treating its income from MBC Tower property to be “income from business”, without a valid reason. The Tribunal, referring to the decision of the Supreme Court in Raj Dadarkar & Associates v. Assistant Commissioner of Income-tax 1 held that in the present case, Section 22 of the Act was clearly applicable as the property in question was owned by the Assessee. The Tribunal also observed that the Supreme Court in the case of Commissioner of Income-tax v. Shambhu Investment (P.) Ltd.[2] confirmed the decision of the Calcutta High Court in Shambhu Investment P. Ltd. vs. Commissioner of Income-Tax[3],, wherein the High Court had taken a view that when the assessee was the owner of certain premises, then the income derived from such property would be income from house 1 [2017] 81 taxmann.com 193 (SC) 2 [2001] 116 Taxman 795 (Calcutta) 3 [2003] 263 ITR 143 (SC) property. The Tribunal also considered other relevant decisions to come to a conclusion that the Appeal filed by the assessee must be allowed.

6. In the above circumstances the Revenue is before this Court raising the following substantial questions of law:-

7. We have heard Learned Counsel for the parties. We have also perused the record.

8. Learned Counsel for the revenue submits that this is a clear case where the income earned by the assessee from letting out the MBC Tower property was required to be assessed as income, under the head “business income”, and not under the head of “income from house property” for the reason that the primary business of the assessee was a business of letting out properties and deriving income therefrom. It is submitted that for such reason, the rental income received by the assessee from MBC Tower property could not be categorized under the head “income from house property”. In supporting such contention, Learned Counsel for the Revenue placed reliance on the decision of the Supreme Court in Chennai Properties & Investment Ltd. v. Commissioner of Income-tax, Central-III, Tamil Nadu[4]. Thus, the primary contention as urged on behalf of the Revenue is that in the context of Section 22 read with Section 24 of the Act, the provisions would permit a distinction in categorizing income under different heads, in the facts and circumstances in hand. It is her contention that such a position stands approved by the Supreme Court in the case of Chennai Properties & Investment Ltd (supra). 4 [2015] 56 taxmann.com 456 (SC)

9. On the other hand, Learned Counsel for the assessee would submit that Section 22 of the Act makes no distinction on the basis of the assessee’s business and in fact it was appropriate in the facts of the present case for the assessee to treat the rental income from the MBC Tower property as an income from house property. It is submitted that there was nothing improper much less illegal for the benefit being conferred under Section 24 of the Act, to be availed by the assessee. It is submitted that in fact in the previous three Assessment Years i.e. in 2005-06, 2006-07 and 2007-08, the Revenue had accepted that this very income be taken to be income from house property and without any material change in the circumstances, much less in law, the Revenue has taken a position contrary to what had prevailed in the earlier assessment years. Hence, it was not appropriate for the Assessing Officer to take a different position for the Assessment Years in question. It is therefore submitted that the questions of law as raised by the Revenue do not arise for consideration on the principles of consistency which need to be accepted, and as applied by the Tribunal.

10. Having heard the Learned Counsel for the parties and having perused the record, it is not possible to persuade ourselves, to accept the contentions as urged on behalf of the Revenue, so as to hold that the present proceedings give rise to any substantial question of law raised by the Revenue in the present Appeals, the reasons for which, we discuss hereafter.

11. Section 22 of the Act, making a provision for “income from house property” ordains that the “annual value” of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried out by him, the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head "income from house property”. Section 23 provides the manner in which “annual value” would be determined. Section 24 provides for deductions from income from house property.

12. In the present case, the assessee has availed of deduction under Section 24, which appears to be one of the reasons that the Assessing Officer thought it appropriate to disallow, what was accepted in the earlier three Assessment Years 2005-06, 2006-07 and 2007-08. On a bare reading of Section 22, we find that in the present case, the basic requirements for the assessee to consider the income as received from MBC Tower property as “income from house property” stands clearly satisfied, as the assessee derives income from house property “owned by it”.Even if the assessee is to be in the business of letting or subletting of properties and deriving income therefrom, there is no embargo on the assessee from accounting the income received by it, from the property “owned by assessee” (MBC Tower) as “income from house property” and at the same time, categorizing the rental income from other properties not of assessee’s ownership under the head income from business. The Revenue’s reading of Section 22 differently to those who are in the business of letting out properties as in the present case namely in combination of a property of assessee’s ownership and also to have income from properties which are not of assessee’s ownership from which rental income is derived, would amount to reading something into Section 22, than what the provision actually ordains. The legislature does not carve out any such categorization/exception. Thus, we do not find that the Revenue is correct in its contention that, in the circumstances in hand, a straight jacket formula is required to be applied, namely, that Section 22 is unavailable to an assessee, who is in the business of letting out properties.

13. In the prior Assessment Years, the Assessing Officer had accepted the assessee’s treatment of such income as an income from house property, which is one of the factors which has weighed with the Tribunal to allow the Appeals filed by the assessee, on the principle of consistency. We are of the opinion that such principles are appropriately applied by the Tribunal. The Supreme Court has held it to be a settled principle of law that although strictly speaking res judicata does not apply to income tax proceedings, and as such, what is decided in one year may not apply in the following year. Thus, when a fundamental aspect permeating through different assessment years has been treated in one way or the other and that has been allowed to continue such position ought not be changed without any new fact requiring such a direction. (See: M/s. Radhasoami Satsang, Saomi Bagh, Agra v. Commissioner of Income Tax[5] ). The decision of the Supreme Court in M/s. Radhasoami Satsang (Supra) has been referred in a decision of a recent origin in Godrej & Boyce Manufacturing Company Ltd. vs. Dy. Commissioner of Income Tax, Mumbai, & Anr[6].

14. We may also usefully refer to a decision of this Court in the case of Principal Commissioner of Income-tax v. Quest Investment Advisors (P.) Ltd[7], in which this Court referring to the decision of the Supreme Court in Bharat Sanchar Nigam Ltd. 4 Anr. vs. Union of India