Commissioner of Income Tax vs Haryana Urban Development Authority

Adarsh Kumar Goel, J.—The revenue has preferred this appeal u/s 260A of the Income Tax Act, 1961 against the order dated 31-3-2008, of the Income Tax Appellate Tribunal, Chandigarh Bench "A", Chandigarh passed in I.T.A. No. 759/Chandi/2007, for the assessment year 2003-04, proposing to raise the following substantial questions of law:

Whether the honble Income Tax Appellate Tribunal was right in disregarding the fact that the Assessee is dealing in developing and sale and purchase of properties and holding that the rental income t derived by it from letting out its commercial properties is to be assessed as income from house property and not as its business income?

Whether the honble Income Tax Appellate Tribunal was right on ignoring the ratio of the Karnataka High Court in the case of Addl. Commissioner of Income Tax, Karnataka Vs. Hindustan Machine Tools Ltd., and the Madhya Pradesh High Court in the case of COMMISSIONER OF Income Tax, (M.P.), BHOPAL Vs. NATIONAL NEWSPRINT AND PAPER MILLS LTD., where facts were similar to those in the present case and whereas the facts of the case Haryana Tourism Development Corporation were entirely distinguishable?

The Assessee is a local authority for planning, development and improvement of cities and derived income, inter alia, from rent. The assessing officer sought to tax the income of the Assessee from rent as business income, while the claim of the Assessee is that the same should be taxed as income from property. The Commissioner (Appeals) upheld the plea of the Assessee, which has been affirmed by the Tribunal. The Tribunal, inter alia, recorded the following finding:

After considering the submissions of both the parties and perusing the material on record it appears that the Assessee was earning rental income from its property and showing the income under the head Income from house property. On the said income, deduction u/s 24 at 30 per cent, was claimed. The assessing officer wrongly mentioned the deduction claimed as depreciation and also in the grounds of appeal the claim on account of repairs of property had been mentioned as depreciation. During the course of hearing, questionnaire issued by the assessing officer dated 14-7-2005, was furnished which revealed that the assessing officer asked the Assessee, vide question No. 10 as under:

Please produce as to why the income from house property be not assessed on account of this rental income.

From the above question it is clear that the intention of the assessing officer was to consider the income as income from house property. It is one of the contentions of the Assessee that no depreciation has been claimed on those properties from which rent has been received. The learned Commissioner (Appeals) had allowed the claim of the Assessee on account of repair expenditure at 30 per cent, by following the decision of the Income Tax Appellate Tribunal, Chandigarh Bench, in the case of Haryana Tourism Development Corporation. No contrary decision was cited before us in the instant case the assessing officer has not given any basis for considering the rental income of the Assessee as a business income, moreover the main business of the Assessee was to undertake the development of towns, cities, villages and other such areas, but the commercial properties for which there was no taker and public utilities like, Jhanjghar, Community centers were let out to tenants on fixed rent for fixed period, therefore, the income was shown as income from house property on the said income the deduction at 30 per cent, is allowable as per Clause (a) of Section 24 of the Income Tax Act, 1961. We, therefore, do not see any infirmity in the order of the learned Commissioner (Appeals) on this issue.

We have heard learned Counsel for the revenue and perused the record.

As per the finding of the Tribunal, the main business of the Assessee is not renting of property, but of development and sale of the property. In such a situation, no fault can be found with the view of the Tribunal that the Assessee could claim the head to be income from property instead of income from business. The view of the Tribunal is consistent with the view taken by the honble Supreme Court in East India Housing and Land Development Trust Ltd. Vs. Commissioner of Income Tax, West Bengal, . Therein, business of the Assessee was to promote development and sale. However, the Assessee also derived income from rent. It was held that the same could be treated to be income from property and not income from business.

In view of the finding of the Tribunal that the main business of the Assessee was not to rent out the premises, we are unable to hold that any substantial question of law arises.

The appeal is dismissed.