The A.C.I.T. vs. M/s IHDP Globals Pvt Ltd, ITA No. 331/DEL/2021, ITAT Delhi
The Income Tax Appellate Tribunal (ITAT) Delhi ruled that rental income from leasing out a commercial property should be taxed under “Income from House Property” and not under “Business Income”, reaffirming the rule of consistency in taxation.
Key Facts of the Case
- The assessee, a private limited company, is primarily engaged in carpet manufacturing but also earns rental income from leasing out a commercial building.
- The Assessing Officer (AO) treated the rental income as business income instead of income from house property, disallowing the standard deduction under Section 24(a) of ₹4,75,55,130.
- The CIT(A) ruled in favor of the assessee, directing that the rental income should be taxed under the house property head.
- The Revenue appealed before the ITAT.
Key Observations by ITAT
1. Rule of Consistency Applies to Tax Treatment of Rental Income
- The assessee had consistently declared rental income under “House Property” since 2007.
- Scrutiny assessments for A.Y. 2010-11 and 2011-12 had also assessed rental income under the house property head.
- ITAT ruled that, unless there is a material change in facts, the same treatment must continue in subsequent years, following the rule of consistency laid down in:
✔️ Radhaswami Satsang vs. CIT (SC) 193 ITR 0321
✔️ CIT vs. Excel Industries Ltd. (SC) 358 ITR 0295
2. Providing Basic Amenities Does Not Make Rental Income “Business Income”
- The AO argued that leasing the property along with parking, lift, and common area access made it a business activity.
- ITAT rejected this view, stating that no active business services were provided, and such basic amenities are common in leased properties.
- Shambhu Investments vs. CIT (SC) 263 ITR 0143 was cited, where income from leasing furnished office space was still taxed as “house property” income.
3. Revenue Failed to Prove Any Change in Facts
- ITAT noted that the Revenue did not bring any evidence to show that the nature of rental income had changed from previous years.
- In the absence of new facts, the rental income cannot suddenly be reclassified as business income.
Final Verdict
- ITAT dismissed the Revenue’s appeal and upheld the CIT(A) order, directing that the rental income should be taxed under “Income from House Property”.
- The assessee was allowed the standard deduction under Section 24(a).
Key Takeaway for Taxpayers
✔️ Rental income from leasing a property is generally taxed under “House Property”, even if the owner’s primary business is different.
✔️ Providing basic amenities like parking and maintenance does not convert rental income into business income.
✔️ Rule of consistency applies—once an income is classified under a specific head in past assessments, it cannot be arbitrarily changed without material differences in facts.
This ruling provides clarity on how rental income should be treated for taxation, reinforcing that mere reclassification attempts by tax authorities must be backed by strong factual justification.