Delhi ITAT Permits Tax Deduction U/S 24(a) for Taxable Nature of Rental Income from Property Leases

The Income Tax Appellate Tribunal (ITAT), Delhi bench ruled that rental income obtained from letting out property shall get taxed under the head “Income from house property.” Thus, the bench permitted a deduction under Section 24(a) of the Income Tax Act, 1961.

The taxpayer, U & I Business Services Pvt. Ltd., is a resident corporate entity that is involved in the business of leasing property. The Assessing Officer (AO) at the time of assessment proceedings, reported that rental income of Rs. 4,58,97,039 from letting out a property to Reliance Retail Ltd. had been proposed for taxation under the head Income from house property.

As per that the assessing officer has provided a show-cause notice before the taxpayer and rendered the submission of its Memorandum of Association. Post examining the Memorandum of Association, the Assessing Officer followed that, as per the objects, the rental income that the taxpayer obtained must be treated as business income. Accordingly, he estimated the income under the head “Business and Profession.”

The taxpayer dissatisfied with the order has furnished a petition to the Commissioner of Income Tax (Appeal) CIT(A), who authorized the appeal. Afterwards, the revenue furnished the petition to the tribunal.

The taxpayer has two distinct properties, the tribunal observed. One property was let out to Greynium Information Technologies Pvt. Ltd. As a business center with diverse additional services. The lease rent for the same property was proposed as income through the business.

Without any other associated services, additional property was let out to M/s Reliance Retail Ltd. Therefore the rental income obtained via the same property was proposed as the income via the house property. The rental income via Reliance Retail Ltd. has been assessed and proposed for tax as the income via the house property in the former assessment years, the tribunal noted.

The two-member bench Dr B.R.R. Kumar (Accountant Member) and Saktijit Dey (Vice-President) post verifying the facts and records ruled that the rental income obtained via letting out the property shall get taxed under the head income from house property. Thus under Section 24(a) of the Income Tax Act the bench permitted a deduction. The bench after that dismissed the petition that the revenue furnished.

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On behalf of the revenue, Sapna Bhatia counsel has appeared and for the taxpayer NL Anand counsel has appeared.