Rental Income Earned on Property Held as ‘Non-Current Investment’ to be Taxed as Income from House Property | ITAT

Case Detail: Effective Teleservices Pvt. Ltd vs. PCIT - [2024] 160 taxmann.com 689 (Ahmedabad - Trib.)

Judiciary and Counsel Details

• Siddhartha Nautiyal, Judicial Member & Smt. Annapurna Gupta, Accountant Member
• Malay Kalavadia & Shalibhadra Shah, A.Rs. for the Appellant.
• Sanjay Kumar, Sr. D.R. for the Respondent.

Facts of the Case

Assessee was engaged in providing BPO services, IT-enabled services and software consultancy services. The assessee had treated rental income as “income from house property” and claimed standard deduction @ 30% under Section 24. The case was selected for scrutiny, and assessment was finalized under Section 143(3) by accepting the income as declared by the assessee.

The Principal Commissioner of Income Tax (PCIT) examined records and contended that the assessee had claimed depreciation on such house property under the Companies Act. On the other hand, the assessee treated the rental income as “income from house property” for income tax purposes, which was irregular.

The PCIT believed that availing a standard deduction on “other non-operating income” by treating it as house property has resulted in underassessment and, consequently, a short levy of tax. Thus, the PCIT issued a notice under Section 263.

ITAT Held

The Tribunal held that the assessee had a property in Thane which was disclosed under the head “non-current investment” in its financial statements. Further, the assessee was not holding the aforesaid property of its business asset and had not claimed any depreciation under Section 32.

This is coupled with the fact that the assessee is not engaged in earning rental income but in providing IT services. It cannot be inferred that the rental income earned by the assessee on such house property held as a “non-current investment” would qualify as its business income.

Furthermore, it was seen from the financial statements of the assessee that the aforesaid rental income has been reflected as “non-operational income” and not as the “business income” of the assessee.

Thus, it was held that the assessee had not taken an incorrect position by offering the rental income earned by the assessee on the property as “income from house property”.