Mr I Ifthiqar Ashiq

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Rental from commercial property being declared as Income from HouseProperty does not render the property as a ‘residential property’

24 June 2013

BackgroundRecently, the Chennai Bench of Income-tax AppellateTribunal (the Tribunal) in the case of Mr. I. Ifthiqar

Ashiq 1 (the taxpayer) held that commercial propertycannot be treated as a residential property on thegrounds that rental income received from it is offeredunder the head Income from House Property.

The Income-tax Act, 1961 (the Act) provides thatannual value of the property (any building or landappurtenant thereto), owned by an individual, otherthan such portion of the property that he may occupyfor purpose of business or profession, shall bechargeable to income-tax under the head ‘income fromhouse property’. The Act does not make any distinctionbetween rental income from residential property or fromcommercial property.

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1 Mr. I. Ifthiqar Ashiq v. ITO (ITA No. 232/Mds.2013 dated 11 June 2013) Assessment Year 2009-10

Facts of the case• The taxpayer was owner of a residential house, a

land and a commercial property.

• The land was sold by the taxpayer andsubsequently a new residential house propertywas purchased from the sale proceeds.

Accordingly the taxpayer claimed exemption fromcapital gains tax 2.

• The taxpayer was showing the rental incomereceived from commercial property as Incomefrom House Property.

• The Assessing Officer (AO) rejected the claim ofthe taxpayer regarding exemption of capital gaintax on the grounds that the taxpayer was theowner of two residential house properties, at thetime of purchase of the new property.

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2 Section 54F of the Act




• AO held that as per the Act, it is essential that theindividual should not own more than one residentialhouse property other than the new asset and since the

term residential property and commercial property arenot defined in the Act, the commercial property shouldbe treated as a residential property.

• The matter was thereafter carried to Commissioner ofIncome-tax (Appeals) [CIT(A)] who dismissed theappeal of the taxpayer, upholding the AO’s order.

Issue before the Tribunal

• Whether commercial property is to be treated as aresidential property considering the fact that rentalincome received from commercial property is reportedunder Income from House Property?

Tribunal’s ruling

• The Tribunal observed that the Act does not create anydistinction between the rental income received from aresidential property and rental income received from acommercial property. Both incomes are reported underIncome from House property.

• Mere reporting of the rental income from commercialproperty under the head Income from house property

does not make the same a residential property.

• Further, in the subject case, rent agreements betweenthe taxpayer and his various tenants along with utilitiesbills raised by The Chennai Metropolitan water supplyand Sewerage Board, were placed before the Tribunalwhich were taken on records clearly depicting that theproperty was being used for commercial purpose only.

• The Tribunal also relied on the Supreme Court ruling inShambhu Investment P Ltd. 3 and Karnataka High Courtruling in case of Bhoopalam Commercial complex and

Industires P Ltd4,

wherein it was held that income fromletting out of commercial buildings is assessable underIncome from House Property.

• Thus the Tribunal rejected the Revenue’s contentionthat since the rent received from commercial propertywas taxed under the head “Income from houseproperty”, it could be construed that the taxpayer ownedtwo residential house properties.

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3 Shambhu Investment P Ltd. v. CIT [2003] 263 ITR 143 (SC)4

CIT v. Bhoopalam Commercial Complex &Industries (P) Ltd [2003] 262 ITR 517(Kar)

Our comments

This decision has reaffirmed that a commercialproperty cannot be treated as a residential propertymerely because rental income is taxed as Incomefrom House Porperty. There are several precedentswhere the issue of whether rent from commercialproperty is to be treated as income from houseproperty or business income has been analyzed. Thecurrent judgment will help the taxpayer in claimswhere they have commercial properties andinvestments in new residential properties are made.




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Mr I Ifthiqar Ashiq

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