Facts of the Case

The present matter involves multiple appeals filed by the Revenue (Commissioner of Income Tax) against the respondent assessee, Select Infrastructure Pvt. Ltd. The dispute arose from the classification of income earned by the assessee.

The assessee had earned income from letting out property along with providing certain facilities and services, including maintenance of common areas. The Income Tax Appellate Tribunal (ITAT) had bifurcated such income into two heads:

  • Income from Business
  • Income from House Property

The Revenue challenged this bifurcation before the Delhi High Court.

 

Issues Involved

  1. Whether the Income Tax Appellate Tribunal was correct in bifurcating income into:
    • “Income from Business” and
    • “Income from House Property”?
  2. Whether payments made on account of debentures should be treated as payments for acquisition of share capital (though not entertained as a substantial question of law).

Petitioner’s (Revenue) Arguments

  • The Revenue contended that the ITAT erred in splitting income under two separate heads.
  • It was argued that such income should not be artificially bifurcated and should fall under a single head as per taxation principles.
  • The Revenue also attempted to raise an issue regarding treatment of debenture-related payments as capital expenditure.

 

Respondent’s (Assessee) Arguments

  • The assessee clarified that:
    • No depreciation was being claimed on the building.
    • Depreciation was claimed only on plant and machinery installed in common areas.
  • The maintenance charges collected for common facilities were linked to business activity, justifying classification under “business income.”

 

Court’s Findings / Order

  • The Delhi High Court framed a substantial question of law only on the issue of bifurcation of income into:
    • Business Income, and
    • Income from House Property.
  • The Court declined to frame any question of law regarding:
    • Treatment of debenture payments as share capital.
  • The Court:
    • Allowed filing of additional documents from prior proceedings.
    • Noted procedural aspects regarding appeals for different assessment years.
    • Disposed of certain appeals without prejudice, linking them to the main appeal.
  • The matter was directed to be listed for regular hearing.

 

Important Clarification

  • The Court emphasized that:
    • The issue of income classification (business vs house property) is a substantial question of law, indicating its recurring importance in tax jurisprudence.
    • However, not every financial structuring issue (such as debenture treatment) automatically qualifies as a substantial question of law unless it materially impacts legal interpretation.

Sections Involved

  • Section 22 – Income from House Property
  • Section 28 – Profits and Gains from Business or Profession
  • Section 32 – Depreciation (contextual relevance)

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2018:DHC:8330-DB/SKN05122018ITA8722018_162553.pdf 

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