Facts of the Case

The dispute arose in relation to Assessment Year 2007–08 wherein the assessee, Modi Industries Ltd., had derived rental income from three immovable properties let out on rent. The assessee maintained that such rental income had consistently been assessed under the head “Income from House Property” since Assessment Year 1964–65 under Section 22 of the Income-tax Act, 1961.

However, during the assessment proceedings for the relevant assessment year, the Assessing Officer departed from the earlier consistent position and treated the rental receipts as business income, observing that an incorrect view taken in earlier years should not be perpetuated.

The Income Tax Appellate Tribunal examined the issue and found that in respect of at least two of the three properties, the rental income had consistently been accepted by the Revenue as income from house property. Regarding the third property, the matter was remanded to the Assessing Officer for reconsideration owing to the comparatively insignificant amount involved. The Revenue challenged the ITAT’s order before the Delhi High Court.

 Issues Involved

  1. Whether rental income derived from immovable properties let out by the assessee is taxable as business income or income from house property?
  2. Whether the Revenue can alter its stand in a subsequent assessment year despite consistent treatment in earlier years without any material change in facts?

 Petitioner’s Arguments (Revenue)

  • The Revenue contended that the Assessing Officer was justified in revisiting the classification of rental income.
  • It was argued that if an erroneous view had been taken in earlier assessment years, the same should not continue merely on the ground of consistency.
  • The Revenue further sought remand of the matter even for the two properties already consistently assessed under the head “Income from House Property.”

 Respondent’s Arguments (Assessee)

  • The assessee submitted that the rental income had consistently been assessed under Section 22 as income from house property since Assessment Year 1964–65.
  • It was argued that there was no change in factual circumstances warranting a different treatment for the current assessment year.
  • The assessee relied on the settled principle of consistency and acceptance by the Revenue over several decades.

 Court Findings / Observations

The Delhi High Court observed that the Assessing Officer’s attempt to alter the settled position without any material change in facts was not justified. The Court noted that for at least two of the three properties, the Revenue had consistently accepted the rental income as income from house property in earlier years.

The Court held that in the absence of any material change in circumstances, there was no valid reason for the Revenue to adopt a different stand for the relevant assessment year. The principle of consistency was considered significant in tax administration and adjudication.

 Court Order / Final Decision

The Delhi High Court dismissed the appeals filed by the Revenue and held that no substantial question of law arose for consideration. The Court upheld the ITAT’s decision and confirmed that the rental income in respect of the concerned properties should continue to be treated as Income from House Property under Section 22 of the Income-tax Act, 1961.

 Important Clarification / Legal Principle Established

  • The Revenue cannot arbitrarily change its stand regarding the head of income when the facts and circumstances remain unchanged.
  • The principle of consistency applies strongly in tax matters where a settled position has been accepted for several years.
  • Rental income from ownership and letting of immovable property ordinarily falls under Section 22 (Income from House Property) unless the facts clearly establish a business activity.

Sections Involved

  • Section 22 – Income from House Property
  • Income-tax Act, 1961


    Link to download the order - https://delhihighcourt.nic.in/app/case_number_pdf/2017:DHC:8930-DB/SMD09082017ITA5032017_161704.pdf_

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