2003 (3) TMI 42 - HC - Income Tax

Whether, the Tribunal was right in concluding that the activity of the assessee was business activity and, therefore, its income was liable to be taxed under the head Business income ? - Answer to the first part of the question would be in the affirmative, in favour of the assessee and against the Revenue and answer to the second part of the question would be that The income of the assessee would be business income , except the income derived by way of rent from the residential hotel and revolving restaurant. - Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that the activity of the assessee co-operative society was business activity? - Answer In the affirmative, in favour of the assessee and against the Revenue - Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the income of the co-operative society should be taxed under the head of Business income and not Income from other sources ? - Answer In the affirmative. The income of the assessee would be business income , except the income derived by way of rent from the residential hotel and revolving restaurant Further, held that, the income derived by way of rent from residential hotel and revolving restaurant would be income from the house property.

Issues Involved:
1. Whether the activity of the assessee co-operative society constitutes a "business activity."
2. Whether the income of the co-operative society should be taxed under the head "Business income," "Income from other sources," or "Income from house property."

Detailed Analysis:

Issue 1: Whether the activity of the assessee co-operative society constitutes a "business activity."

The court observed that the assessee is a co-operative society formed with the objects of providing godowns, shops, and other amenities for the trade of its members and persons engaged or connected with the textile trade. The society constructed a complex with shops, godowns, banks, post office, residential hotel, and a revolving restaurant, and provided various services to its members. The Tribunal concluded that the activities of the assessee were business activities, and the co-operative society was a chosen form of organization for carrying on business.

The court noted that the Assessing Officer and the Commissioner of Income-tax (Appeals) had concluded that the activities of the society were not business activities and categorized the income as "Income from other sources" or "Income from house property" for different assessment years. However, the Tribunal, after considering various aspects and judicial pronouncements, determined that the activities of the assessee constituted business activities.

The court agreed with the Tribunal's view that the activities of the assessee, including providing various facilities and amenities to its members, employing permanent staff, and arranging for advertisements, security, sanitation, and other services, collectively indicated that the society's activities were business activities. The court emphasized that the co-operative society's activities were aimed at promoting the trade of its members and were not solely profit-oriented.

Issue 2: Whether the income of the co-operative society should be taxed under the head "Business income," "Income from other sources," or "Income from house property."

The court examined the different sources of income of the assessee, including rent from members/occupiers of shops and godowns, rent from banks, post office, canteens, hotel, revolving restaurant, and auditorium, and charges for services rendered to members/occupiers.

1. Income from Members/Occupiers of Shops and Godowns:
- The court held that the income derived from nominal rent charged to members/allottees could not be considered as "Income from house property" because the members enjoyed full rights over the property and the assessee was not the owner of the shops or godowns. This income was categorized as "Income from other sources."

2. Charges for Services Rendered:
- The income derived from charges for various services provided to members/occupiers, such as security, sanitation, lighting, lifts, air-conditioning, and insurance services, was considered "Business income" under the head "Profits and gains of business or profession" as per section 28(iii) of the Income-tax Act.

3. Income from Banks, Post Office, and Canteens:
- The court held that providing banking services, postal services, and canteens were amenities for the trade of the members and constituted business activities. The income derived from letting out premises for these services was categorized as "Business income."

4. Income from Auditorium:
- The court determined that the income derived from permitting the use of the auditorium, mainly used for seminars, meetings, and cultural activities, was "Business income" as it was aimed at fulfilling the society's objects.

5. Income from Revolving Restaurant and Residential Hotel:
- The court concluded that the income derived from the revolving restaurant and residential hotel could not be considered as "Business income" as these facilities were not necessary for fulfilling the objects of the assessee and were open to the general public. This income was categorized as "Income from house property."

Conclusion:
- The court answered the questions in favor of the assessee, affirming that the activities of the assessee constituted business activities.
- The income of the assessee, except for the income derived from the revolving restaurant and residential hotel, was categorized as "Business income."
- The income derived from the revolving restaurant and residential hotel was categorized as "Income from house property."

All income-tax references and the appeal were disposed of accordingly with no order as to costs.

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