Issues Involved: 1. Relationship of landlord and tenant. 2. Classification of income as business income or rental income. 3. Justification of the assessment made by the Income-tax Officer and the order u/s 263 of the Income-tax Act, 1961.
Summary:
Issue 1: Relationship of Landlord and Tenant The Tribunal's finding that there was no landlord-tenant relationship between the assessee and the office space hirers was questioned. The court concluded that there indeed existed a landlord-tenant relationship, as the agreement allowed the occupants to enjoy the table space along with furniture and fixtures, indicating an inseparable letting.
Issue 2: Classification of Income The primary issue was whether the income derived from the premises should be classified as rental income or business income. The court examined various precedents, including *Sultan Brothers Pvt. Ltd. v. CIT* and *CIT v. National Storage Pvt. Ltd.*, to determine the nature of the income. It was held that the primary object of the assessee was to let out the property with additional facilities, thus the income should be assessed as property income. The court applied the test from *Sultan Brothers Pvt. Ltd.*, concluding that the letting was inseparable and intended to be enjoyed together with the furniture and fixtures.
Issue 3: Justification of Assessment and Order u/s 263 The Tribunal's decision that the assessment by the Income-tax Officer was not erroneous and prejudicial to the interests of the Revenue, and thereby canceling the order u/s 263 by the Commissioner, was challenged. The court held that the assessment was indeed erroneous and prejudicial to the Revenue's interests. Consequently, the order u/s 263 by the Commissioner was justified.
Conclusion: The court answered all three questions in the negative, favoring the Revenue and against the assessee. The income derived from the property was determined to be rental income, and the relationship between the assessee and the occupants was that of landlord and tenant. The assessment made by the Income-tax Officer was found to be erroneous and prejudicial to the interests of the Revenue.
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