1997 (2) TMI 60 - HC - Income Tax

Income From Property, Sale Of Water, Casual And Non-recurring Receipt, Appurtenant To Building

Summary

Issues Involved:

1. Taxability of the receipt of Rs. 46,731.
2. Applicability of section 10(3) of the Income-tax Act regarding casual and non-recurring receipts.
3. Classification of the receipts under the head 'Other sources'.
4. Assessment of income higher than the bona fide annual letting value of the house property due to receipts from the land appurtenant to the building.

Detailed Analysis:

1. Taxability of the Receipt of Rs. 46,731:

The assessee received Rs. 52,690 from Spencer and Co. and Hotel Taj Coromandel for allowing them to draw water from her well, with a net realization of Rs. 46,731 after deducting expenses. The Income-tax Officer included this amount in her total income, which was upheld by the Appellate Assistant Commissioner and the Tribunal. The Tribunal referred to an earlier assessment year (1970-71) where similar income was exempted under section 10(3) as casual and non-recurring. However, for the assessment year 1975-76, the Appellate Assistant Commissioner held that the source of income had become established and permanent, thus not casual and non-recurring.

2. Applicability of Section 10(3) of the Income-tax Act:

The Appellate Assistant Commissioner noted that for the assessment year 1975-76, exemption under section 10(3) could not be claimed beyond Rs. 1,000. The Tribunal, following the High Court's decision in CIT v. M. Ramalakshmi Reddy [1981] 131 ITR 415 (Mad), held that the receipt was casual and non-recurring, exempting it under section 10(3) to the extent of Rs. 1,000.

3. Classification of the Receipts under the Head 'Other Sources':

The Appellate Assistant Commissioner and the Tribunal classified the receipts from the sale of well water under 'Other sources'. The Tribunal observed that the income derived from selling water was similar to selling fruits from trees on a property without letting out the property itself. The Tribunal held that the receipts could not be treated as part of the annual value of the property to avoid double assessment.

4. Assessment of Income Higher than the Bona Fide Annual Letting Value:

The assessee argued that the income from the well water should fall under 'Income from house property' as the well was appurtenant to the dwelling house. The Appellate Assistant Commissioner and the Tribunal rejected this argument, stating that the income from the well was not from letting out the well but from selling the water, which had become a valuable asset. The Tribunal noted that the well's character had transformed from appurtenant land to an independent income source, thus not falling under 'Income from house property'.

Conclusion:

The High Court held that the portion of the land with the well had ceased to be appurtenant to the dwelling house and had become an independent income source. Consequently, the income from the well water could not be classified under 'Income from house property' but under 'Other sources'. The court affirmed the Tribunal's decision, answering the third and fourth questions in the affirmative and against the assessee. There was no order as to costs.