2007 (5) TMI 81 - HC - Income Tax

Deduction of tax at source - Question arises whether revenue is entitle to recover the tax from the assesse (employee), in case employer is deduct tax at source and fail to deposit the said amount - Held, no

Summary

Issues:
Assessment of income under specific heads - 'Income from business' vs. 'Income from property'

Analysis:
The case involved a question referred by the Income-tax Appellate Tribunal regarding the assessment of the assessee's income under the head 'Income from business' instead of 'Income from property'. The assessee, a private limited company, had shown rental income from flats and office accommodation in its profit and loss account for the assessment year 1981-82. The Assessing Officer, based on the previous year's assessment, taxed the rental income under the head 'Income from property' and disallowed depreciation claims. The Commissioner of Income-tax (Appeals) upheld this decision for both the years in question.

The Income-tax Appellate Tribunal, however, considered the company's memorandum of association and overall facts, concluding that the rental income should be assessed under the head 'Income from business'. The Tribunal's decision was challenged based on the principle that income from different sources falling under specific heads must be computed as per the provisions of the Income-tax Act. The Supreme Court's decision in East India Housing and Land Development Trust Ltd. v. CIT was cited to emphasize the exclusivity of income heads and the need to compute income as per the appropriate section.

Further, the Supreme Court's rulings in Universal Plast Ltd. and Guntur Merchants Cotton Press Co. Ltd. were discussed, highlighting the factors to determine whether income from leasing assets constitutes business income. The Tribunal's decision was critiqued for not providing a reasoned basis for assessing the rental income as 'Income from business'. It was argued that since the hotel construction was incomplete and no business operations had commenced, the rental income could not be considered business income, despite the company's memorandum of association mentioning business activities related to properties.

The court emphasized that unless the assessee proves the rental income was derived from a property used for business purposes, it should be computed under 'Income from house property'. The judgment concluded by answering the referred question in the negative, directing each party to bear their own costs.

This detailed analysis of the judgment highlights the key legal principles, case facts, tribunal decisions, and the court's reasoning in determining the appropriate head for assessing the assessee's rental income, providing a comprehensive overview of the case.