1990 (11) TMI 15 - HC - Income Tax

Summary

Issues Involved:
1. Assessment of rental income from property under "Profits and gains of business or profession" vs. "Income from house property".
2. Allowance of expenses pertaining to the property as a deduction against business profits.
3. Assessment of income from letting out furniture under "Profits and gains of business or profession" vs. "Income from other sources".

Detailed Analysis:

1. Assessment of Rental Income from Property:
The primary issue was whether the rental income from the property at No. 3, Netaji Subhas Road, Calcutta, let out to managed companies, should be assessed under the head "Profits and gains of business or profession" or "Income from house property". The Tribunal held that the letting out of the property was subservient and incidental to the main business of the assessee-company, which was managing over 20 companies. The Tribunal emphasized that the rental income was integral to the efficient conduct of the business, as the managed companies needed to be situated close to the assessee's office. Therefore, the rental income was assessable as business income.

2. Allowance of Expenses as Deduction:
The second issue was whether expenses pertaining to the portion of the property let out to managed companies should be allowed as a deduction against business profits. The Tribunal, following its earlier decisions, held that since the rental income was assessable as business income, the related expenses were deductible in computing the business income. The Appellate Assistant Commissioner had previously deleted the disallowance of proportionate expenses and allowed them in computing the business income, which the Tribunal upheld.

3. Assessment of Income from Letting Out Furniture:
The third issue concerned the assessment of income from letting out furniture to managed companies. The Tribunal ruled that this income should be assessed under "Profits and gains of business or profession" rather than "Income from other sources". The Tribunal noted that providing furnished accommodation was a contractual obligation under the managing agency agreements and was incidental to the assessee's main business activities.

Supporting Case Laws:
The judgment referenced several cases to support its conclusions:

- Karnani Properties Ltd. v. CIT: The Supreme Court held that services rendered to tenants in an organized manner with a view to earn profits were business activities.
- CIT v. Kanak Investments (P.) Ltd.: This case supported the splitting of composite rent into income from property and other sources, but did not address business income.
- Indian City Properties Ltd. v. CIT: The court held that income from letting out properties was assessable as income from house property, with lift and air-conditioning charges assessed as income from other sources.
- CIT v. National Newsprint and Paper Mills Ltd.: The Madhya Pradesh High Court held that letting out accommodation to employees and government departments was incidental to the assessee's business and thus assessable as business income.

Conclusion:
The High Court concluded that the Tribunal's decision was correct. The rental income from the property and furniture let out to managed companies was assessable as business income. Consequently, expenses related to the property were deductible in computing the business income. All three questions were answered in the affirmative, favoring the assessee. There was no order as to costs.