2014 (11) TMI 895 - HC - Income Tax

Rental income from letting out of warehouses Business income or income from house property - Whether the Tribunal was justified in holding that the rental income from letting out of warehouses/godowns together with various services rendered to the occupant did not constitute a business activity of the appellant - Held that - The Tribunal was rightly of the view that the income derived by the assessee by way of rent of such godowns from M/s. IPL is therefore cleraly liable to be taxed as income from property and not as income from business - the company had rendered certain incidental services for earning such rental income would not alter the nature of such income as being assessable under the head income from house property - whether any income falls under one head or the other has to be decided according to the common notions of practical and reasonable man for the act does not provide any guidance in the matter and that no general principle could be laid down which is applicable to all cases and each case has to be decided on its own facts and circumstances - assessee has not let out the constructed building but is providing complex service oriented activities - The return received by the assessee is not the income derived from the exercise of property rights only but is derived from carrying on an adventure in the nature of trade - If the entire conduct and series of activities undertaken by the assessee firm is examined right from the inception of firm, it is borne out that the assessee carried out the activities with a view to earn profit or gain rather than to earn income as an owner of the asset thus, the Tribunal was justified in holding that the rental income from letting out of warehouses/godowns together with various services rendered to the occupant did not constitute a business activity and the income was not assessable u/s 28 as business income Decided against assessee.

Summary

Issues:
Interpretation of rental income from letting out warehouses/godowns as business income or income from house property under the Income-tax Act, 1961.

Analysis:
The appellant, a partnership firm, primarily engaged in letting out warehouses/godowns and transportation of fertilizers, claimed the rental income as business income in its income tax return. However, the assessment officer categorized the income as 'income from house property.' The CIT (Appeals) later determined that the income from letting out warehouses should be considered as business income. Upon appeal by the revenue, the ITAT held that the rental income should be taxed as income from house property, leading to the present Tax Appeals.

The appellant argued that the rent received from warehouses is incidental to its business activities and should be assessed as business income, citing relevant case law. The revenue contended that the facilities provided by the appellant, such as security, canteen space, and other amenities, were integral to the main activity of letting out godowns for storage, justifying the income as property income.

The Tribunal considered the nature of the activities undertaken by the appellant and the services provided to the occupants, concluding that the income from letting out warehouses did not constitute a business activity but fell under income from house property. The Court agreed with the Tribunal, emphasizing that each case must be decided based on its unique facts and circumstances. The Court found that the appellant's activities were more akin to an adventure in trade rather than a simple property rental, supporting the classification of the income as property income.

In light of the above analysis, the Court upheld the Tribunal's decision, ruling in favor of the revenue and against the appellant. The judgment affirmed that the rental income from letting out warehouses/godowns, along with the associated services, should be treated as income from house property under the Income-tax Act, 1961.