1983 (9) TMI 39 - HC - Income Tax

Summary

Issues Involved:
1. Classification of godown rent as 'Income from house property' or 'Profits and gains of business or profession'.
2. Determination of the annual value of the godown.

Summary:

Issue 1: Classification of Godown Rent
The primary issue was whether the godown rent received by the assessee should be classified as 'Income from house property' or 'Profits and gains of business or profession'. The assessee, a registered firm engaged in the manufacture and sale of manure mixtures, constructed a godown outside Poona Municipality limits. Initially, the godown was used for storing raw materials and finished products, but later it was let out to the State of Maharashtra from July 1968 to January 1971. The Income Tax Officer (ITO) assessed the rent as income from other sources, while the Appellate Assistant Commissioner (AAC) considered it as income from house property. The Tribunal, however, treated it as business income, relying on the judgment in CIT v. National Mills Co. Ltd. [1958] 34 ITR 155.

Upon review, the High Court referred to several precedents, including East India Housing and Land Development Trust Ltd. v. CIT [1961] 42 ITR 49 (SC) and CIT v. National Storage Private Ltd. [1963] 48 ITR 577 (Bom), which emphasized that income derived from property should be classified under 'Income from house property' regardless of the business objectives of the assessee. The court distinguished between the letting out of property and commercial assets like plant or machinery, concluding that the rent from the godown should be treated as income from property.

Issue 2: Determination of Annual Value
The court noted that since the income must be computed under the head of income from property, the Tribunal should determine whether the rent of Rs. 1,08,300 received by the assessee represents the annual value of the godown within the meaning of s. 23(1) of the I.T. Act, 1961.

Conclusion:
The High Court answered the question in the negative, favoring the assessee, and held that the godown rent should be classified as 'Income from house property'. The Tribunal was directed to consider the annual value of the godown accordingly. The Revenue was ordered to pay the costs of the reference to the assessee.