1991 (10) TMI 67 - AT - Income Tax

Business Income, Income From House Property, Income From Other Sources, Let Out, Manufacture And Sale, Rental Income

Summary

Issues:
1. Classification of rental income received from property as income from house property or income from other sources.

Analysis:
The case involved a company that purchased land and constructed a factory building but did not commence manufacturing business. Instead, the company leased the factory building to another entity for use as a godown. The main issue was whether the rental income from the property should be classified as income from house property or income from other sources. The Income Tax Officer (ITO) initially classified the income as "income from other sources," but the Commissioner of Income Tax (Appeals) (CIT(A)) directed the income to be taxed as income from house property. The departmental representative argued that the income should be considered business income due to the commercial nature of the asset. However, the tribunal found that the property did not qualify as a commercial asset and the income derived from rent should be assessed as income from house property.

The tribunal emphasized that the classification of income depends on the specific facts of each case. In this instance, the property was never used for manufacturing purposes, and the company had amended its memorandum of association to allow for the leasing of the building as a godown. As a result, the income derived from renting out the property was considered as income from house property, as it was based on ownership rather than business activity. The tribunal highlighted that the property did not qualify as a commercial asset since it was not utilized for business purposes. The absence of any plant, machinery, or furniture being leased along with the building further supported the classification of the income as income from house property.

The tribunal also discussed relevant case law cited by the departmental representative, which involved scenarios where income was assessed differently based on the nature of the letting arrangement and the presence of additional services or assets being leased. The tribunal distinguished those cases from the present situation, where only the factory building was let out without any composite letting of additional assets. Ultimately, the tribunal concluded that the rental income should be classified as income from house property based on the specific circumstances of the case.

In light of the above analysis, the tribunal dismissed the appeals and upheld the classification of the rental income as income from house property in this case.