1984 (7) TMI 117 - AT - Income Tax

Accounting Year, Assessment Year, Business Income, Income From House Property, Income From Property, Let Out

Summary

Issues Involved:
1. Whether the notional income from the flat should be assessed under the head 'Income from house property'.
2. Whether the income derived from letting out the flat to the general manager should be assessed as business income or as income from house property.

Detailed Analysis:

Issue 1: Assessment of Notional Income under 'Income from House Property'

The revenue contended that the Commissioner (Appeals) erred in deleting the notional income of Rs. 7,298 under the head 'Income from house property'. The flat was purchased by the assessee for providing residence to its general manager. The ITO estimated a rent of Rs. 1,200 per month and computed the income for 9 months at Rs. 10,800, resulting in a net rental income of Rs. 7,298. The Commissioner (Appeals) held that since the deed of conveyance was executed and registered on 10-2-1978, the assessee could not be charged for notional income for the assessment year 1977-78. The Commissioner (Appeals) found no evidence to dispute that the flat was purchased for the general manager's residence and not let out to any non-employee. Therefore, the income was considered a business receipt.

The revenue argued that the assessee was the owner of the property within the meaning of section 22 of the Income-tax Act, 1961, and thus liable for tax on notional income. They relied on the Supreme Court decision in R.B. Jodha Mal Kuthiala v. CIT and the Patna High Court decision in Addl. CIT v. Sahay Properties & Investment Co. (P.) Ltd., asserting that possession and enjoyment of the property equated to ownership for tax purposes.

The assessee countered, citing the Calcutta High Court decisions in Ganga Properties Ltd. and S.B. (House & Land) (P.) Ltd. v. CIT, which held that legal ownership is necessary for tax under 'Income from house property'. The Tribunal agreed with the assessee, noting that since the conveyance was executed post the relevant accounting period, the notional income could not be taxed under section 22.

Issue 2: Assessment of Income as Business Income

The Commissioner (Appeals) found that the flat was purchased for the general manager's residence, linking the activity to the business operations. The income from the flat was thus considered business income. The revenue opposed this, citing the initial return and balance sheet where the property was shown under 'Income from house property'.

The assessee argued that the flat was a business asset, and the income derived was incidental to the business, supported by decisions in Jamshedpur Engg. & Machine Mfg. Co. Ltd., Delhi Cloth & General Mills Co. Ltd., and National Newsprint & Paper Mills Ltd. The Tribunal upheld the Commissioner (Appeals)'s view, agreeing that the income had a nexus with the business and should be assessed as business income.

Conclusion:

The Tribunal dismissed the revenue's appeal, affirming the Commissioner (Appeals)'s decision to delete the notional income under 'Income from house property' and to assess the income as business income. The Tribunal emphasized that legal ownership is necessary for tax under section 22 and recognized the business nexus in the assessee's case.