1971 (8) TMI 18 - SC - Income Tax

The assessee sold house properties - It maintained pump-house and boilers and also rendered services such as scavenging and lifts - services rendered by the assessee to its tenants were the result of its activities carried on continuously in an organised manner, with a set purpose and with a view to earn profits - income from such activity would be assessable u/s 10

Summary

Issues Involved:
1. Whether the services rendered to tenants by supplying electrical energy, hot and cold water, and maintenance of lifts and other amenities constituted a business activity.
2. Whether the income arising from these services is assessable under section 10 or section 9 of the Indian Income-tax Act, 1922.

Issue-wise Detailed Analysis:

1. Services Rendered as Business Activity:
The primary issue was whether the services provided by the assessee to its tenants, such as supplying electrical energy, hot and cold water, and maintaining lifts and other amenities, constituted a business activity. The Tribunal found that the services rendered by the assessee were carried out continuously in an organized manner with a set purpose and with a view to earning profits. Hence, these activities were considered business activities. The High Court, however, opined that the income from these services was income from property and assessable under section 9 of the Act. The Supreme Court reaffirmed the Tribunal's view, emphasizing that the services rendered were indeed business activities, as they were organized and profit-oriented.

2. Assessment under Section 10 or Section 9:
The second issue was whether the income from these services should be assessed under section 10 (business income) or section 9 (income from property) of the Indian Income-tax Act, 1922. The Income-tax Officer initially split the receipts into two parts, treating one part as rent (assessable under section 9) and the other as income from other sources (assessable under section 12). The Appellate Assistant Commissioner upheld this view. The Tribunal, however, ruled that the entire amount should be assessed under section 10 as business income. The High Court disagreed, stating that the income should be assessed under section 9. The Supreme Court concluded that the High Court erred in its assessment, as the facts found by the Tribunal indicated that the services were business activities. Therefore, the income arising from these services should be assessed under section 10.

Conclusion:
The Supreme Court held that the services rendered by the assessee to its tenants constituted business activities and the income arising from these activities should be assessed under section 10 of the Indian Income-tax Act, 1922. The High Court's decision was overturned, and the question was answered in the affirmative and in favor of the assessee. The appeals were allowed, and the assessee was entitled to the costs of the appeals.