1999 (4) TMI 116 - AT - Income Tax

Summary

Issues Involved:
1. Classification of income from letting out property as "Income from Business" or "Income from House Property."
2. Ownership status of the assessee for the purposes of Section 22 of the Income-tax Act.
3. Allowability of ground rent and interest on loan if income is treated as "Income from House Property."

Detailed Analysis:

1. Classification of Income:
The primary issue was whether the income from letting out a part of the premises constructed by the assessee on leased land should be treated as "Income from Business" or "Income from House Property." The assessee argued that the income from the Bank of India, which was sub-leased a portion of the property, should be considered business income. The assessee cited various case laws, including CIT v. National Storage (P.) Ltd. and Karnani Properties (P.) Ltd. v. CIT, to support their claim that the income was derived from a complex of services and not just bare letting. However, the Assessing Officer, relying on cases like R.B. Jodha Mal Kuthiala v. CIT and CIT v. Bijli Cotton Mills Ltd., concluded that the income should be treated as "Income from House Property." The Tribunal upheld the Assessing Officer's view, emphasizing that the property was let out for a long term (5 years with renewal options) and the primary intention was to earn rental income, not to exploit a commercial asset.

2. Ownership Status:
The assessee contended that it was not the owner of the land or building, and thus the income should not be assessed under Section 22 of the Act. The Tribunal referred to the Supreme Court's decision in CIT v. Poddar Cement (P.) Ltd., which clarified that for the purposes of Section 22, the 'owner' is the person entitled to receive income in their own right. Since the assessee had the right to receive rent from the Bank of India, it was considered the owner of the property for tax purposes.

3. Allowability of Ground Rent and Interest:
The assessee's alternative plea was that if the income is assessed as "Income from House Property," the ground rent payable to NDMC and interest on the loan for construction should be allowed as deductions. The Tribunal noted that this issue was not raised before the CIT (A) and no specific amounts were provided. Consequently, no directions were issued regarding these deductions.

Conclusion:
The Tribunal concluded that the income from letting out the property to the Bank of India should be assessed as "Income from House Property" and not as "Income from Business." The assessee was considered the owner of the property for tax purposes. The appeal of the Revenue was partly allowed, confirming the Assessing Officer's treatment of the income and denying the assessee's claims for deductions on ground rent and interest.