1970 (12) TMI 1 - HC - Income Tax

Whether the income from the letting of the building by the assessee to the Export Promotion Council is assessable under the head Income from house property and not under the head Income from other sources - held that question referred is answered in the affirmative and against the assessee

Summary

Issues Involved:

1. Classification of income from the letting of the building.
2. Applicability of Section 56(2)(iii) of the Income-tax Act, 1961.
3. Interpretation of "inseparable letting" under the Act.
4. Relevance of the Supreme Court decision in Sultan Brothers Private Ltd. v. Commissioner of Income-tax.

Issue-wise Detailed Analysis:

1. Classification of Income from the Letting of the Building:

The primary issue was whether the income from the letting of the building by the assessee to the Export Promotion Council should be assessed under the head "Income from house property." The assessee argued that the income should be classified as "income from other sources" under Section 56(2)(iii) of the Income-tax Act, 1961, contending that the lease involved machinery, plant, and furniture along with the building. The Income-tax Officer, Appellate Assistant Commissioner, and the Appellate Tribunal rejected this contention, classifying the income as "income from house property" under Section 22 of the Act.

2. Applicability of Section 56(2)(iii) of the Income-tax Act, 1961:

Section 56(2)(iii) states that income from letting of machinery, plant, or furniture along with buildings, where the letting is inseparable, should be classified as "income from other sources." The court examined whether the lease agreement evidenced such inseparable letting. The agreement required the assessee to provide partitions, lavatories, air conditioning, a fluorescent tube fitting, separate electric meters, uninterrupted water supply, and an electric lift. However, the lift was not provided, and the rent was reduced accordingly.

3. Interpretation of "Inseparable Letting" under the Act:

The court analyzed whether the letting of the building and the amenities provided constituted inseparable letting. It concluded that the amenities (partitions, lavatories, air conditioning, etc.) were integral parts of the building and did not constitute separate lettings of machinery, plant, or furniture. The court emphasized that income from letting a building with such amenities falls under "income from house property" unless the amenities are substantial enough to be considered separate lettings.

4. Relevance of the Supreme Court Decision in Sultan Brothers Private Ltd. v. Commissioner of Income-tax:

The assessee relied on the Supreme Court decision in Sultan Brothers, where a building equipped and furnished as a hotel was let out, and the income was classified under "income from other sources." The Supreme Court had held that inseparable letting arises from the intention of the parties, determined by whether the building and the amenities were intended to be enjoyed together. The court in the present case distinguished this decision, noting that the lease agreement did not involve separate lettings of machinery, plant, or furniture, but rather the building with its integral amenities. Thus, the decision in Sultan Brothers did not support the assessee's contention.

Conclusion:

The court concluded that the income from the letting of the building to the Export Promotion Council should be classified under "income from house property" and not "income from other sources." The question referred was answered in the affirmative and against the assessee. The court directed that a copy of the judgment be sent to the Appellate Tribunal as required by Section 260(1) of the Act.