1970 (8) TMI 21 - HC - Income Tax

Assessee is a limited company - rental income from disused godowns - such income is chargeable as income from house property or income from business

Summary

Issues:
Interpretation of taxability of rental income under sections 9 and 10 of the Indian Income-tax Act, 1922.

Analysis:
The case involved a reference under section 66 of the Indian Income-tax Act, 1922, concerning the taxability of rental income received by an assessee from letting out godowns to the government. The assessee contended that the rental income should be treated as income from business, while the Income-tax Officer classified it as income from property. The key question was whether the income of Rs. 9,906 should be taxed under section 9 or section 10(2) of the Act.

The court analyzed the provisions of section 9 and section 10 of the Act. Section 9 pertains to income from property, while section 10 deals with profits and gains of business. The court referred to various precedents to determine the classification of rental income. In cases like Commissioner of Excess Profits Tax v. Sri Lakshmi Silk Mills Ltd., it was held that income from letting out properties for purposes other than the primary business activity falls under section 10, income from business.

The court distinguished cases like Narain Swadeshi Weaving Mills v. Commissioner of Excess Profits Tax, where letting out plant and machinery was not considered part of the business activity. It also referred to cases like Commissioner of Income-tax v. Calcutta National Bank Ltd., where the definition of "business" under different tax laws was discussed to determine the taxability of rental income.

Moreover, the court examined cases like G. R. Narasimier & Co. v. Commissioner of Income-tax, where the nature of agreements for letting out assets was crucial in determining tax treatment. It also considered cases like Commissioner of Income-tax v. National Storage Private Ltd., which highlighted the distinction between income from property and income from business activities.

Ultimately, the court held that the rental income in question fell under section 9 of the Act as income from property, not under section 10 as income from business. The court emphasized that if an item is covered by a specific head, it cannot be taxed under another head that touches the item only incidentally. Therefore, the rental income of Rs. 9,906 was deemed chargeable to tax under section 9 of the Indian Income-tax Act, 1922.

In conclusion, the court ruled against the assessee, directing them to pay costs of the reference to the Commissioner of Income-tax, U.P. This judgment provides a comprehensive analysis of the taxability of rental income under different sections of the Income-tax Act, clarifying the distinction between income from property and income from business activities.