2014 (8) TMI 691 - HC - Income Tax

Income from investment company Income from other sources or income from house property -Whether income received by an investment company in the course of its business, towards letting of a fully furnished office premises, is not to be assessed as business income , failing which income from other sources as claimed by the Assessee, but as income from house property as assessed by the revenue Held that - Assessee s income is required to be assessed u/s 56 as contended by the assessee - The Agreement makes the intention of the assessee clear to let out the office premises along with furniture - letting of the office premises was intended to be inseparable from the letting of the furniture - Following the decision in Sultan Brothers Private Limited Versus Commissioner Of Income-Tax, Bombay City II 1963 (12) TMI 4 - SUPREME Court - the income received by the assessee by letting out fully furnished office premises and furniture is required to be assessed under the head income from other sources Decided in favour of Assessee.

Issues Involved:
1. Classification of income from letting out fully furnished office premises.
2. Applicability of Section 22 and Section 56 of the Income Tax Act, 1961.
3. Determination of income head: "business income," "income from other sources," or "income from house property."

Issue-wise Detailed Analysis:

1. Classification of Income from Letting Out Fully Furnished Office Premises:
The primary issue was whether the income received from letting out a fully furnished office premises should be classified as "business income," "income from other sources," or "income from house property." The assessee argued that the income should be taxed as business income or income from other sources, while the Assessing Officer classified it as income from house property.

2. Applicability of Section 22 and Section 56 of the Income Tax Act, 1961:
Section 22 deals with income from house property, while Section 56 deals with income from other sources. The court had to determine which section was applicable. The assessee's counsel, Mr. Diniz, argued that the income should be assessed under Section 56(1) of the Income Tax Act, 1961, as income from other sources, relying on the decision in "Sultan Brothers (P) Ltd. Vs. Commissioner of Income Tax" and "Commissioner of Income Tax Vs. P. Andal Ammal." On the contrary, the Revenue's counsel, Ms. Dessai, asserted that the income should be assessed under Section 22 as income from house property, citing the same "Sultan Brothers (P) Ltd." case and other relevant judgments.

3. Determination of Income Head: "Business Income," "Income from Other Sources," or "Income from House Property":
The court examined the intention behind the lease agreement and the inseparability of letting the office premises and the furniture. Referring to the "Sultan Brothers (P) Ltd." case, the court noted that the inseparability of letting arises from the intention of the parties. The court framed three questions to determine this intention:
1. Was it intended that the two (office premises and furniture) should be enjoyed together?
2. Was it intended to make the letting of the two practically one letting?
3. Would one have been let alone and a lease of it accepted without the other?

The court found that the answers to the first two questions were affirmative and the third negative, indicating that the letting was intended to be inseparable. Therefore, the income should be assessed under Section 56 as income from other sources. The court also cited the "Smt. P. Andal Ammal" case, where similar facts led to the conclusion that the proper head of income would be income from other sources.

Conclusion:
The court held that the income received by the assessee from letting out fully furnished office premises and furniture should be assessed under the head "income from other sources" under Section 56 of the Income Tax Act, 1961. The appeals were allowed, and the impugned order was set aside to that extent. The Assessing Officer was directed to assess the assessee's income accordingly in light of these observations.

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