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TMI Blog2004 (6) TMI 269X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer had clearly established that such income was to be assessed under the head 'Income from other sources'." 2. Briefly stated the facts are that the assessee-company filed the return for assessment year 1995-96 wherein brought forward business loss for assessment year 1994-95 has been set off against income from house property as well as income from other sources. In the assessment order, Assessing Officer has elaborately brought out the relevant facts of the case having a bearing on the claim of set off of brought forward business loss against property income and income from other sources by the assessee. Perusal of profit and loss account showed that the assessee company had received rental income of Rs. 8,11,544 and income from house property has been computed at Rs. 6,49,235. The assessee has further shown an income of Rs. 5,78,220 under the head other income. According to the Assessing Officer, since the business of the assessee is sale and purchase of properties, brought forward business loss cannot be adjusted as per provisions of section 72(1) against income from house property or income from other sources. When called to explain the reasons for claim of set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reproduced hereunder: "From the above details, it is seen that the rental income is basically from two properties only i.e., HS-28, Kailash Colony and HS-32, Kailash Colony,New Delhi. The building construction of HS-32, Kailash Colony was completed in 1989-90 when the property was let out to Union Bank ofIndia. Since then, the assessee-company is receiving annual rent from Union Bank ofIndiafrom this property. The building at HS-28, Kailash Colony was purchased in 1984. Part of this building was already in occupation of Mr. Ram Swarup Anand as tenant. Further construction was completed in April, 1994 and which was subsequently let out to one Smt. Bimla Devi Jhunjhunwala. The assessee-company has also shown a sum of Rs. 1,14,000 being received from M/s. Tulika Advertising Marketing (P.) Ltd. as 'service charges'. No details of such service charges have however been filed. 2.3 From the above facts, it is clear that it is not the assessee's case that it is the owner of a number of properties which are being rented out to different people and the assessee-company's job is merely to collect rent from such tenants. The assessee-company is earning income from two properties only, i. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ---------- 5,78,220 ---------- Assessing Officer observed in the assessment order that the business of the assessee is admittedly dealing in sale and purchase of the properties and the letter head of the assessee described the assessee-company as Builders, Promoters and Developers, the aforesaid income by way of other receipts are liable to be assessed under the head 'income from other sources'. According to the Assessing Officer, no business of hiring out cars, computers as an organised systematic business activity has been carried out and, therefore, income is liable to be assessed under the head 'other sources' as shown by the assessee in the return. 4. Aggrieved, the assessee carried the matter before the CIT(A). CIT(A) observed that since the properties let out have been shown in the balance sheet as stock-in-trade, these are trading asset and, therefore, rental income even if assessed under the head 'income from house property' is to be treated as business income and set off of brought forward losses has been rightly claimed by the assessee. Regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee-company is receiving annual rent from Union Bank ofIndia. The second property being HS-28, Kailash Colony was purchased by the assessee-company in 1988. A part of this building was already in occupation of Mr. Ram Swarup as tenant. Further construction was completed in April, 1994 and the same was let out to one Smt. Bimla Devi Jhunjhunwala. The assessee-company has also shown a sum of Rs. 1,14,000 as service charges from M/s. Tulika Advertising and Marketing. Assessing Officer observed in the order that no details of such service charges have been filed. Assessing Officer has assessed the amount of Rs. 1,14,000 as income from other sources. Before the CIT(A), however, it is stated that a part of the office space at 23, Community Centre, East of Kailash,New Delhihas been sub-let and rent of Rs. 1,14,000 had been received. Vide para 4.1, CIT(A) has observed that the said office space includes telephone connection, electricity and office furniture. 8. Section 22 of I.T. Act deals with the income from house property and essential condition for assessing the income under the head 'income from house property' is that the assessee is the owner of the property and further th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies, as discussed above, have been received by the assessee but these facts do not indicate carrying out of any business activity by the assessee for leasing of properties. The word 'business' indicates some real, substantial and systematic or organised course of activity or conduct with a set purpose. The business activity is characterised by features of continuity, frequency, application of effort and skill coupled with the profit motive. Mere letting out of immovable property in exercising right of ownership of the property would not imply carrying out of a business of letting out of the properties. In the instant case, rental income received by the assessee has been brought to tax under a specific head 'income from house property' as claimed by the assessee and assessed by the Assessing Officer. The assessee, therefore, cannot backtrack from the accepted factual and legal position and claim set off of brought forward losses by invoking the provisions of section 72. Section 72 would not apply for setting of carried forward business losses against income from house property assessed under section 22 of the Income-tax Act. 9. The contention has been raised on behalf of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Supreme Court in East India Housing Land Development Trust Ltd. v. CIT [1961] 42 ITR 49. The facts of the case are that the appellant-company, which was incorporated with the objects of buying and developing landed properties and promoting and developing markets, purchased 10 bighas of land in the town ofCalcuttaand set up a market therein. The question was whether the income realised from the tenants of the shops and stalls was liable to be taxed as "business income" under section 10 of Income-tax Act or as income from property under section 9. The Supreme Court observed that the income derived by the company from shops and stalls was income received from property and fell under the specific head described in section 9. The character of that income was not altered because it was received by a company formed with the object of developing and setting up markets. Nor because of the fact that the company was required to obtain a licence from the Calcutta Municipality to maintain sanitary and other services and for that purpose had to maintain a staff and to incur expenditure did the income become "profits or gains from business" within the meaning of section 10. Nor was the cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ef under section 25(3) of the Income-tax Act, 1922. At page 410 of the report, the Court held that there was no reason to restrict the condition of the applicability of exemption under section 25(3) only to income on which tax was payable under the head 'profits and gains of business, profession or vocation'. According to the Supreme Court, the exemption under section 25(3) is general and, therefore, the assessee firm was entitled to the same. This decision is entirely distinguishable on facts and issues involved and does not help the assessee. 15. Reliance has next been placed on the decision of Supreme Court in Western States Trading Co. (P.) Ltd.'s case. In this decision, the point in issue was whether dividend income was to be taken as profits of business and set off against business losses brought forward from earlier years under section 24(2) of the Income-tax Act, 1922. The undisputed facts in this case were that shares were held as part of trading assets of the assessee. The facts of the instant case before us are distinguishable inasmuch as rental income from the property has been shown by the assessee as income from house property obviously on the ground that property i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty on lease and sub-letting operations thereof and the activity of setting off a market and letting shops and stalls in the market may be treated as business activity. The said decision rendered in the context of individual facts of the case would not support the case of the assessee for availing of the benefit of set off under section 72 of the Income-tax Act. 17. Reliance has next been placed on the decision of Supreme Court in National Storage (P.) Ltd.'s case. In this case, the assessee-company purchased a plot of land and constructed thereon godowns for the storage of films. Films were stored in vaults which were licensed to film distributors. The Supreme Court in the facts of the case held that the subject which is hired out is complex one and the income arising from licensing the vaults to vaults holder is liable to be assessed under section 10 of the Income-tax Act, 1922 and not section 9. The decision has been rendered in the context of entirely different set of facts which are distinguishable from the fact of the case of the assessee. This is a mere case of letting out of the property by the assessee as owner of the property. Rental income is derived by the assessee be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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