9911796707
TMI Blog2006 (4) TMI 196X X X X Extracts X X X X X X X X Extracts X X X X ..... under the head Profits and gains of business . Accordingly, we answer the question referred to us in the negative, i.e., in favour of the Revenue and against the assessee. As regards the alternative contention of the learned counsel for the assessee that the expenses incurred in connection with the repairs and maintenance of the subject property held as stock-in-trade by the assessee be allowed under the head Profits and gains of business and that the resultant loss under the head be allowed to be adjusted against the income assessable under the head Income from house property , we are of the view that this issue is beyond the scope and ambit of the question specifically referred to this Special Bench u/s 255(3). Even the assessee-company has raised this issue separately in the other grounds taken in its appeals filed before the Tribunal. It will therefore, be open to the assessee to raise this issue before the Division Bench which shall deal with the same in accordance with law. The matter will now go before the regular Bench for disposing of the appeals keeping in view our decision rendered hereinabove. X X X X Extracts X X X X X X X X Extracts X X X X ..... company for a consideration of Rs. 75 lakhs and possession thereof was also delivered to the assessee-company by the owners on execution of the agreement to sell. At that time, the entire property was tenanted and the assessee-company became entitled to receive the rent from the tenants as per the terms of the agreement. During the previous year ending on 30th Sept., 1979 relevant to asst. yr. 1980-81, the assessee-company received the total rental income of Rs. 2,30,397 and the same was shown by it in the return of income under the head "Income from business". In the assessment completed for asst. yr. 1980-81, the AO, however, held that the said rental income was chargeable to tax under the head "Income from other sources". This action of the AO was upheld by the learned CIT(A) vide his appellate order dt. 26th July, 1989. Aggrieved by the same, the assessee preferred an appeal before the Tribunal and it was argued on behalf of the assessee before the Tribunal that its intention for acquiring the property was not to enjoy a meager rental income but to earn profit by exploiting a commercial asset in pursuance of its main business activity. It was pointed out tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x under the head "Income from other sources" which is a residuary head. 4. Subsequently, a sale deed in respect of the aforesaid property was executed and registered on 31st May, 1980 and the assessee thereby became the owner of the said property. Taking note of this, the AO brought to tax the rental income of Rs. 6,92,795 received by the assessee-company under the head "Income from house property" in the assessment completed for asst. yr. 1982-83 rejecting the claim of the assessee that the said income was its "business income". This treatment given by the AO was confirmed by the learned CIT(A) and the matter again was carried before the Tribunal. In its appellate order dt. 27th July, 1992 passed in ITA No. 5151/Del/1989 for asst. yr. 1982-83, the Tribunal took note of the fact that the assessee-company has now become owner of the property on 31st May, 1980 and that the dispute now was about the taxability of rental income under the head "Income from house property" or "Income from business". Still, the Tribunal proceeded to hold that the rental income received by the assessee-company in asst. yr. 1982-83 was chargeable to tax as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of S.G. Mercantile Corporation (P) Ltd. vs. CIT 1972 CTR (SC) 8 : (1972) 83 ITR 700 (SC). This view taken by the Tribunal in asst. yr. 1992-93 was contrary to the view taken by the Tribunal on a similar issue in the earlier years in assessee's own case and taking note of the same, the said issue has now been referred to this Special Bench for fresh consideration and decision under s. 255(3). 6. The learned counsel for the assessee submitted before us that the intention of the assessee-company behind acquiring the property in question, i.e., Scindia House was never to earn the rental income from the tenants occupying the said property, but the same all along was to exploit the said property commercially in the ordinary course of its business of acquiring, developing and selling the properties. He contended that this was the main object for which the assessee-company was incorporated and having regard to this object as well as the purpose for which the said property was acquired by the assessee-company, the rental income earned by it from the tenants occupying the said property was incidental to the assessee's business as rightly held by the Tribunal consistently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed out from the Tribunal orders passed in the wealth-tax proceedings of the assessee for different years that the said property was held to be stock-in-trade of the assessee by the Tribunal. He contended that the property in question thus, was the commercial asset of the assessee-company of trading nature and the income earned in the form of rent was nothing but the exploitation of the said commercial asset by the assessee. Reliance was placed by him on the decision of Hon'ble Calcutta High Court in the case of CIT vs. Shambhu Investment (P) Ltd. (2001) 168 CTR (Cal) 237: (2001) 249 ITR 47 (Cal) in support of his contention that merely because income is attached to any immovable property cannot be the sale factor for assessment of such income as income from property. What has to be seen is what was the primary object of the assessee while exploiting the property and in case it is found that the main intention is to exploit the immovable property by way of complex commercial activities, it must be held that the income earned from such exploitation is a "business income". 9. The learned counsel for the assessee invited our attention to the copy of agreement to sell exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ." Reliance was also placed by him on the decision of Hon'ble Supreme Court in the case of CIT vs. Chugandas & Co. to contend that the nature of property as well as income has to be seen to ascertain the head under which such income is assessable to tax. He also cited the decision of Hon'ble Supreme Court in the case of Brooke Bond & Co. Ltd. vs. CIT (1986) 57 CTR (SC) 25 : (1986) 162 ITR 373 (SC) wherein it was observed that it is not unusual that commercial considerations may properly describe the source of particular income differently. He also cited the decision of Hon'ble Punjab & Haryana High Court in the case of CIT vs Bedi Techno Projects (P) Ltd. (2002) 255 ITR 75 (P&H) and that of Hon'ble Supreme Court in the case of CIT vs. Indian Bank Ltd. (1965) 56 ITR 77 (SC) in support of assessee's case. 12. Without prejudice to his aforesaid submissions, the learned counsel for the assessee also contended that there was no dispute about the fact that the property in question was the business asset of the assessee being stock-in-trade and therefore, the expenditure incurred in connection with the maintenance of the said property representing stock-in-trade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Land Development Trust Ltd. vs. CIT (1961) 42 ITR 49 (SC); (ii) Shambhu Investment (P) Ltd. vs. CIT (2003) 184 CTR (SC) 91: (2003) 263 ITR 143 (SC); (iii) Madras Silk & Rayon Mills (P) Ltd vs. ITO (2004) 187 CTR (Mad) 487 : (2003) 262 ITR 122 (Mad); (iv) CIT vs. Bhoopalan Commercial Complex & Industries (P) Ltd. (2003) 183 CTR (Kar) 275 : (2003) 262 ITR 517 (Kar); (v) Scindia Potteries (P) Ltd. vs. CIT (2001) 171 CTR (Del) 455 : (2002) 253 ITR 168 (Del); (vi) CIT vs. New India Maritime Agencies (P) Ltd. (2002) 178 CTR (Mad) 34 : (2002) 256 ITR 513 (Mad); (vii) CIT vs. Chennai Properties & Investments Ltd. (2004) 186 CTR (Mad) 409 : (2004) 266 ITR 685 (Mad). 14. The learned Departmental Representative submitted that in the case of Chennai Properties & Investments Ltd., Hon'ble Madras High Court has analyzed the various case laws cited before it in detail on the issue in dispute and on such analysis, it has been held that even if the main object of the assessee-company was to purchase or otherwise acquire and hold the properties and to let out such properties, the income earned from rent in respect of such property owned by it was chargeable to tax under the specific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited at the Bar. It is no doubt true that no precise test can be laid down to ascertain whether rental income received by an assessee from leasing or letting out of assets would fall under the head "Income from house property" or "Profit and gains of business or profession" as observed by Hon'ble Supreme Court in the case of Universal Plast Ltd. cited by the learned counsel for the assessee. Further, as held by Hon'ble Bombay (sic-Gujarat) High Court in the case of New India Industries Ltd., no general principle could be laid down which is applicable to all cases and each case has to be decided on its own facts and circumstances. However, the general principles for deciding this issue have been laid down in the various judicial pronouncements by the higher Courts including Hon'ble Supreme Court and as agreed by the learned representatives of both the sides before us, the issue under consideration can be decided by applying the said principles to the facts of the case on hand. The earliest of these decisions is in the case of East India Housing & Land Development Trust Ltd. vs. CIT wherein it was held by the Hon'ble Supreme Court that the income d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d case was owner of the property whereas in the case of S.G. Mercantile Corporation (P) Ltd. before it, the assessee was a tenant and not the owner. It was, however, observed by the Hon'ble Supreme Court in their judgment rendered in the case of S.G. Mercantile Corporation that in case the assessee is the owner of the buildings or lands appurtenant thereto, the income derived from rent in respect of the property owned by him would be liable to tax under the head "Income from house property" even if the object of the assessee in purchasing the landed property was to promote and develop market thereon. It was further observed by the Hon'ble Supreme Court that it would also make, no difference if the assessee was a company which had been incorporated with the object of buying and developing landed properties and promoting and setting up markets thereon. 18. It is thus clear that the facts involved in the case of S.G. Mercantile Corporation (P) Ltd. and Karanpura Development Co. Ltd. cited by the learned counsel for the assessee were materially different and the decisions came to be rendered in the light of such different facts. Similar is the position as regards the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other assets such as machinery, plant, furniture, etc. 20. In the case of CIT vs. National Storage (P) Ltd. (1963) 48 ITR 577 (Bom) which came to be affirmed by the Hon'ble Supreme Court in CIT vs. National Storage (P) Ltd. (1967) 66 ITR 596 (SC), it was held that income that falls under any specific head has got to be computed under that head only in the manner specified in the relevant provisions and if the income falls under the head "Income from property", it has to be taxed under the relevant section only and cannot be taken to the other head on the ground that the business of the assessee was to exploit property and earn income or because the income was obtained by a trading concern in the course of its business. It was also held that house owning, however, profitable, cannot be a business or trade under the IT Act and where income is derived from house property by the exercise of property rights properly so-called, the income falls under the head "Income from house property". The said character is not changed and the income does not become income from trade or business if the hiring is inclusive of certain additional services which are relatively in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tivity which brings income to him but it is his investment in property or his ownership of property which brings income to him. In the present case, the assessee-company was not in a position to use the property in question owned by it for the purpose of its business of turning the same into account for the reason that the permission from the local authority, i.e., NDMC was not available and that the property was already occupied by the tenants. In these circumstances, the rental income was received by it because of the ownership of the said property and not because of its business or commercial activity which brought that rental income to it. The rental income thus was received by the assessee-company as owner and not as a businessman/trader. On the other hand, efforts were being made by the assessee-company to evacuate the tenants and get the possession thereof so as to turn the same into account in the ordinary course of its business which again goes to show that the rental income was being received by it merely because of owner of the said property and not because of any business or commercial activity undertaken by him. As submitted on behalf of the assessee-company before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd-holders such as fire services for which, it paid an annual amount to the municipality, railway booking offices in the premises free of charge for the convenience of the ward-holders and also maintained the regular staff for running the aforesaid services. The exploitation of immovable property in the said case thus was by way of complex commercial activities and it was, therefore, held that the activity of the company earning the income was a business activity and the source of the income was not ownership of house property but was the business of the assessee. The subject hired in the said case, therefore, was a complex one and the income derived was not so much because of the bare letting of the tenement but because of the facilities and services rendered and the income derived was held to be income not from exercise of property rights properly so called so as to fall under the head "Income from house property" but income from operations of a trading nature falling under the head "Profits and gains of business or profession". 24. The learned counsel for the assessee has also laid heavy emphasis on the nature of subject property held by the assessee-company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee-company in the present case is chargeable to tax under the head "Income from house property", the learned Departmental Representative has heavily relied on the decision of Hon'ble Madras High Court in the case of CIT vs. Chennai Properties & Investments Ltd. In the said decision, Hon'ble Madras High Court has discussed and analyzed various decisions of the different High Courts as well as that of Hon'ble Supreme Court available on the issue. On a careful perusal of the said decision of Hon'ble Madras High Court cited by the learned Departmental Representative and keeping in view the various judicial pronouncements discussed above, the legal position which emerges can be summarized as follows. If in the given case, the assessee is found to be the owner of the property and rental income is earned by him by letting out predominantly the said property, such rental income will be assessable under the head "Income from house property" and not "Profits and gains of business or profession". What is let out should be predominantly the said property inasmuch as the rental income should be from the bare letting of the tenements or ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
