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TMI Blog2001 (7) TMI 278X X X X Extracts X X X X X X X X Extracts X X X X ..... ied under the head 'Business income' under section 28 of the Income-tax Act, 1961. However, the Assessing Officer disagreed with the assessee and after elaborate discussion the Assessing Officer came to the conclusion that the monthly rental income received by the assessee from the tenants is only to be treated as an income from house property and accordingly computed the total income of the assessee under section 22 of the Act. Against this order of the Assessing Officer the assessee took up the matter in appeal before the CIT(A). The learned CIT(A) by relying upon a judgment of the Hon'ble Supreme Court in the case of Karnani Properties Ltd. v. CIT [1971] 82 ITR 547 held that the income earned by the assessee by letting out the premises was in nature of business activity and, therefore, the entire income shall be taxed as business income. The first appellate authority has directed the Assessing Officer to treat the service charges said to be received by the assessee as business income and to allow proper deduction therefrom. 4. Against this order of the CIT(A) the Revenue has preferred this second appeal. Mr. S. Bhattacharjee, the learned Departmental Representative, submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .4 per sq. ft. The learned senior counsel further submitted that this activity of the assessee in acquiring a building at Calcutta and letting out the same in order to earn income in pursuance of the object of the company as per its memorandum shall be construed as a business activity and the income derived therefrom shall be treated as an income from business under section 28 of the Act. According to the learned Senior counsel, the case of the Hon'ble Supreme Court in Karnani Properties Ltd. is applicable to the facts of the present case and the CIT(A) has correctly decided the case and hence no interference is called for by this Tribunal. The learned counsel further submitted that in respect of previous assessment year the Assessing Officer treated the income of the assessee from the very same house property as income from business and hence the Assessing Officer cannot be permitted to change his views at this stage. The learned senior counsel further submitted that the income of the assessee is only from the rental income received from the property at Calcutta and hence the entire income shall be treated as income from business since the company is letting out the property in fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at it is not possible to say that a particular activity is business because it is concerned with an asset with which trade is commonly carried on. According to the Hon'ble Supreme Court the object of the company in that case was to acquire land and building and to turn the same into account by construction and reconstruction, decoration, furnishing and maintenance of them and by leasing and selling the same. The activity contemplated in the aforesaid clause of the company, assuming it to be a business activity, would not by itself turn the lease into a business deal. Finally, the Hon'ble Supreme Court held as follows-- "Thus clause (a) is a covenant for quiet enjoyment. Clause (b) provides for a renewal of the lease of the demised premises being granted to the lessee for a further term of six years at his request. Clause (c) deals with payment of municipal bills and similar charges and ground rent. Clause (d) provides that the lessor, shall during the continuance of the lease and on its renewal provide various things which included furniture, pillows, mattresses, gas-stoves, bottle coolers, refrigerators, lift, electric fittings and the like and also paint the outside of the buil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 in respect of the extra income derived from the carrying on of an adventure or concern in the nature of trade if the assessee is in occupation of the premises for the purposes of the business." From the above observation of the Hon'ble Supreme Court it is very clear that if the assessee is in occupation of the premises for the purpose of business or carrying on any adventure in the nature of trade, the income derived therefrom can be classified as business income. In the case in our hand the assessee admittedly is not in occupation of the premises and the premises were under the occupation of various tenants for carrying on their trading activities in respect of their field. Moreover, the assessee has no control over the property and at all material times the occupation and possession of the premises continued to be with the tenants. Even though the assessee is in constructive possession under the Transfer of Property Act, for the purpose of Income-tax Act the assessee is not in occupation of any part of the premises for the purpose of carrying on its trading activity in furtherance of its object as per the Memorandum of Association. In the case of CIT v. Halai Nemon Associat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty as its owner, then the income may come under section 22 of the Income-tax Act, 1961. But if the leasing of the property was done as part of the business concern, the income received therefrom, cannot be said to be received as a land owner but as a trader. In other words, if the property is taken on lease, thereafter developed and leased out to various tenants as part of the business activity of the assessee and not in its activity as the owner, then the income has to be treated as business income. In other words, the dictum of the court is clear to the effect that such an income is received as business income, and not as the owner of the property. In this case, the assessee has taken the property on lease, developed the same and has leased out the same as part of its business." From the above case it is very clear whenever the property was let out as an owner for the purpose of earning rental income, the said income has to be treated as income from house property under section 22 of the Act. In the case on our hand it is an admitted fact that the assessee is the owner of the premises and the same was let out to various tenants in terms of the agreement contained in the copy o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it very clear that the Supreme Court was not considering any abstract proposition of law in that case and they are letting down the law applicable to the facts found. 15. In view of the above facts, we are of the considered opinion that the facts of the Hon'ble Supreme Court in the case of Karnani Properties Ltd. is not applicable to the facts of the present case. Even if the similarity of certain facts as found in the case of Karnani Properties Ltd. has to be applied in the case on our hand, it will go against the assessee since the rental income received by the assessee was treated as income from house property by the Hon'ble Supreme Court. So, we are of the considered opinion that the CIT(A) has committed an error in relying upon the judgment of the Hon'ble Supreme Court in the case of Karnani Properties Ltd in arriving at his conclusion that the income of the assessee is one of income from business activity. In respect of service charges the lease deed does not disclose any particulars of service which is accepted to be performed by the assessee. The lease deed reads as if the promoter and builder of the premises is one M/s. Anandilal Poddar Sons Pvt. Ltd. The order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erty for the purpose of earning rental income as an owner and hence we are of the considered opinion that the rental income received by the assessee and other maintenance service charges shall be treated as income from house property. 17. In the case of East India Housing Land Development Trust Ltd. the Hon'ble Supreme Court observed that the income derived by the company from shops and stalls is income received from property and falls under the specific head 'income from house property'. 18. As we have already discussed, the activities of the assessee in letting out the premises to various tenants on monthly rental basis amounts to receiving rental income as an owner and not with the intention to perform any business activity. There is a fine distinction to classify the income derived from property either as a house property income or business income. Even though the object of the assessee company is to acquire land and building and lease out the same the present transaction as appears from the lease deed is only a normal transaction between the landlord and the tenants with a view to receive rental income which otherwise cannot be considered as a business activities. There ..... 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