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TMI Blog1994 (2) TMI 119X X X X Extracts X X X X X X X X Extracts X X X X ..... e, even according to the assessee, taxing the income at ordinary rates was a mistake and in violation of the provisions of section 161(1A) which came into effect from 1-4-1985 and in order to rectify the said defect, the Income-tax Officer gave notice dated 16-2-1990 under section 154, seeking to rectify the assessment orders passed for each of these four assessment years. It is stated in these notices that as this is a private trust deriving income from business and all the beneficiaries are not relative-dependents of the author of the trust, the proviso under section 161(1A) is not applicable and tax should have been levied at maximum marginal rate. However, instead the tax was levied only at ordinary rates which is a mistake. After receipt of the notices, the assessee ultimately failed to file any objections though it had requested adjournments to file its objections. The failure to file the objections was considered to be 'no objection' by the Income-tax Officer for the proposed rectification and, therefore, he passed rectificatory orders all dated 30-3-1990 separately for each of these four assessment years. The tax levied at maximum marginal rate, the tax at ordinary rate and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arginal rate is a mistake apparent from records and, therefore, the Assessing Officer was correct in rectifying any such mistakes by applying the provisions of section 154. The mistake found out was clear and capable of rectification under section 154 and for that reason initiation of proceedings under section 147 is besides the point. There is no possibility of two opinions being present about the applicability of section 161(1A) to the assessee. The contention does not bear any merit and, therefore, he dismissed the appeals for all these four years. 3. Before the Deputy Commissioner (Appeals), apart from the regular ground, some additional grounds also were filed. The third of such common additional ground filed was the following : "The Income-tax Officer ought to have held that section 161(1A) applies to income from business alone and in the instant case as the income is from property, section 161(1A) had no application." 4. I have heard Shri D.V. Anjaneyulu, learned C.A. for the assessee and Shri C.V. Surya Prakash Rao, the learned Departmental Representative. The learned authorised representative for the assessee contended that no doubt, the assessee returned it incomes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome and as such there is no scope for rectification of the assessment at all and on that ground the rectificatory orders are to be held as illegal and all the appeals should be allowed. 5. Shri C.V. Surya Prakash Rao, the learned Departmental Representative, on the other hand, contended that the income earned by the assessee cannot be 'property income' because the marriage hall was not let out for any long-term specific purpose. Marriage halls cannot be treated as house property. Marriage halls can be treated only as commercial assets. Rest rooms also are part of the same building and the charges collected from the occupiers of those rooms were only business income and not property income and as such the following decisions cited on behalf of the assessee, viz., Khalid Mehdi's case, Phabiomal Sons' case, K. Rami Reddy Sons' case, New India Industries Ltd.'s case and CIT v. Shankaranarayana Hotels (P.) Ltd. [1993] 201 ITR 138 (Kar.) do not apply to the facts of the case. Further, the assessee itself admitted that the nature of the income it derived is only 'business income' in its income-tax returns voluntarily for each of the four assessment years. Therefore, the revenue ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion was what is the nature of income derived from letting out the sheds. While answering the question that the nature of the income is not property income but business income, the Karnataka High Court held that the question under which of the heads, enumerated in section 14 of the IT Act, 1961, the particular income falls has to be decided having regard to the facts and circumstances of the case. The Karnataka High Court also held the following : "Section 22 of the IT Act, 1961, indicates that merely because a person is the owner of a property, it does not follow that the income therefrom should be assessed under the head 'income from house property'. It excepts such portions of the property as may be occupied for the purpose of any business or profession carried on by him, the profits of which are chargeable to income-tax. The guidance to be sought is to find out the user of the property and the character in which that property is used." Therefore, it is the user of the property and the character in which that property is used would decide whether the income derived from that property is property income or business income. In this connection the registered will dated 2-6-19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f collecting rusum. Prior to his death the testator himself has been collecting token rent as stated above, both for Kalyana Mandapam as well as for rest rooms in the first floor. The complex itself was constructed in memory of his deceased wife Smt. Karaka Appalamma and the testator determined to continue to use the said building as at present he has been doing. It is clearly stated that the four trustees appointed to take possession of the building and use the building in furtherance of the principles which he had entertained regarding its user. With the amounts collected, the trustees have to lay some concrete slab on the rooms constructed in the first floor for construction of a roof garden and to convert the kitchen sheds downstairs as RCC roofed one as well as dining hall and they have to provide and spend amounts over such permanent constructions. The income derived should be spent for these permanent constructions and after defraying all the expenses the remaining should go to constitute reserve and the said reserve fund should be spent firstly for providing constructions and secondly for the maintenance of the building and subsequently, the first three trustees should enjo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor intended that the hall complex should be used for celebrating marriage and other happy occasions and to provide accommodation to the general public to perform such occasions. Therefore, I have the impression that the intention of the testator is that this complex should more be put to use for the general public utility rather than for running the complex as a business concern. There are certain provisions in the Will which give a free hand to the trustees to let out the marriage hall and the adjoining rooms, etc., on whatever terms they like and to the persons they like, if they so feel. After having gone through the terms of the Will, I am unable to subscribe myself to the theory that the income derived by the assessee is income from business. In any view of the matter, I am unable to agree with the contention that the whole building should be considered as a commercial asset. In Khalid Mehdi's case the question which fell for consideration was whether the income derived from lease of cinema hall was to be considered as income from house property or income from other sources. Ultimately it was held to be income from other sources. This decision, in my opinion, does not help th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Ltd.'s case certain principles or guidelines were given to decide whether income from letting out an asset is business income or income from property. At pages 209 and 210 of the headnote, the following is what is held : "In deciding whether income from letting out an asset is business income or income from property, the following principles should be borne in mind :--- (i) no general principle could be laid down which is applicable to all cases; (ii) whether an income falls under one head or another has to be decided according to the common notions of a practical and reasonable man, for the Act does not provide any guidance in the matter; (iii) in each case what has to be seen is whether the asset is being exploited commercially by the letting out or whether it is being let out for the purpose of enjoying the rent. The distinction between the two is a narrow one and has to depend on certain facts peculiar to each case. Pure and simple commercial assets like machinery, plant, tools, industrial sheds or godowns having high business potentials stand on a different footing from assets like land or building; (iv) if an assessee derived income from a commercial asset which is capa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be done as part of business or it may be done as a landowner. Whether it is the one or the other must necessarily depend upon the object with which the act is done. If the dominant object of leasing out is incidental to and for the purposes of the assessee's business, the income would be business income. What was to be discovered is whether the property is subservient to the main business of the assessee." Among several principles which are to be borne in mind, principle (viii) enumerated above is very very important, for our purposes. The asset in question is a building capable of being used for any other purpose. In such a case when it ceases to be used as a commercial asset either himself or through others, the income derived by letting out the same would more appropriately fall under the head 'income from house property'. Like any other owner of the property he gets income from property as owner. 11. Having regard to the above, I find it very easy to conclude that the real nature of the income derived from the property called 'Sri Lakshmi Venkateswara Kalyana Mandapam' is only property income and not business income. When it is property income, the question of application ..... X X X X Extracts X X X X X X X X Extracts X X X X
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