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TMI Blog2006 (7) TMI 354X X X X Extracts X X X X X X X X Extracts X X X X ..... property". In this connection, the Assessing Officer referred to decision of Hon ble Bombay High Court in the case of CIT v. National Storage P. Ltd. [1963] 48 ITR 577 which was subsequently affirmed by the Supreme Court in the case of CIT v. National Storage (P.) Ltd. [1967] 66 ITR 596. According to the Assessing Officer as per above decision, house owning, howsoever profitable, cannot be a business or trade under the Income-tax Act and where the income is derived by the exercise of property rights, the income has to be assessed under the head "Income from house property". In the light of his above view, the Assessing Officer held that business losses could not be adjusted against house property income disclosed by the assessee as per provision of section 72(1) of Income-tax Act. The Assessing Officer for above view also referred to and relied upon decision of Supreme Court in the case of S.G. Mercantile Corpn. (P.) Ltd. v. CIT [1972] 83 ITR 700. Their Lordship in the above case observed as under: "In case the assessee is the owner of the buildings or lands appurtenant thereto, he would be liable to pay tax under the above provision (that is under section 9 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Delhi) is totally applicable to the facts of the appellant s case. In this case rental income had consistently been assessed as business income in the earlier assessment years but during the year under appeal, the Assessing Officer had assessed it as "income from house property" without bringing any distinguishing feature on record to change his opinion. In the case of Birumal Gaurishanker Jain Co. v. Settlement Commission 195 ITR 792 (SB), the Hon ble Supreme Court followed the principle of consistency by referring to its own judgment in the case of Radhasoami Satsang v. CIT 193 ITR 321 (SC). Under these circumstances, the first issue in both assessment years 1996-97 and 1998-99 are decided in favour of the appellant and against revenue. The Assessing Officer is accordingly directed to treat the rental income from property of the company as income from business and not as income from house property." 9. The revenue is aggrieved and has brought the issue in appeal. I have heard both the parties. I find from record that this matter was adjourned several times as a similar question was pending before a Special Bench and decision of the said Bench was awaited. The Specia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asset for earning business income and not retained for enjoying rental income. The learned counsel for the assessee further relied upon decision of Supreme Court in the case of CIT v. Cocanada Radhaswami Bank Ltd. [1965] 57 ITR 306 as also on the decision of Hon ble Delhi High Court in the case of CWT v. Allied Finance (P) Ltd. [2005] 195 CTR 528 . 11. The learned Departmental Representative opposed above submissions. He appreciated that principle of consistency is to be followed having regard to facts and circumstances of the case. Assessment under the Income-tax Act has to be made in accordance with law and if it is found that income was assessed under a wrong head in one year or more, then nothing prevents the department from rectifying the error or correcting its approach. The principle of res judicata or estopppels are not applicable to income-tax proceedings. The Assessing Officer while making assessment had given good basis and it was necessary for learned CIT (Appeals) to see whether on the basis of decision given by the Assessing Officer, rental income was rightly taken under the head "House property income" or not. Instead of considering that question on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned Members also noted decision of Hon ble Supreme Court in the case of Karanpura Development Co. Ltd. v. CIT [1962] 44 ITR 362 wherein it was held that a company formed with the specific object of acquiring properties not with a view to leasing them as property but to selling them or turning them to account even by way of leasing them out as an integral part of business, cannot be said to treat them as land owner but as trader. It was further held that where a company acquired properties which it sold out with a view to acquiring other properties to be dealt within the same manner, the company was not treating them as properties to be enjoyed in the shape of rents which they yield but as a kind of circulating capital leading to profits of business. It was also held that the deciding factor in this regard is not the ownership of land or leases, but the nature of activity of the assessee and the nature of the operations in relation to them. Thereafter reference is made to decision of Supreme Court in the case of S.G. Mercantile Corpn. P. Ltd. ( supra ) wherein it was held that where an assesee who, as part of his essential trading activity takes lease of property and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting out of a building owned by it, was providing other amenities/services to the tenants and those tenants in addition to paying rents, were making separate payments for the other services/amenities provided by the assessee-company. The question before the Hon ble Apex Court was whether rendering of such services to the tenants by the assessee-company which owned building would constitute its business activity and it was held by their Lordships that the assessee had two sources of income, one by way of rental income and other from service charges. The service charges collected by the assessee were held by the Hon ble Apex Court to be "income from business" whereas the rent derived from letting out the building owned by the assessee-company was held to be assessable as "income from property". In the case of S.G. Mercantile Corpn. (P.) Ltd. v. CIT ( supra ) as well as in the case of Karanpura Development Co. Ltd. v. CIT ( supra ) relied upon by the learned counsel for the assessee, the assessees were not the owner of the property but they were holding the leasehold rights of the subject property and considering that the liability to tax under the head "Income from house pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court held that the only exception to this proposition are cases where the letting of building is inseparable from the letting of the machinery, plant and furniture etc. where the rental received for the building is to be assessed under the head "Income from other sources" alongwith the rental received for other assets such as machinery, plant, furniture etc. 20. In the case of CIT v. National Storage (P.) Ltd. 48 ITR 577 (Bom.) which came to be affirmed by the Hon ble Supreme Court in 66 ITR 596 , 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 Income-tax Act and where income is derived from house property by the exercise of property rights properly s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon ble Supreme Court has held that if an assessee carries on business of purchasing and selling buildings, the profits and gains earned by transaction in buildings will be shown under the head "Profits and gains of business or profession", but income received from the buildings so long as they are owned by the assessee will be shown under the head "Income from house property". In the case of CIT v. New India Maritime Agencies Pvt. Ltd. ( supra ), the rental income received by the assessee from properties owned by it and let out to others was held to be assessable to tax under the head "Income from house property" and not under the head "Profits and gains of business or profession". It was also held by the Hon ble Madras High Court that the question as to whether buildings owned by the assessee are capable of being regarded as commercial assets is not relevant for deciding as to whether, when those assets had not been used in the business of the assessee but were only let out, such rental income was to be assessed as "Income from house property". ****** 26. In the present case, the subject property let out by the assessee-company was undisputedly owned by it and it was a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es where letting of building is inseparable from letting of machinery, plant and furniture and in such cases rental income received from the building is to be assessed under the head "Income from other sources". The learned Members of Special Bench also noted as having been laid down by the Supreme Court that house owning howsoever profitable cannot be a "business or trade" under the Income-tax Act and where income is derived by exercise of property rights properly so-called, the income falls under the head "Income from house property". The learned Members held that even when property was taken for development and for sale as a trader and was held as "stock-in-trade", the rental income received before sale of property, was liable to be assessed under the head "House property". For the above proposition, decision of Supreme Court in the case of Chugan Das Co. ( supra ) and case of New India Maritime Agencies (P.) Ltd. have been cited and relied upon. There is no doubt that in the case of National Storage P. Ltd. ( supra ) income from letting out of vaults for storage of films was held to be not assessable under the head "House property" with the following observations : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mercial exploitation. No indication of above is available on admitted facts. Rent received from the building is directly attributable to ownership of the building. 16. The assessee has contended that the building in question was stock-in-trade and even on its sale business income was shown and not capital gain. It may be so. But for determining the present question well laid down tests by Hon ble Supreme Court are required to be applied. Having regard to clear cut law, it would not make any material difference that the assessee had showed income from transfer of part of this building and other buildings under the head "Business" and not under the head "Capital gain". Another plea strongly advanced by the assessee was that on account of principle of consistency, the view that rental income is business income, cannot be altered or changed. I find from record that revenue had all along been challenging the conclusion that rental income is house property income and matters are shown to be carried right up to High Court where they are admitted to be pending. It is not that some decision of High Court was accepted and that issue had attained finality. Principles of consistency are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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