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TMI Blog2012 (7) TMI 666X X X X Extracts X X X X X X X X Extracts X X X X ..... r, 1995. In the return, the assessee set off the business loss brought forward from the assessment year 1994-95 against its income by way of rent, car and computer hire charges and commission income and declared a net loss of Rs.14,20.460/-. The assessing officer was of the view that the rental income of Rs.6,49,235/- received while letting out the properties is chargeable to tax under the head "income from house property" and that the hire charges and commission income of Rs. 6,92,220/- was chargeable to tax under the head "income from other sources" and, therefore, the brought forward business loss was not permitted to be set off against the income shown under the aforesaid two heads of income under Section 72(1) of the Act. He was of the view that the Section permitted adjustment of brought forward business loss only against profits assessed under the head "business". In this view of the matter, he called upon the assessee to explain the claim for set off. 3. The assessee argued that it was carrying on the business of leasing, selling and renting of real estate properties, that renting of the properties was also one of the main objects of the company according to the Memo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness", and was properly assessable only under the residual head, namely, "income from other sources". In this view, the Assessing Officer rejected the assessee‟s plea that brought forward business loss could be adjusted against the service charges received from M/s Tulika Advertising and Marketing Pvt. Ltd. 6. With regard to the car and computer hire charges and the commission received from M/s Tulika, all of which aggregated to Rs. 5,78,220/-, the assessee submitted that it had procured business to the tune of Rs.24,46,200/- from Delhi Police, Zee TV, Doordarshan and COSMO to M/s Tulika Advertising and Marketing Pvt. Ltd. and in support of the claim a copy of the letter dated 30th March, 1995 was filed and it was contended that the commission of Rs.2,44,620/- received from M/s Tulika represented business income available for set off of the brought forward business loss. This claim was rejected by the Assessing Officer who held that the commission income can be classified and assessed only under the residual head and not as the business income of the assessee. He noted that the assessee itself has shown the commission income under the head "other income" in its profit and lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treated as rental income and since letting out of the properties was the assessee‟s business, the service charges were also available for being set off against the brought forward business loses. 10. Turning to the income by way of car and computer hire charges and commission income, it was held by the CIT (Appeals) that the activities of letting out the vehicles and computers and earning commission income amounted to business carried on by the assessee, even on the footing that income derived by letting out idle business assets, though temporary, can amount to business. It would appear that before the CIT (Appeals) the assessee had contended that the objects clause of Memorandum of Association permitted it to carry on such business and in any case the minutes book reflected that the company had been carrying on the business of commission agency and hire charges. This contention was accepted by the CIT (Appeals). According to him carrying on a business activity was not confined to activities by way of trade, commerce or manufacture, but also took into account the rendering of services to others, which may be of a variegated character, which would also amount to business. 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fession" is a loss to the assessee, not being a loss sustained in a speculation business, and such loss cannot be or is not wholly set off against income under any head of income in accordance with the provisions of section 71, so much of the loss as has not been so set off or, where he has no income under any other head, the whole loss shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and - (i) it shall be set be off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year;" 14. This Section is substantially the same as Section 24 of the Indian Income Tax Act, 1922 (hereinafter referred to as the „old Act‟). Section 24 of the old Act came up for consideration before the Supreme Court in CIT, Andhra Pradesh v. Cocanada Radhaswami Bank Ltd., (1965) 57 ITR 306. It was observed by Subba Rao, J. (as he then was) as under: - "A comparative study of sub-sections (1) and (2) of section 24 yields the same result. While in sub-section (1) the expression "head" is used, in sub-section (2) the said expression is conspicuously omitted. This designed dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on by him". In view of the similarity in the language of Section 24 (1) & (2) of the old Act and Section 72 (1) of the Act, the ruling of the Supreme Court cited above and the observations which we have extracted earlier apply with equal force to the interpretation of provisions of Section 72 (1) of the Act. 16. It is not necessary to multiply authorities on the point and the position which emerges is that in the subsequent year in which the assessee claims set off of the brought forward business loss, there is no condition that the business income against which the brought forward loss is claimed to be sought for should have been computed under the head "profits and gains of business". The income against which the brought forward loss is claimed to be set-off should represent business income judged by the application of commercial principles, and not on an application of the provisions of the Act. 17. The matter does not end there. It calls for an inquiry as to whether the rental income and the income by way of hire charges and commission earned by the assessee, though assessed under the head "income from house property" and "income from other sources" can be treated as the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efully and we think his contention has to be conceded. We also find justification for his criticism that the Tribunal overlooked the legal position and decided the appeal merely on the basis that the rental income has to be statutorily assessed under the head "income from house property" and the hire charges and commission income have to be assessed compulsorily as "income from other sources". The Tribunal would be right if the controversy before them was merely as to under which head these items of income should be assessed, having regard to the provisions of the Act. The controversy before the Tribunal, however, was not limited to this question. One had to apply the provisions of Section 72 (1) to ascertain whether, notwithstanding the pigeon-holing of the receipts into the specific heads of income as provided under the Act, by applying commercial principles these receipts could be considered as the business income of the assessee company on a commercial perspective. The Tribunal had, with respect, missed this aspect in its order. 20. The main objects of the assessee company are, according to its memorandum of association the carrying of business of leasing, selling and renting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee amounted to a business has to be decided not on the basis of the head of income under which the result of those activities is assessed for the purposes of the Income Tax Act, but on the basis of commercial principles. We have no doubt that on the findings recorded by the lower authorities, it would follow that the rental income, hire charges from car and computer and the commission income all represent the profits and gains of business carried on by the assessee in the assessment year 1995-96. It follows that the brought forward business loss can be set off against these items of income. 21. It was said on behalf of the Revenue that in the judgment in East India Housing and Land Development Trust Ltd. v. CIT, (1961) 42 ITR 49 it has been held that the income realised from the tenants of the shops and stalls built by a company, incorporated with the object of buying landed properties and promoting and developing markets in Calcutta, was not liable to be taxed under the head "profits and gains of business" because there was a specific provision in the Act to assess such income under the head "income from house property". It was on this basis contended that the Tribunal canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rwise. But a company formed with the specific object of acquiring properties not with the 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 its business, cannot be said to treat them as landowner but as trader. The cases which have been cited in this case both for and against the assessee company must be applied with this distinction properly borne in mind. In deciding whether a company dealt with its properties as owner, one must see not to the form which it gave to the transaction but to the substance of the matter." 23. The facts of the present case, judged in the light of the above observations lend support to the contention of the assessee that by letting out the properties held as stock-in-trade, it was carrying on a business activity. With regard to the hiring of car and computers we have already noted that the CIT (Appeals) has found that they were hired out as they remained idle and assessee thought it prudent to exploit them by letting out temporarily to others. The commission income received by the assessee from Tulika is for obtaining or procuring business for the latter which u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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