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TMI Blog2003 (3) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... in holding that the rental receipts derived from letting out of properties should be assessed under the head 'Business'? (2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in law in holding that the expenses incurred for the purpose of letting out of the properties should be allowed as 'business expenditure'?" The assessment years are 1979-80, 1983-84 and 1984-85. The assessee owns two buildings in the city of Chennai, "Chennai House" and "Firhavan Estates" and received rental income by letting out those buildings. The assessing officer declined to assess that rental income under the head 'Income from business' and assessed the same under the head 'Income from property'. The Commissioner having allowed the assessee's appeal, the Revenue carried the matter to the Appellate Tribunal which has confirmed the view of the Commissioner. The main objects of the assessee-company which was registered on May 24,1974, with a capital of Rs. 1,00,000 are as under: "(1) To purchase or otherwise acquire and hold the properties known as 'Chennai House', at Esplanade, Madras and 'Firhaven Estate' at South Beach Road, Madras, and lands, buildi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1] 42 ITR 49 where it was observed that 'the income derived by the company from shops and stalls is income received from property and falls under the specific head described in section 9. The character of that income is not altered because it is received by a company formed with the object of developing and setting up markets". In the case of Sultan Brothers Pvt. Ltd. v. CIT [1964] 51 ITR 353 (SC), the assessee had leased out the building fully equipped and furnished to be used as a hotel, and the matter in issue was as to whether the income derived under that lease was taxable as business income or income from property, or income from other sources more specifically under sub-section (4) of section 12 of the Indian Income-tax Act, 1922, which dealt with composite income in the case of letting out of furniture with building. The court held that lease was a composite one and therefore, income so collected was to be dealt with under section 12(4). While so holding the court observed that: "Because of the composite character of the income it becomes a new kind of income, not covered by section 9, i.e., income not from the ownership of the building alone, but, income which though a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tuated on Park Street, Calcutta, and consisted of numerous residential flats and over a dozen shops. Those tenants in addition to paying rents, had to make separate payments which included charges for electric current, for use of lifts, for supply of hot and cold water, for arrangement for scavenging, for providing watch and ward and other amenities. The apex court proceeded on the basis that the assessee had two sources of income, one by way of rental income and the other from service charges. The service charges collected by the assessee was held by the court to be income from business. The law laid down in the case of Karnani Properties [1971] 82 ITR 547 (SC), thus, was that rent derived from letting would be assessable as income from property. That decision is clearly in accordance with the decision of the Constitution Bench in the case of Sultan Brothers [1964] 51 ITR 353 (SC) which had approved the decision of the three-judge Bench in the case of East India Housing and Land Development Trust Ltd. [1961] 42 ITR 49 (SC). S.G. Mercantile Corporation P. Ltd. v. CIT [1972] 83 ITR 700 (SC) was a case of an assessee-company which had obtained a market place on lease and sublet p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the transaction will only be exploitation of property by an owner thereof, but not exploitation of business assets." On the facts of the case before it, the court affirmed the findings of the High Court that income received by the assessee from the properties was not business income. This court in the case of CIT v. V. Shanmugham [1984] 147 ITR 692 (Mad), on the facts of the case before it and without reference to any of the decisions of the apex court or this court held that income derived by way of charges received from the changing body of occupants in lodging houses was to be assessed as business income. It was held that running of lodging house, on the facts of that case was not as owner of the property. In the case of Anaikar Traders and Estates (P.) Ltd. (No.1) v. CIT [1990] 186 ITR 175 this court, after referring to the decisions of the apex court in East India Housing and Land Development Trust Ltd. v. CIT [1961] 42 ITR 49 (SC) as also the case of CEPT v. Shri Lakshmi Silk Mills Ltd. [1951] 20 ITR 451 and United Commercial Bank Ltd. v. CIT [1957] 32 ITR 688 held that the income derived from the letting out of buildings owned by the assessee whose object was acquisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reto of which the assessee is the owner". The word "building" is not confined in its scope only to dwelling houses. "House" is defined in the Oxford Dictionary of English, 10th edition, as: a building for human habitation especially one that is lived in by a family or by a small group of people consisting of ground floor and one or more number of stories. The word "house" in association with other words also has many other meanings. But, a commercial building is not regarded as a house. That, however, would not take the income from such buildings out of the ambit of section 22. Though it is not clear from the context as to why the Act describes income from property as income from house property, the substantive provision of law which creates the charge and obligates the person who receives such income to have it assessed under that head does not confine its application only to house property, but extends to all buildings whether such building is used as dwelling house or for other purposes. It has been held by the Supreme Court uniformly in all cases where the issue was the head under which the rental income from buildings is to be assessed, that such income is to be assessed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be made hereafter, but under section 9 of the Act. A concrete instance of this type is afforded by the case of East India Housing and Land Development Trust Ltd. v. CIT [1961] 42 ITR 49." After referring to the case of Karanpura Development Co. Ltd. v. CIT [1962] 44 ITR 362 (SC), which was a case of a lessee receiving rental income from its sub-lessee, the lease and sub-lease being coal mining leases, the court observed: "So far as such assessees are concerned, who as part of their essential trading activity take lease of property and sublet parts thereof with a view to make profits, the dictum laid down above, in our opinion, would hold good and the profits would have to be treated as business income." Although it was held by the Constitution Bench in the case of Sultan Brothers [1964] 51 ITR 353 (SC) that whether a particular letting is business has to be decided in the circumstances of each case and that each case has to be looked at from a businessman's point of view to find out whether the letting was the doing of a business or the exploitation of his property by an owner, in all the cases which have come before the courts involving commercial or residential buildings o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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