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TMI Blog2024 (10) TMI 1209X X X X Extracts X X X X X X X X Extracts X X X X ..... that the AO in the present case has not disputed the nature of the business of the assessee and more importantly, the income offered to tax in respect of all the relevant assessment years, (subject matter of different appeals) is derived from letting out various properties, and which is the business activity of the assessee, to earn such income, through its business, as seen from the main objectives, outlined in the memorandum of association. It is hence, not the case that the business of the assessee is of a nature that the income from house property is required to be treated as an incidental income not derived from its main business, when it is derived from its main business of letting out its properties. In our opinion, there is certainly a difference between the two situations, firstly where the main object of the assessee is to earn income from letting out properties, and secondly, where the assessee incidentally earns income apart from its main business i.e. from letting out its house properties, both these situations are totally distinct. Adverting to the law as laid down in Chennai Properties Investments Ltd. [ 2015 (5) TMI 46 - SUPREME COURT] it is clear that what must be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r short the assessee ) from its properties was assessable under the head Income from house property or as claimed by the assessee under the head Income from Profits and Gains of Profession or Business . 2. The nine assessment years in question relevant to each of these appeals and the date of the impugned orders passed by the Tribunal are as follows:- Sr.No. Income Tax Appeal No. Assessment Year with regard to which the Appeal is filed Impugned Order passed by the Appellate Tribunal 1. ITXA/686/2007 1989-1990 Dt. 22/02/2006 Assessed it as income from house property 2 ITXA/558/2007 1990-1991 Dt. 22/02/2006 Assessed it as income from house property 3 ITXA/559/007 1991-1992 Dt.22/02/2006 Assessed it as income from house property 4 ITXA/685/2007 1992-1993 Dt. 22/02/2006 Assessed it as income from house property 5 ITXA/764/2007 1995-1996 Dt. 22/02/2006 Assessed it as income from house property 6 ITXA/702/2015 2005-2006 Dt. 28/08/2014 Assessed it as income from house property 7 ITXA/338/2015 2006-2007 Dt. 28/08/2014 Assessed it as income from house property 8 ITXA/337/2015 2007-2008 Dt. 28/08/2014 Assessed it as income from house property 9 ITXA/339/2015 2008-2009 Dt.28/08/2014 Assessed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r short CIT (A) ) inter alia on the ground that the Assessing Officer ought to have calculated the annual value of the property on the basis of the actual rent / license received by the assessee. 8. It is the assessee s case that while the assessee s appeal before the CIT (A) was pending, the assessee filed its revised Returns computing the lease / rental income under the head income from profits and gains of business . On 9 November 1993, the assessee filed additional grounds of appeal before CIT (A) contending that the income of the assessee should be taxed under the head profits or gains from business or profession . 9. Further it is the assessee s case that for the AY 1990-91, AY 1991-92 and AY 1992-93, the Assessing Officer assessed the income of the assessee under the head income from house property , such assessment orders were also assailed before the CIT (A) and thereafter, before the Tribunal are the subject matter of the other connected appeals being decided by this judgment. 10. The assessee has contended that there is something peculiar inasmuch as for the AY 1993-94, 1994-95, 1996-97, 1997-98, 1998-99 and 1999-2000, which is for six assessment years, the Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, on the facts and the circumstances of the case, and in law, the Tribunal was right in concluding that the income earned by the Appellant from its properties was assessable under the head Income from house property as against under the head Profits and gains of business or profession as contended by the Appellant? (c) whether, on the facts and the circumstances of the case, and in law, the Tribunal was correct in deciding the issue relating to the head under which the income received by the appellant was to be taxed by solely relying on the judgment of the apex court in East India Housing and Land Development Trust V/s. CIT (1961) 42 ITR 49 (SC) and ignoring other judgments given by the same court which are to the contrary effect? 14. Mr. Cama, learned counsel for the assessee has made the following submissions:- i. The Tribunal could not have passed the impugned order solely on the basis of the decision of the Supreme Court in East India Housing (supra), which in the facts and circumstances of the case, was not applicable to the assessee s case. Mr. Cama submits that in East India Housing (supra), the assessee was formed with the object of promoting and developing markets, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rinciples of consistency, the impugned order is rendered bad and illegal. It is submitted that in fact the Revenue itself having accepted such position for almost 11 assessment years, it now cannot turn around and contest the present appeal on the ground that the Tribunal was justified in passing the impugned order. In support of such contention, Mr. Cama has placed reliance on the decision of the Supreme Court in M/s. Radhasoami Satsang, Saomi Bagh, Agra v. Commissioner of Income Tax (1992) 1 SCC 659 and the decision in Godrej Boyce Manufacturing Company Ltd. vs. Dy. Commissioner of Income Tax, Mumbai Anr. (2017) 7 SCC 421 which were also referred in a recent decision of this Court in Pr. Commissioner of Income Tax-3 vs. Banzai Estates P. Ltd. 2024 SCC OnLine Bom 2504 in the context of principles of consistency. Mr. Cama, accordingly, submits that the appeal is to be decided in favour of the assessee and against the Revenue. 15. On the other hand, Mr. Suresh Kumar, learned counsel for the respondents would submit that the Tribunal has adopted an appropriate approach in applying the principles of law as laid down by the Supreme Court in the case of East India Housing (supra). It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned Counsel for the Assessee could not make any other submissions In view of the above Judgment of the Supreme Court. Therefore, we hold that the rental income from Immovable property owned by the assessee is assessable under the head From House Property . 18. In the aforesaid circumstances, the primary question before the Court is whether the approach of the Tribunal was correct in categorising that the assessee s case would be squarely hit by the law as laid down by the Supreme Court in East India Housing (supra). 19. We may observe that it is a settled principle of law that the Assessing Officer, in assessing the income of assessee, is required to be conscious about the nature of the assessee s business and apply his mind to the source of income, for the income being taxed as the law mandates. 20. In the present case, it appears to be not in dispute that the only source of income for the assessee was the income derived from rent or amounts as received by the assessee from letting out its properties. The record indicates that the Assessing Officer in the present case has not disputed the nature of the business of the assessee and more importantly, the income offered to tax in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hin a specific head as set out in Section 6, the fact that it may indirectly be covered by another head will not make the income taxable under the latter head. The Supreme Court observed that the income derived by the company from shops and stalls was income received from property falling under the specific head described in Section 9. It was held that the character of the income was not altered because it was received by a company formed with the object of developing and setting up markets. The relevant observations of the Supreme Court are required to be noted which reads thus: 2. The appellant contends that because it is a company formed with the object of promoting and developing markets, its income derived from the shops and stalls is liable to be taxed under Section 10 of the Income Tax Act as profits or gains of business and that the income is not liable to be taxed as income from property under Section 9 of the Act. The appellant is undoubtedly under the provisions of the Calcutta Municipal Act, 1951, required to obtain a licence from the Corporation of Calcutta and to maintain sanitary and other services in conformity with the provisions of that Act and for that purpose ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and protect the building and also provided certain services, such as heating and cleaning to the tenants at an additional charge. The taxing authorities sought to charge the income from letting out of the rooms as receipts of trade chargeable under Schedule D, but that claim was negatived by the House of Lords holding that the rents were profits arising from the ownership of land assessable under Schedule A and that the same could not be included in the assessment under Schedule D as trade receipts. 5. In Commercial Properties Ltd. v. CIT [(1928) 3 ITC 23 ] income derived from rents by a company whose sole object was to acquire lands, build houses and let them to tenants and whose sole business was management and collection of rents from the said properties, was held assessable under Section 9 and not under Section 10 of the Income Tax Act. It was observed in that case that merely because the owner of the property was a company incorporated with the object of owning property, the incidence of income derived from the property owned could not be regarded as altered; the income came more directly and specifically under the head property than income from business. 6. The income receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India Housing (supra). It is in such circumstances, the question which fell before the Supreme Court was as to whether the income derived by the company from letting out the property, is to be treated as income from business or it should be treated as rental income from house property. The Supreme Court, in answering such question, noted the Memorandum of Association of the appellant which mentioned the main objects as well as incidental or ancillary objects of the assessee. The main object being to acquire and hold the properties known as Chennai House and Firhavin Estate both in Chennai and to let out those properties, as well as make advances upon the security of lands and buildings or other properties or any interest therein. The Court observed that holding such properties and earning income by letting out those properties was the main objective of the company and accordingly, the entire income which was accrued and assessed in the return was from letting out those properties, when there was no other income of the assessee except the income from letting out of these two properties. It is in this context, referring to the decision in East India Housing (supra), the Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come of the assessee cannot be treated as income from the house property . Accordingly, the judgment of the High Court was set aside. The relevant observations of the Supreme Court are required to be noted, which read thus: 6. The memorandum of association of the appellant Company which is placed on record mentions the main objects as well as the For such reasons, apparently there was an error on the part of the tribunal in holding that the assessee s income is required to be treated as income from house property and not the income from business. 7. It transpires that the return of a total income of Rs 2,44,030 was filed for the assessment year in question that is Assessment Year 1983-1984 and the entire income was through letting out of the aforesaid two properties, namely, Chennai House and Firhavin Estate . Thus, there is no other income of the assessee except the income from letting out of these two properties. We have to decide the issue keeping in mind the aforesaid aspects. 8. With this background, we first refer to the judgment of this Court in East India Housing and Land Development Trust Ltd. Case [East India Housing and Land Development Trust Ltd. v. CIT, (1961) 42 ITR 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before income, profits or gains can be brought to computation, they have to be assigned to one or the other head. These heads are in a sense exclusive of one another and income which falls within one head cannot be assigned to, or taxed under, another head. Thereafter, the Court pointed out that the deciding factor is not the ownership of land or leases but the nature of the activity of the assessee and the nature of the operations in relation to them. It was highlighted and stressed that the objects of the company must also be kept in view to interpret the activities. In support of the aforesaid proposition, number of judgments of other jurisdictions i.e. Privy Counsel, House of Lords in England and US courts were taken note of. The position in law, ultimately, is summed up in the following words: ( Karanpura Development case [(1962) 44 ITR 362 (SC)], ITR p. 377) As has been already pointed out in connection with the other two cases where there is a letting out of premises and collection of rents the assessment on property basis may be correct but not so, where the letting or sub-letting is part of a trading operation. The diving line is difficult to find; but in the case of a com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ennai Properties Investments Ltd., (2004) 186 CTR 680 (Mad)] of the High Court and restore that of the Income Tax Appellate Tribunal. No orders as to costs. 24. Adverting to the law as laid down in Chennai Properties Investments Ltd. (supra), it is clear that what must be borne in mind for the Court is to consider the main objective of the assessee as contained in the Memorandum of Association, and that the deciding factor, is not the ownership of land or leases but the nature of the activity of the assessee and the nature of the operations in relation to them. It is the main objective of the company which needs to be the focal point, to consider the business of the assessees in considering whether any income derived from such properties is the income from profits and gains of business or profession or the same would be required to be regarded as income from house property . In the present case, the income of the assessee is derived from letting out of the properties, which in fact, is the principal business of the assessee as seen from its main objectives of the assessee as contained in its memorandum of association, therefore, the assessee was correct in accounting such income un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the decision in M/s. Radhasoami Satsang, Saomi Bagh, Agra (supra) as also the decision in Bharat Sanchar Nigam Ltd. Anr. Vs. Union of India Ors. [2006] 282 ITR 273 (SC) made the following observations:- 13. In the prior Assessment Years, the Assessing Officer had accepted the assessee's treatment of such income as an income from house property, which is one of the factors which has weighed with the Tribunal to allow the Appeals filed by the assessee, on the principle of consistency. We are of the opinion that such principles are appropriately applied by the Tribunal. The Supreme Court has held it to be a settled principle of law that although strictly speaking res judicata does not apply to income tax proceedings, and as such, what is decided in one year may not apply in the following year. Thus, when a fundamental aspect permeating through different assessment years has been treated in one way or the other and that has been allowed to continue such position ought not be changed without any new fact requiring such a direction. ( See: M/s. Radhasoami Satsang, Saomi Bagh, Agra v. Commissioner of Income Tax [1992] 1 SCC 659) . The decision of the Supreme Court in M/s. Radhasoami ..... X X X X Extracts X X X X X X X X Extracts X X X X
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