9911796707
TMI Blog1995 (9) TMI 90X X X X Extracts X X X X X X X X Extracts X X X X ..... lease a partly constructed property at Ward No. 15, Navagam, Revenue Survey No. 1/2 Paiki Survey Nos. 485 and 486 TPS No. 4, final plot Nos. 144B and 144C. This property was co-owned by Shri Amratlal Hargovandas Relia in his individual capacity and the respective HUFs of his three sons Arvindkumar A. Relia, Ashokkumar A. Relia and Anilkumar A. Relia. Accordingly, lease deed was executed on 18-1-1983 giving monthly lease rent of Rs. 4,000 to the aforementioned co-owners. The trust completed remaining construction and rented the whole premises to Post and Telephone Department from which it started earning rental income. Accordingly, the trust showed this income as "income from property" and since the shares of the beneficiaries were known and definite, the income was apportioned between the beneficiaries and assessed as such. 3. Later on, the Commissioner of Income-tax, Surat invoked the provisions of section 263 for the assessment years 1986-87 and 1987-88 and set aside the assessments as no meaningful inquiry on all surrounding facts and circumstances of the case such as exact nature and character of lease agreement between the owners of the property and the assessee-trust, the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court as cited above, it is seen that the most important determining factor whether the income is to be treated as income from business or not, is whether the taking of the property on lease by the appellant and sub-letting the same is a part of business and trading activity of the appellant trust or not. The Assessing Officer in the assessment order has not tried to analyse the facts whether the appellant is indulging in any business activity or not. From the computation of income it is seen that the appellant-trust is not having any other sources of income except rental income from the house property taken on lease. It is also seen that apart from leasing out of property under consideration, the appellant has not ventured in any other such activities of leasing out of property or development or the land. It is also seen that the property has been let out to only one tenant, i.e., The Indian Telephone Department. All these facts go to prove that the appellant cannot be considered to be indulging in regular activities of taking properties on lease and subletting portion thereof, setting up a market thereon and letting out shops and stalls in the market as contemplated in the Suprem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P.) Ltd v. CIT [1986] 162 ITR 468 (Kar.) He further submitted that since no other services were being rendered by the assessee other than what a landlord would render to a tenant, the income could not be considered as business income. For the same reasons the learned counsel supported the cross-objections where the common grounds read as under: (1) The learned CIT(A) erred in holding that income earned by the assessee-trust was assessable under the head "Income from other sources" and not "income from house property", even though the income purely related to rent earned out of ownership of property. (2) The assessee submits that the learned CIT(A) failed to appreciate the peculiar facts and the relevant provisions of the Act and therefore, was not justified in holding that income was "income from other sources". 9. We have considered the rival submissions and perused the facts on record. In our view, the learned CIT(A) is justified in holding that the income received by the assessee-trust from the Telephone Department is not assessable under the head "Income from property". We have perused the lease deed under which the assessee obtained the premises from the owners. In this le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... know what was the real nature of the transactions from the point of view of two businessmen who were carrying out the transactions. For this proposition, reliance is placed on the judgment of the Supreme Court in the case of CIT v. Durga Prasad More [1971] 82 ITR 540. Reference is also invited to the recent judgment of the Supreme Court in the case of Sumati Dayal v. CIT [1995] 125 CTR (SC) 124 where it has been held that considering the surrounding circumstances and applying the test of human probabilities is a must. The sequence of events and the surrounding circumstances indicate that the trust was created for the specific purpose of taking on lease a partly built building from the co-owners who are also family members with the intent to sublet it to a commercial institution, viz., Telephone Department in order to earn profit. Accordingly, we agree with the learned Assessing Officer that the case stands squarely covered by the judgment of the Supreme Court in the case of S.G. Mercantile Corpn. (P.) Ltd. In this case the appellant-company was incorporated in January 1955. One of the objects specified in its memorandum of association was to take on lease or otherwise acquire and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated above, as in the case of S.G. Mercantile Corpn. (P.) Ltd., two weeks after the execution of the trust deed, i.e., 1-1-1983 Rs. 3 lakhs were spent on the finishing work of the building between January and April 1983 mostly out of borrowed funds. The distinction drawn by the learned CIT(A) between the facts of the case of the assessee and those of the case before the Supreme Court, is untenable and accordingly we set aside his finding that the income should be assessed under the head "Income from other sources". 11. Coming to the cases relied upon by the learned counsel for the assessee, it is noted that the facts of those cases are distinguishable from the facts of the case of the assessee before us. In Kanaiyalal Nimani's case, it was the land which was leased out on which the assessee had constructed stalls and these stalls were permanently affixed to the ground and on the basis of the provisions of the lease deed the assessee was held to be the owner of the stalls during the period of the lease. We have, in para 9 above referred to the lease deed of the assessee and analysed the same and noted that the assessee is described as "tenant" while the other party from whom the ..... 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