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TMI Blog1991 (4) TMI 168X X X X Extracts X X X X X X X X Extracts X X X X ..... nd, therefore, the rental was assessable under section 22 and not under section 28. The ITO did not accept the claim by observing that the assessee was never engaged in investing its funds for construction or acquisition of any building or property for the purpose of letting it out and for earning regular income. According to the ITO, the assessee was a trader and businessman and not an investor. The ITO further stated that the assessee had let out the three sheds in the course of his business of building and selling warehousing units and that the value of the three sheds shown in the credit side of the profit and loss account is the closing stock valued at average sale price. He opined that by merely terming it as an investment, it does not change the complexion and nature of the assets as the object and purpose of the assessee when it started construction was only to build and sell the sheds. The three sheds which remained unsold during the relevant previous year had been let out by the assessee instead of keeping them idle. The ITO concluded that the income is more proximate to business income rather than to house property because the property let out is a commercial place used ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m.))." The CIT(A) also referred to the decision of the Bombay High Court in the case of CIT v. National Storage (P.) Ltd. [1963] 48 ITR 577 wherein it was observed that where the letting is only incidental and subservient to the main business of the assessee, the income derived from the letting will not be income from property. He stated that in the present case it has been clearly brought out by the ITO that the rent receipt from letting out of the godowns was only incidental and subservient to the business of the assessee. 6. The learned counsel for the assessee reiterated his contentions raised before the first appellate authority. The judgment of the Bombay High Court was distinguished by stating that in that case the letting was held to be incidental/subservient where the property was used in assessee's construction business and not in a case like the present one where letting in any case could be an incidence and not subservient. He referred to various decisions and to page 429 of the Commentary on the Law Practice of Income-tax by Kanga Palkhivala, VIIIth Edn., Vol. I, wherein income from excess/surplus premises let out and letting of building was held to be income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -1984 1-4-1984--25082 27-3-1984 12/84 7. ACD/59/9 MSWHC 13-2-1984 13-2-1984--120347 13-2-1984 31-3-1984 1-4-1984 31-8-1984--229425 3-9-1984 1/2} A 31-8-1984 1/2} 20-5-1984--21586 26-5-1984 }C 31-7-1984--65034 31-7-1984 1/2} D 10-7-1984 1/2} --------------------------------------------------------------------------------------------------------------------------------------------------- From the above chart and the facts and circumstances of the case, we find that some of the properties were transferred to investment account and some of them were not transferred at all. Furthermore, the properties which were transferred to investment account were re-transferred to stock-in-trade account at the same price at which they were transferred to investment account. For instance, properties at S.Nos. 1,2,6 were not transferred to investment account and letting was there even though they were held as stock-in-trade. The other properties were transferred to investment account when let but retransferred to stock-in-trade. When sold. In the circumstances, the intention of the assessee was not to treat the property as investment but stock-in-trade. The letting was on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in the case of Ude Bhan v. Kapoorchand AIR 1967 Punj. 53 (FB) in connection with section 60, CPC wherein it was held that when a judgment-debtor has voluntarily or involuntarily let out a part of his main residential house to a tenant, then that portion of the house cannot be treated as being occupied by the judgment-debtor and will not be exempted from attachment and execution of sale. In these circumstances, we are of the opinion that since the godowns let out by the assessee to the tenants could not be treated as occupied by him for the purposes of any business carried on by the assessee unless letting itself was the business carried on by the assessee. That being so, the income from godowns being a building was to be assessed under section 22 of the Act as income from house property and not under section 28 of the Act as income from profits and gains of business or profession. 9. In the case of National Storage (P.) Ltd., which decision has been approved by the Supreme Court, the Bombay High Court held that the letting was incidental and subservient to the business carried on by the assessee. The assessee-company in that case was found to be carrying on the business of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 327 (Mad.) a case under the business prof its tax, it was held by the court that it made no difference that the property constituted the stock-in-trade of a business. In East India Housing Land Development Trust Ltd.'s case the Supreme Court held that even a company incorporated with the object of promoting and developing markeks was assessable under section 22 and not under section 28 in respect of the rental income of market shops and stalls owned by it. 12. Before parting with the subject, we may state here that various decisions were cited by the parties for the proposition that godowns constructed were stock-in-trade and not investment. However, in view of our finding that the assessee was holding the property in stock-in-trade even otherwise on facts, refrain ourselves to discuss specifically in this order. 13. The last ground which is only in the appeal for assessment year 1985-86 is for the disallowance of Rs. 11,946 under section 40A(3). The payment was made to M/s. Gadhra Timber Mart (Rs. 8,600) and M/s. Jangmata Iron Works (Rs. 3,300) for purchase of iron and timber. These parties have insisted payment in cash and the assessee's dealing with them were for the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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