Madras H.C : Income from the properties owned by the assessee has been treated as business income by the Tribunal.

High Court Of Madras

CIT vs. New India Maritime Agencies (P)Ltd.

Section 22

Asst. Year 1985-86

R. Jayasimha Babu & Mrs. A. Subbulakshmy, JJ.

Tax Case No. 827 of 1995

25th September, 2001

Counsel Appeared

Mrs. Chitra Venkataraman, for the Revenue : P.P.S. Janardhana Raja for Subbaraya Aiyar, Padmanabhan & Ramamani, for the Assessee

JUDGMENT

R. JAYASIMHA BABU, J. :

Income from the properties owned by the assessee has been treated as business income by the Tribunal. The correctness of that decision has been called into question by the Revenue in this reference. The assessment year is 1985-86. The business of the assessee is that of being maritime agent. No part of the premises, from which it received rent in the assessment year, was used for its business purpose. This Court, in a case concerning the same assessee in CIT vs. New India Maritime Agencies (P) Ltd. (1994) 207 ITR 392 (Mad), held that by reason of one of the properties of the assessee being occupied by the managing director, that property must be regarded as being used by the assessee for its business and, therefore, no notional income from such property could be assessed in the hands of the assessee. That decision has no application here, as, in this case, none of the properties was used by the assessee for its business or for housing its managing director. The Supreme Court in the case of East India Housing and Land Development Trust Ltd. vs. CIT (1961) 42 ITR 49 (SC) has held that : “… the distinct heads specified in s. 6 of the IT Act indicating the sources are mutually exclusive and income derived from different sources falling under specific heads has to be computed for the purpose of taxation in the manner provided by the appropriate section. If the income from a source falls within a specific head set out in s. 6, the fact that it may indirectly be covered by another head will not make the income taxable under the later head.” In that case which arose under the 1922 Act, it was held by the Court that the income derived by a company formed with the object of promoting and developing markets by letting out shops and stalls is income received from property and that the character of that income was not altered because it was received by a company formed with the object of developing and setting up markets. The fact that one of the clauses in the memorandum of association of the assessee-company enables the company to let out the property does not on that account render the income received by the assessee by way of rentals, business income.

4. Learned counsel for the assessee referred us to the case of CEPT vs. Shri Lakshmi Silk Mills Ltd. (1951) 20 ITR 451 (SC). That was a case where what had been let out was not house property but a plant established by the assessee for dyeing silk yarn and that plant had been leased out by the assessee as it had difficulty in obtaining silk yarn during the chargeable accounting period, viz., 1st Jan., 1943 to 31st Dec., 1943. The question which the Court was required to consider therein was as to whether that income of the assessee was chargeable to excess profits tax as profits of business or whether it was income from other sources and was, therefore, not chargeable to excess profits tax. It was held by the Court that it was a part of the normal activities of the assessee’s business to earn money by making use of its machinery by either employing it in its own manufacturing concern or temporarily letting it to others for making profit for that business, when for the time being it could not itself run it. It was also held that the dyeing plant had not ceased to be a commercial asset of the assessee and, therefore, the income was one which was derived from business and was chargeable to excess profits tax. In the Excess Profits Tax Act, there are no heads of taxation as in the IT Act making a distinction between “business income” and “income from house property”. The question which requires consideration here was not a question which arose in that case. What was said there in the context of the excess profits tax cannot be applied to the case of income derived from house property by an assessee, which also carries on business.

5. The decision in Shri Lakshmi Silk Mills Ltd.’s case (supra) was not understood by the Supreme Court as being applicable to income from house property under the IT Act as is evident from the decision rendered ten years later, in the year 1961, by a three-Judge Bench in the case of East India Housing and Land Development Trust Ltd. (supra). The question as to whether buildings owned by the assessee are capable of being regarded as commercial assets is not relevant for deciding as to whether, when those assets had not been used in the business of the assessee but were only let out, such rental income was to be assessed as “income from house property”. The question as to whether such income should be treated as “business income” or “income from house property” was dealt with directly in the case of East India Housing and Land Development Trust Ltd. (supra), and it is the law laid down in that decision that is attracted here. The Tribunal was clearly in error in holding that the rental income received by the assessee from properties owned by it and let out to others was not income from house property and that the same was required to be treated as business income. The question referred to us is, therefore, answered in favour of the Revenue and against the assessee. The Revenue shall be entitled to cost in the sum of Rs. 1,500.

[Citation : 256 ITR 513]

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