Madras H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the rental for the mere letting of godowns received by the assessee should be assessed under the head ‘Income from business’ and not ‘property’ ?

High Court Of Madras

CIT vs. Indian Warehousing Indutries Ltd.

Sections 22

Asst. Year 1984-85, 1986-87, 1988-89

R. Jayasimha Babu & K. Raviraja Pandian, JJ.

T.C. Nos. 198 to 202 of 1996

2nd September, 2002

Counsel Appeared

T. Ravikumar, for the Revenue: None, for the Assessee

JUDGMENT

R. jayasimha babu J. :

The asst. yrs. are 1984-85 to 1988-89. The question referred in these tax cases is :

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the rental for the mere letting of godowns received by the assessee should be assessed under the head ‘Income from business’ and not ‘property’ ?”

The assessee had, during these years, received income by way of rent from the Food Corporation of India, which had taken the warehouses belonging to the assessee on lease. Though the assessee had claimed that such income be treated as its business income and not as income from house property, the AO treated the rental income as income from house property and completed the assessment accordingly. On appeal, the appellate authority, relying on the decision of the Supreme Court in the case of Karanpura Development Co. Ltd. vs. CIT (1962) 44 ITR 362 (SC), held that the rental income should be assessed as business income. That view of the appellate authority having been upheld by the Tribunal, the Revenue has brought these references before us. The income which the assessee had received was for the renting out of the warehouses owned by it to the Food Corporation of India. One of the objects of the assessee-company was to build warehouses and to let out the same. In the case of East India Housing and Land Development Trust Ltd. vs. CIT (1961) 42 ITR 49 (SC), the Supreme Court, in the context of facts which were similar to those found in this case, held that the rental income is to be assessed only as income from house property. In that case, the assessee was formed with the object of promoting and developing markets. While examining its claim that the rents it received from the shops and stalls formed its business income and should be assessed as such, the Court observed that the income derived from letting out property belonging to the appellant did not constitute “profits and gains” from business within the meaning of ss. 6 and 10 of the Indian IT Act, 1922. The Court referred to s. 6 of that Act which categorised income under six different heads and observed that (page 51) : “This classification under distinct heads of income, profits and gains is made having regard to the sources from which the income is derived. Income-tax is undoubtedly levied on the total taxable income of the taxpayer and the tax levied is a single tax on the aggregate taxable receipts from all the sources; it is not a collection of taxes separately levied on distinct heads of income. But the distinct heads specified in s. 6 indicating the sources are mutually exclusive and the 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 latter head.” The Court in the concluding paragraph of the judgment held that the income received by the appellant therein from shops is indisputably income from property.; so is the income from stalls from occupants and that (page 52): “The character of the income is not altered merely because some stalls remain occupied by the same occupants and the remaining stalls are occupied by a shifting class of occupants. The primary source of income from the stalls is occupation of the stalls, and it is a matter of little moment that the occupation which is the source of the income is temporary.”

4. Those observations of the Supreme Court will apply to the facts of the present case. The source of the income being the warehouses, it matters little as to who the lessee for the time being is, whether it is the same lessee continuing over a period of time or a shifting class of lessees who occupied the spaces for shorter periods and paid rental for such use. The case of Karanpura Development Co. Ltd. vs. CIT (supra) relied upon by the Tribunal, dealt with the case of sub-lease given by a company which had acquired coal mining leases over large areas and the object of the company was to acquire such leases, develop them as coalfields and then sub-lease them to collieries and other companies. In the context of the facts of that case, the Court held that the amounts paid to the lessors by the sublessees constituted business income. The Tribunal was in error in holding that the rental income derived by the assessee was required to be treated as business income and not as income from property. The question referred to us is answered in favour of the Revenue and against the assessee.

[Citation : 258 ITR 93]

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