1978 (3) TMI 85 - HC - Income Tax

Summary

Issues:
1. Whether receipts from hire of furniture should be assessed as the assessee's income from business or from other sources.
2. Whether rents received by the assessee from outsiders are taxable as receipts from business or as income from property.

Analysis:
The judgment addresses two cases involving the assessment of income from hire of furniture and rents received by the assessee. In the first case, the Additional Commissioner of Income-tax applied for a reference under section 256(2) of the Income-tax Act, 1961, regarding the classification of receipts from hire of furniture as business income or income from other sources. The Income-tax Officer initially assessed the receipts as income from other sources, but the Income-tax Appellate Tribunal ruled in favor of the assessee, stating that the receipts should be considered as business income. The Tribunal's decision was upheld on further appeals. The court emphasized that when residential quarters are let out to employees or to government departments for business purposes, the letting of furniture is incidental to the lease and therefore considered business income under section 28 of the Income-tax Act, 1961.

In the second case, the Commissioner of Income-tax applied for a reference regarding the taxation of rents received from outsiders as business income or income from property. The court, in a separate judgment, had already ruled that such rents were taxable as receipts from business under section 28 of the Income-tax Act, 1961. Therefore, the application for reference on this issue was deemed infructuous. The court reiterated that when accommodation is let out to government departments for business purposes, the associated income, including rents and furniture hire, should be treated as business income.

The court rejected the contention that the receipts from hire of furniture should fall under a specific clause of section 56 of the Income-tax Act, emphasizing that the inseparability mentioned in the section arises from the intention of the parties. Referring to a Supreme Court decision, the court highlighted that if the intention was for the furniture and building to be enjoyed together, the letting should be considered practically one, leading to the conclusion that the receipts from hire of furniture were rightly classified as business income. As a result, the applications for reference under section 256(2) of the Income-tax Act, 1961, were rejected, and the assessee was awarded costs in both cases.