1986 (7) TMI 73 - HC - Income Tax

Summary

Issues involved:
The issue involves determining whether the income derived by a private limited company from renting out a building constructed on a leased site should be assessed under the head "Property" or "Business."

Judgment Details:

The Income-tax Officer assessed the income derived from the property as "Property" instead of "Business" since the company had taken a lease of the site and constructed the building at its own cost, making the company the owner of the building during the lease period.

The Appellate Assistant Commissioner upheld the assessment order, leading to an appeal where the Tribunal analyzed the lease terms and concluded that the company became the owner of the building during the lease period, thus affirming the assessment under the head "Property."

The Tribunal emphasized that the nature of the income derived should be based on the ownership of the property, not the company's memorandum of association, citing relevant precedents including S. G. Mercantile Corporation P. Ltd. v. CIT [1972] 83 ITR 700.

The High Court referred to Y. V. Srinivasamurthy v. CIT [1967] 64 ITR 292 and Tinsukia Development Corporation Ltd. v. CIT [1979] 120 ITR 466, supporting the assessment of income from property when the ownership of the structure lies with the assessee.

The Court disagreed with a contrary view taken by the Madras High Court in CIT v. Admiralty Flats Motel [1982] 133 ITR 895, as it did not consider the Supreme Court's decision in S. G. Mercantile Corporation's case [1972] 83 ITR 700.

Ultimately, the High Court ruled in favor of assessing the income under the head "Property" and not "Business," based on the ownership of the building during the lease period.

No costs were awarded in this matter.