TMI Blog2001 (9) TMI 240X X X X Extracts X X X X X X X X Extracts X X X X ..... peal. That completed portion was leased out to Nedungadi Bank Ltd., on the basis of a lease agreement and fixing the monthly rent to be paid by the Bank. The assessee-firm has received rent from the Bank during the year under consideration. The assessee had made certain deposits with banks, on which it has received some interest also. The rental income and interest income, as mentioned above, are the only two items of credits in the profit and loss account of the assessee. 3. The assessee filed its return of income on 21-7-1994 admitting a net loss of Rs. 24,820. In its computation of taxable income, the assessee has treated the rental income as well as the interest income as the 'business income' of the assessee. 4. In the course, of assessment proceedings, the Assessing Officer found that the assessee had received only rental income and interest income and it had not conducted any business during the relevant previous year. Even though the partnership deed reads a number of objects that may be pursued by the assessee-firm, it had not in fact carried out any business activity during the relevant previous year. Therefore, the Assessing Officer found that the rental income recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posed of on the above lines. It is against the decision of the DC (Appeals), that the receipts mentioned by the assessee could not be treated as business income, that the assessee-firm has come in appeal before the Tribunal. 6. The assessee has raised the following effective grounds before the Tribunal: "1. The learned Asstt. Commissioner ought to have found that the object of the firm is business activity and income derived on business activity is assessable under the head income from business and not under any other head. 2. The learned Asstt. Commissioner ought to have found that construction and letting out of building is a business activity and rental income derived on such activity is a business income and assessable under the head income from business. 3. The learned Asstt. Commissioner ought to have found that the appellant deposited its business funds in the bank, hence the interest received on such deposit of business fund is a business income and assessable under the head 'income from business'. 4. The learned Asstt. Commissioner went wrong in not verifying properly the nature of the income of the appellant and not allowing the expenses and the interest paid on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ambit of the expression "business". The learned Chartered Accountant submitted that there is no inherent limitation that any income from a let out building should always be treated as income from house property. Citing the above decision, the learned Chartered Accountant pointed out that the expression 'business' covers even an activity of letting out buildings to tenants and earning rent therefrom. The learned Chartered Accountant also relied on a decision of the Kerala High Court in CIT v. Malabar Pioneer Hosiery (P.) Ltd. [1996] 132 CTR 193, wherein the Court has held that rental income was assess-able as business income and not as income from house property in such circumstances where a commercial asset owned by the assessee was temporarily let out to others as it was not possible for the assessee to use the building for its business purpose during that period. The learned Chartered Accountant further invited our attention to the decision of the Orissa High Court in CITv. M.P. Bazar [1993] 200 ITR 131, wherein it was held that income from constructing a building and letting it out could be business income. He also relied on the recent decision of the Calcutta High Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss in its act of letting out of the completed portion of his property for the use of Nedungadi Bank Ltd., on the basis of the lease agreement. The learned departmental representative relied on the decision of the Gujarat High Court in CITv. Smt. Minal Rameshchandra [1987] 167 ITR 507, where the Court has pointed out certain essential requirements of a business; which are an element of risk, uncertainty, foresightedness to visualize the imponderable and the capacity to overcome the unforeseen hurdles. Uncertainty about the return to be received from the investment and facing risk of losing the capital invested are also inherent in an activity called business. The learned departmental representative submitted that in the activity of letting out the property to Nedungadi Bank Ltd., none of the above features are answered and therefore, the act of letting out of the property as such could not be considered as a business activity. She also relied on the decision of the Kerala High Court reported in Dr. P.A. Varghese v. CIT [1971] 80 ITR 180, where it was held that income from let out property has to be assessed as income from house property. The learned departmental representative also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss in prosecution of one of its objects, then the same is liable to be included in its business profit. If the objects of a company permits management of property and realisation of rents as one of its business activities, then the realisation of rent had to be considered as income from business. Again in the case of Karanpura Development Co. Ltd v. CIT [1962] 44 ITR 362 the Apex Court has examined a similar circumstance and has held that ownership of property and leasing it out may be done as a part of business or as a landlord. Whether it is the one or the other must necessarily depend upon the object with which the act is done. It is not that no company can own property and enjoy it as property, whether by itself or by giving the use of it to another on rent. Where this happens, the appropriate head to apply is 'income from property', even though the company may be doing extensive business otherwise. 11. The Gujarat High Court in CIT v. New India Industries Ltd. [1993] 201 ITR 208 has laid down the general principles to be borne in mind in deciding whether income from letting out an asset is business income or income from property. Those principles are as follows: (i) No gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s described in the partnership deed, the assessee could carry on business in constructing buildings and running lodging houses, shopping complexes, etc. etc., and any other business of convenience permitted by law. With the above objects in mind, the assessee-firm was constructing a shopping complex-cum-lodging house at Tellicherry. The business of running the lodging house may be carried on by the assessee directly or let out to somebody else to carry on the said business. Regarding the shop rooms, the intention of the assessee was to let it out to others for the purpose of carrying on different business in different shop rooms. It was the intention of the assessee to let out the rooms available in the ground floor of the shopping complex to different parties as tenants. It is in the above overall scheme of utilisation of the building complex that the assessee-firm has let out rooms in the ground floor to Nedungadi Bank Ltd. Even though the construction of the entire building complex was not completed during the previous year relevant to the Assessment year under appeal, the construction of the ground floor of the complex was completed and certain part of the ground floor had beco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only activity carried on by the assessee was to let out the completed portion of the building (ground floor) to Nedungadi Bank Ltd. for the consideration of payment of monthly rent. Therefore, it is not possible to presume that the letting out of the property was incidental to the carrying on of any business made by the assessee during the relevant previous year. The one and only act done by the assessee during the relevant previous year was to let out the property to Nedungadi Bank Ltd. Therefore, without much saying, it goes to show that there is no business connection for the rent received by the assessee from Nedungadi Bank Ltd. during the relevant previous year. In the facts and circumstances of the case, it is our considered view that the Assessing Officer was justified in treating the rent received by the assessee as income from house property. 13. A similar issue was considered by the Supreme Court in East India Housing Land Development Trust Ltd. v. CIT [1961] 42 ITR 49. The assessee in that case had been incorporated with the objects of buying and developing landed properties and promoting and setting up markets. The company purchased land and set up a market thereon. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Nedungadi Bank Ltd. was occupied for the purpose of the business or profession sought to be carried on by the assessee. Therefore, on a plain reading of section 22, it has to be seen that the rent received by the assessee-firm from Nedungadi Bank has to be treated as income from house property. The nature of the rent received by the assessee-firm would not alter because it was received by the assessee-firm formed with the object of constructing and running of shopping complexes and lodging house. Once the rent received is straight-away bracketed under the head income from house property, it cannot be considered under the head "profits of the business" only for the reason that the portion of the property let out by the assessee-firm has an indirect connection with the properties constructed by the assessee-firm to pursue its business objectives. 15. Therefore, in the facts and circumstances and in the light of the law moulded by various judicial prouncements considered in this order, we find that the Assessing Officer has rightly treated the rental income received by the assessee as income from house property. Therefore, the ground raised by the assessee on this point fails. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s possible for a company to have six different sources of income, each one of which will be chargeable to income tax. Profits and gains of business or profession is only one of the heads under which a company's income is liable to be assessed to tax. If a company has not commenced business, there cannot be any question of assessment of its profits and gains of business. That does not mean that until and unless the company commences its business, its income from any other source will not be taxed. The company may keep the surplus funds in short-term deposits in order to earn interest. Such interests will be chargeable under section 56. In other words, if the capital of a company is fruitfully utilised, instead of being kept idle, the income thus generated will be of a revenue nature and not an accretion to capital. Whether the company raised the capital by issue of shares or debentures or by borrowing, will not make any difference to this principle. If borrowed capital is used for the purpose of earning income, that income will have to be taxed in accordance with law. Income is something which flows from the property. Something received in place of the property will be a capital rec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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