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TMI Blog2004 (6) TMI 269X X X X Extracts X X X X X X X X Extracts X X X X ..... t such income despite the fact that the Assessing Officer had clearly established that such income was to be assessed under the head 'Income from other sources'." 2. Briefly stated the facts are that the assessee-company filed the return for assessment year 1995-96 wherein brought forward business loss for assessment year 1994-95 has been set off against income from house property as well as income from other sources. In the assessment order, Assessing Officer has elaborately brought out the relevant facts of the case having a bearing on the claim of set off of brought forward business loss against property income and income from other sources by the assessee. Perusal of profit and loss account showed that the assessee company had received rental income of Rs. 8,11,544 and income from house property has been computed at Rs. 6,49,235. The assessee has further shown an income of Rs. 5,78,220 under the head other income. According to the Assessing Officer, since the business of the assessee is sale and purchase of properties, brought forward business loss cannot be adjusted as per provisions of section 72(1) against income from house property or income from other sources. When called ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nk ofIndia. Since then, the assessee-company is receiving annual rent from Union Bank ofIndiafrom this property. The building at HS-28, Kailash Colony was purchased in 1984. Part of this building was already in occupation of Mr. Ram Swarup Anand as tenant. Further construction was completed in April, 1994 and which was subsequently let out to one Smt. Bimla Devi Jhunjhunwala. The assessee-company has also shown a sum of Rs. 1,14,000 being received from M/s. Tulika Advertising & Marketing (P.) Ltd. as 'service charges'. No details of such service charges have however been filed. 2.3 From the above facts, it is clear that it is not the assessee's case that it is the owner of a number of properties which are being rented out to different people and the assessee-company's job is merely to collect rent from such tenants. The assessee-company is earning income from two properties only, i.e. HS-28 and HS-32, Kailash Colony,New Delhi. Nor is this a case where there is a continuous change of tenants of various properties where one tenant leaves, whose place is taken by another tenant and so on. The assessee is earning rental income from properties at HS-32, Kailash Colony since 1989-90 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, income is liable to be assessed under the head 'other sources' as shown by the assessee in the return. 4. Aggrieved, the assessee carried the matter before the CIT(A). CIT(A) observed that since the properties let out have been shown in the balance sheet as stock-in-trade, these are trading asset and, therefore, rental income even if assessed under the head 'income from house property' is to be treated as business income and set off of brought forward losses has been rightly claimed by the assessee. Regarding other sources, CIT(A) treated the receipts as attributable to business activity and held that set off of business loss under section 72(1) against such income, even if the same has been assessed under the head other income is allowable. In support of his conclusion, ld. CIT(A) has placed reliance on the following decisions: (i) Karnani Properties Ltd. v. CIT [1971] 82 ITR 547 (SC) (ii) Karanpura Development Co. Ltd. v. CIT [1962] 44 ITR 362 (SC) (iii) O.RM.M.SP.SV. Firm v. CIT [1967] 63 ITR 404 (SC) (iv) S.G. Mercantile Corpn. (P.) Ltd. v. CIT [1972] 83 ITR 700 (SC) (v) Western States Trading Co. (P.) Ltd. v. CIT [1971] 80 ITR 21 (SC). 5. The revenue is aggri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, it is stated that a part of the office space at 23, Community Centre, East of Kailash,New Delhihas been sub-let and rent of Rs. 1,14,000 had been received. Vide para 4.1, CIT(A) has observed that the said office space includes telephone connection, electricity and office furniture. 8. Section 22 of I.T. Act deals with the income from house property and essential condition for assessing the income under the head 'income from house property' is that the assessee is the owner of the property and further that property used for purposes of business, profits of which are chargeable to tax shall not be included under section 22 of the Income-tax Act. Now, in the instant case, proviso to section 22 are satisfied inasmuch as the property, namely, HS-28, Kailash Colony, New Delhi and HS-32, Kailash Colony, New Delhi, owned by the assessee has been let out and is not being used for purposes of business. In fact, the assessee-company itself has shown income from such property under section 22 of the Income-tax Act. Once the assessee-company has shown the income from house property which has been assessed by the Assessing Officer on the said basis, the only inference which can be drawn is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to tax under a specific head 'income from house property' as claimed by the assessee and assessed by the Assessing Officer. The assessee, therefore, cannot backtrack from the accepted factual and legal position and claim set off of brought forward losses by invoking the provisions of section 72. Section 72 would not apply for setting of carried forward business losses against income from house property assessed under section 22 of the Income-tax Act. 9. The contention has been raised on behalf of the assessee that the properties in question have been shown as stock-in-trade and no depreciation thereon has been claimed. According to the assessee, rental income from the properties is liable to be treated as business income since rental income has been received as a part of the business activity. We are not inclined to accept the submission. The facts of the case, as elaborately referred above, indicate that properties in question have been leased right since purchase thereof or after the completion of construction thereof. These properties are not stock-in-trade of the assessee on the basis of facts and circumstances of the case. In any case, the very conduct of the assessee in show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the specific head described in section 9. 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. Nor because of the fact that the company was required to obtain a licence from the Calcutta Municipality to maintain sanitary and other services and for that purpose had to maintain a staff and to incur expenditure did the income become "profits or gains from business" within the meaning of section 10. Nor was the character of the income altered merely because some stalls were occupied by the same occupants and the remaining stalls were occupied by a shifting class of occupants. The primary source of income from the stalls was the occupation of the stalls, and it was a matter of little moment that the occupation which was the source of the income was temporary. The decision supports the view being taken by us above. 12. The next decision relied upon by the revenue has been rendered by Calcutta High Court in Bengal Jute Milk Co. Ltd.'s case. In this case, the Tribunal had earlier held that though the income from letting out of the godowns is chargeable under the head "income from house property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in issue was whether dividend income was to be taken as profits of business and set off against business losses brought forward from earlier years under section 24(2) of the Income-tax Act, 1922. The undisputed facts in this case were that shares were held as part of trading assets of the assessee. The facts of the instant case before us are distinguishable inasmuch as rental income from the property has been shown by the assessee as income from house property obviously on the ground that property is not being used for purposes of business. As we have already discussed above, section 22 would be applicable only in respect of properties which are not used by the assessee for the purposes of business. Therefore, in view of the provisions of sections 22 as well as 72 of the Income-tax Act, 1961 and the facts of the case before us, the ratio of Western States Trading Co. (P.) Ltd. is not applicable. 16. The next decision relied upon on behalf of the assessee and cited by the ld. CIT(A) is S.G. Mercantile Corpn. (P.) Ltd.'s case. The propositions enunciated by the Hon'ble Supreme Court in the context of section 9 of Income-tax Act, 1922, which deals with income from house property, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se held that the subject which is hired out is complex one and the income arising from licensing the vaults to vaults holder is liable to be assessed under section 10 of the Income-tax Act, 1922 and not section 9. The decision has been rendered in the context of entirely different set of facts which are distinguishable from the fact of the case of the assessee. This is a mere case of letting out of the property by the assessee as owner of the property. Rental income is derived by the assessee before us merely from the exercise of the property rights as owner only. The decision, therefore, does not advance the case of the assessee. 18. Reliance has next been placed on the decision of the Supreme Court in CIT v. Cocanada Radhaswami Bank Ltd. [1965] 57 ITR 306. In this case, the assessee-company, which carried on banking business held securities as part of the trading assets of his assets. The Supreme Court held that since the securities are part of trading assets, the brought forward business losses can be set off against interest on securities. The decision is clearly distinguishable and is not applicable. In the case of the assessee, immovable has been let out not as a part of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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