TMI Blog2006 (4) TMI 196X X X X Extracts X X X X X X X X Extracts X X X X ..... perty and not under the head Profits and gains of business . Accordingly, we answer the question referred to us in the negative, i.e., in favour of the Revenue and against the assessee. As regards the alternative contention of the learned counsel for the assessee that the expenses incurred in connection with the repairs and maintenance of the subject property held as stock-in-trade by the assessee be allowed under the head Profits and gains of business and that the resultant loss under the head be allowed to be adjusted against the income assessable under the head Income from house property , we are of the view that this issue is beyond the scope and ambit of the question specifically referred to this Special Bench u/s 255(3). Even the assessee-company has raised this issue separately in the other grounds taken in its appeals filed before the Tribunal. It will therefore, be open to the assessee to raise this issue before the Division Bench which shall deal with the same in accordance with law. The matter will now go before the regular Bench for disposing of the appeals keeping in view our decision rendered hereinabove. - HON'BLE M.A. BAKSHI AND R.V. EASWAR, VICE PRESIDENTS AN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereof was also delivered to the assessee-company by the owners on execution of the agreement to sell. At that time, the entire property was tenanted and the assessee-company became entitled to receive the rent from the tenants as per the terms of the agreement. During the previous year ending on 30th Sept., 1979 relevant to asst. yr. 1980-81, the assessee-company received the total rental income of Rs. 2,30,397 and the same was shown by it in the return of income under the head Income from business . In the assessment completed for asst. yr. 1980-81, the AO, however, held that the said rental income was chargeable to tax under the head Income from other sources . This action of the AO was upheld by the learned CIT(A) vide his appellate order dt. 26th July, 1989. Aggrieved by the same, the assessee preferred an appeal before the Tribunal and it was argued on behalf of the assessee before the Tribunal that its intention for acquiring the property was not to enjoy a meager rental income but to earn profit by exploiting a commercial asset in pursuance of its main business activity. It was pointed out that the said property was acquired by the assessee-company as stock-in-trade with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on 31st May, 1980 and the assessee thereby became the owner of the said property. Taking note of this, the AO brought to tax the rental income of Rs. 6,92,795 received by the assessee-company under the head Income from house property in the assessment completed for asst. yr. 1982-83 rejecting the claim of the assessee that the said income was its business income . This treatment given by the AO was confirmed by the learned CIT(A) and the matter again was carried before the Tribunal. In its appellate order dt. 27th July, 1992 passed in ITA No. 5151/Del/1989 for asst. yr. 1982-83, the Tribunal took note of the fact that the assessee-company has now become owner of the property on 31st May, 1980 and that the dispute now was about the taxability of rental income under the head Income from house property or Income from business . Still, the Tribunal proceeded to hold that the rental income received by the assessee-company in asst. yr. 1982-83 was chargeable to tax as business income under s. 28 relying on its appellate order dt. 20th April, 1992 passed in assessee's own case for asst. yr. 1980-81. The Tribunal observed that the facts involved in asst. yr. 1982-83 are similar to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of the same, the said issue has now been referred to this Special Bench for fresh consideration and decision under s. 255(3). 6. The learned counsel for the assessee submitted before us that the intention of the assessee-company behind acquiring the property in question, i.e., Scindia House was never to earn the rental income from the tenants occupying the said property, but the same all along was to exploit the said property commercially in the ordinary course of its business of acquiring, developing and selling the properties. He contended that this was the main object for which the assessee-company was incorporated and having regard to this object as well as the purpose for which the said property was acquired by the assessee-company, the rental income earned by it from the tenants occupying the said property was incidental to the assessee's business as rightly held by the Tribunal consistently right from asst. yr. 1980-81 to 1991-92. Reliance was placed by the learned counsel for the assessee on the decision of Hon'ble Supreme Court in the case of Universal Plast Ltd vs. CIT (1999) 153 CTR (SC) 95 : (1999) 237 ITR 454 (SC) to contend that the question as to whether t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the income earned in the form of rent was nothing but the exploitation of the said commercial asset by the assessee. Reliance was placed by him on the decision of Hon'ble Calcutta High Court in the case of CIT vs. Shambhu Investment (P) Ltd. (2001) 168 CTR (Cal) 237: (2001) 249 ITR 47 (Cal) in support of his contention that merely because income is attached to any immovable property cannot be the sale factor for assessment of such income as income from property. What has to be seen is what was the primary object of the assessee while exploiting the property and in case it is found that the main intention is to exploit the immovable property by way of complex commercial activities, it must be held that the income earned from such exploitation is a business income . 9. The learned counsel for the assessee invited our attention to the copy of agreement to sell executed by the assessee in respect of the said property placed at page No. 82 of his paper book and pointed out that as per cl. 8 of the said agreement, the assessee-company was entitled to get the sale deed in respect of the said property executed by the owners in the name of vendee. He contended that this specific cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co. Ltd. vs. CIT (1986) 57 CTR (SC) 25 : (1986) 162 ITR 373 (SC) wherein it was observed that it is not unusual that commercial considerations may properly describe the source of particular income differently. He also cited the decision of Hon'ble Punjab Haryana High Court in the case of CIT vs Bedi Techno Projects (P) Ltd. (2002) 255 ITR 75 (P H) and that of Hon'ble Supreme Court in the case of CIT vs. Indian Bank Ltd. (1965) 56 ITR 77 (SC) in support of assessee's case. 12. Without prejudice to his aforesaid submissions, the learned counsel for the assessee also contended that there was no dispute about the fact that the property in question was the business asset of the assessee being stock-in-trade and therefore, the expenditure incurred in connection with the maintenance of the said property representing stock-in-trade of the assessee's business should have been allowed in full and the resultant loss under the head Income from business , if any, should be adjusted against the Income from house property . In support of this contention, he relied on the decision of Hon'ble Punjab Haryana High Court in the case of Batra Films (P) Ltd. vs. CIT (1989) 179 ITR 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 455 : (2002) 253 ITR 168 (Del); (vi) CIT vs. New India Maritime Agencies (P) Ltd. (2002) 178 CTR (Mad) 34 : (2002) 256 ITR 513 (Mad); (vii) CIT vs. Chennai Properties Investments Ltd. (2004) 186 CTR (Mad) 409 : (2004) 266 ITR 685 (Mad). 14. The learned Departmental Representative submitted that in the case of Chennai Properties Investments Ltd., Hon'ble Madras High Court has analyzed the various case laws cited before it in detail on the issue in dispute and on such analysis, it has been held that even if the main object of the assessee-company was to purchase or otherwise acquire and hold the properties and to let out such properties, the income earned from rent in respect of such property owned by it was chargeable to tax under the specific head Income from home property and the same could not be assessed as business income on the ground that the business of the assessee was to exploit property and earn income or because the income was obtained by a trading concern in the course of its business. He contended neither the nature of property being stock-in-trade nor the nature of rental income earned from the property being incidental to the assessee's main business is rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o general principle could be laid down which is applicable to all cases and each case has to be decided on its own facts and circumstances. However, the general principles for deciding this issue have been laid down in the various judicial pronouncements by the higher Courts including Hon'ble Supreme Court and as agreed by the learned representatives of both the sides before us, the issue under consideration can be decided by applying the said principles to the facts of the case on hand. The earliest of these decisions is in the case of East India Housing Land Development Trust Ltd. vs. CIT wherein it was held by the Hon'ble Supreme Court that the income derived by the company from shops and stalls is income received from property which falls under the specific head Income from house property and the character of that income is not altered because it is received by the company formed with the object of developing and setting up markets. This decision of Hon'ble Supreme Court in the case of East India Housing Land Development Trust was referred to by the Constitution Bench of Hon'ble Supreme Court in the case of Sultan Brothers vs. CIT with approval. In the case of K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereon. It was further observed by the Hon'ble Supreme Court that it would also make, no difference if the assessee was a company which had been incorporated with the object of buying and developing landed properties and promoting and setting up markets thereon. 18. It is thus clear that the facts involved in the case of S.G. Mercantile Corporation (P) Ltd. and Karanpura Development Co. Ltd. cited by the learned counsel for the assessee were materially different and the decisions came to be rendered in the light of such different facts. Similar is the position as regards the other cases cited by the learned counsel for the assessee. On the other hand, a careful reading of all these decisions relied upon by the learned counsel for the assessee reveals that the ratio laid down therein is in consonance with the proposition propounded by the Hon'ble Supreme Court in its earlier decisions in the cases of East India House Land Development Trust Ltd. and Karnani Properties Ltd. The learned counsel for the assessee, however, has attempted to pick out and rely on some sentences from the said judgments in support of the assessee's case. It is a first and foremost principle of revi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome or because the income was obtained by a trading concern in the course of its business. It was also held that house owning, however, profitable, cannot be a business or trade under the IT Act and where income is derived from house property by the exercise of property rights properly so-called, the income falls under the head Income from house property . The said character is not changed and the income does not become income from trade or business if the hiring is inclusive of certain additional services which are relatively insignificant and only incidental to use and occupation of the tenements. It was also held that in cases where the income received is not from the bare letting of the tenement or from letting accompanied by incidental services or facilities, but the subject hired out is a complex one and the income obtained is not so much because of the bare letting of the tenement but because of the facilities and services rendered, the operations involved in such letting of the properties may be of the nature of business or trailing operations and the income derived may be income not from exercise of property rights properly so-called but income from operations of a trading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company as owner and not as a businessman/trader. On the other hand, efforts were being made by the assessee-company to evacuate the tenants and get the possession thereof so as to turn the same into account in the ordinary course of its business which again goes to show that the rental income was being received by it merely because of owner of the said property and not because of any business or commercial activity undertaken by him. As submitted on behalf of the assessee-company before the authorities below and reiterated before us, acquiring and holding the subject property to earn the rental income was never the intention of the assessee-company going by the meager rental income visa-vis the huge investment made and thus, the decision to let out the said property could not be said to have been taken by the assessee-company as a businessman/trader. 23. Much emphasis has been laid by the learned counsel for the assessee before us on the commercial exploitation of the subject property by the assessee-company which constituted its stock-in-trade. However, as held by the Hon'ble Calcutta High Court in the case of CIT vs. Shambhu Investment (P) Ltd. relied upon by the learned cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t but because of the facilities and services rendered and the income derived was held to be income not from exercise of property rights properly so called so as to fall under the head Income from house property but income from operations of a trading nature falling under the head Profits and gains of business or profession . 24. The learned counsel for the assessee has also laid heavy emphasis on the nature of subject property held by the assessee-company as stock-in-trade of its business of acquiring, developing and selling of the said property. However, this aspect also is hardly of any relevance to decide the head under which the rental income from the said property is to be assessed. Even if the said property was held by the assessee-company as stock-in-trade in its capacity as a trader going by the nature of its business activities, the rental income was not earned by it from the tenants in its capacity as a trader. On the other hand, when the vacant possession of the tenements was obtained by the assessee-company and the vacant tenements were sold to the different parties from time to time, the assessee-company acted as a trader in the said transactions and the income arising ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rental income is earned by him by letting out predominantly the said property, such rental income will be assessable under the head Income from house property and not Profits and gains of business or profession . What is let out should be predominantly the said property inasmuch as the rental income should be from the bare letting of the tenements or from letting accompanied by incidental services or facilities. The subject hired out should not be a complex one and the income obtained should not be so much because of the facilities and services rendered than because of their letting of the tenements. If such a situation is found to be obtained, the other aspects such as nature of the property being commercial/business asset, etc. in the hands of the assessee as well as nature of the business of the assessee do not change the character of the income and the rental income does not become income from trade or business. 26. In the present case, the subject property let out by the assessee-company was undisputedly owned by it and it was a case of bare letting of tenement and the subject hired out was not a complex one. It was thus a case of letting out of a property owned by the assesse ..... 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