TMI Blog2011 (3) TMI 445X X X X Extracts X X X X X X X X Extracts X X X X ..... (MUM.) OF 2008 - - - Dated:- 9-3-2011 - R.S. SYAL, D.K. AGARWAL, JJ. Chetan A. Karia for the Appellant. Jitendra Yadav for the Respondent. ORDER D.K. Agarwal, Judicial Member. This appeal preferred by the assessee is directed against the order dated 21-4-2006 passed by the ld. CIT(A) for the assessment year 2003-04. 2. Briefly stated facts of the case are that the assessee company is engaged in construction of residential units and development activity, filed return of income declaring total income at Rs. 5,51,27,850. During the course of assessment proceeding, the Assessing Officer on perusal of P L account observed that the assessee company has earned income from leasing activity. The assessee company was asked to submit the details of the same including the interest free deposits received on the property leased along with copy of lease agreements. The assessee company was also asked to show cause as to why the rent/lease rent received by the assessee company as well as the notional interest on the interest free deposits received should not be treated as income from house property. In reply, the assessee furnished the following submissions : - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g stock/stock-in-trade. Once assets are transferred from the closing stock/stock-in-trade and is converted as fixed assets, then the nature of the asset changes itself to a capital asset. Consequently, the income earned by the assessee from the said assets cannot be anything other than income from house property since the lease assets are not commercial assets and the intention behind the lease of property is purely to enjoy the rental income which is no way connected or incidental to the business activity of the assessee company. The Assessing Officer while distinguishing the decisions relied on by the assessee on the ground that the leased assets are not commercial assets but part of the fixed assets and the character of the property as well as the intention of the assessee to enjoy the rental proceeds proves that they are not part of any business activity held that the rental income received by the assessee company is chargeable under the head income from house property and accordingly he assessed the rental income under the head income from house property at Rs. 28,77,627 as per computation given at page 8 of the assessment order. 3. On appeal, the ld. CIT(A) while distingu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is also one of the methods of commercial utilisation of immovable property and hence forms part of the business of the company. During the year, the assessee company has let out few units, the details of rent received and other details are as under : " S. No Name of party Bldg. Unit Nature of property Date of lease duration of lease Cost of leased assets Rent revd Status as on date 1a. Lear Seating Pvt. Ltd. Hamilton AGR Ist Flr Commercial 15/7/01 36 months 15898000 2657325 Still on lease 1b. Lear Seating Pvt. Ltd. Caviana Flat 15-7-01 11 months NOTE 1 NOTE 1 Sold on 19-12-02 2. Lupin Ltd. Stanford 103 Flat 1-3-02 2 months 1400000 30000 Sold on 29-7-02 3. Bharti Cellular Ltd. Stanford Antena rent Putting up Antenna 27-4-02 N.A. Nil 225000 Handed over to Society 4. Mastek BPO Pvt. Ltd. Hamilton B 6th floor Commercial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer and the ld. CIT(A) were not justified in assessing the rental income under the head income from house property. 6. On the other hand, the ld. D.R. while relying on the order of the Assessing Officer and the ld. CIT(A) further submits that in the absence of any evidence that the premises given on lease are in effect the commercial premises or the income derived by the assessee is from a commercial asset, the Assessing Officer and the ld. CIT(A) have rightly assessed the income from property under the head income from house property. The ld. D.R. while distinguishing the decisions relied on by the ld. Counsel for the assessee, strongly relied on the decisions in the case of Shambhu Investments (P.) Ltd. (supra) and East India Housing Land Development Trust Ltd. v. CIT [1961] 42 ITR 49 (SC) and submits that in view of the ratio laid down therein, the order passed by the Assessing Officer treating the rental income as income from house property be upheld. 7. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that there is no dispute that principal object of the assessee company is to develop and sell th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said premises is rental income or business income. Their Lordships, after elaborate review of the case law laid down the following principles : ".............What has to be seen is what was the primary object of the assessee while exploiting the property. If it is found applying such test that the main intention is for letting out the property or any portion thereof the same must be considered as rental income or income from property. In case it is found that the main intention is to exploit the immovable property by way of complex commercial activities in that event it must be held as business income." And observed and held that the agreement was one of tenancy and that the assessment of the income as business income was not correct on the basis of the finding that the primary intention to let out the premises was to get rent. 9. In Atma Ram Properties (P.) Ltd. (supra) it has been held that rental income derived by the assessee company by letting out a property simplicitor was chargeable to tax under the head 'income from house property' and not as business income irrespective of the fact that assessee company was doing business of acquiring, developing and selling of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and there is no material on record to show that the said principle object of the company includes leasing of the stock i.e., property for a temporary period to persons/companies interested in temporary use, therefore, the decision relied on by the ld. Counsel for the assessee is distinguishable and not applicable to the facts of the present case. 14. Applying the above test as mentioned in paras 8 to 11 of this order to the facts of the present case, we find that the principal object of the assessee company is to develop and sell the premises constructed and there is no material on record to show that the said principal object of the assessee company includes that leasing is also one of the principle objects of the assessee company. We further find that the assessee after taking interest free security deposits has given its portion of the building on lease and received lease rent from the said property and there is no material on record to show that the said lease rent received by the assessee is from exploitation of the property by way of complex commercial activities as prime object. This being so, we are of the view that the rental income derived by the assessee as an owner ..... X X X X Extracts X X X X X X X X Extracts X X X X
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