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2015 (5) TMI 46 - SUPREME COURT

2015 (5) TMI 46 - SUPREME COURT - [2015] 373 ITR 673 - Rental income from letting out of properties - Business income or Income from House property - Letting out of property is the main objective of the company - Income classification depend on the circumstances of each case - Held that:- We are of the opinion that the judgment in Karanpura Development Co. Ltd. [1961 (8) TMI 7 - SUPREME Court ] squarely applies to the facts of the present case. In this case it was held that "As has been already .....

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e is to be assigned". - No doubt in Sultan Brothers (P) Ltd. [1963 (12) TMI 4 - SUPREME Court ], Constitution Bench judgment of this Court has clarified that merely an entry in the object clause showing a particular object would not be the determinative factor to arrive at an conclusion whether the income is to be treated as income from business and such a question would depend upon the circumstances of each case, viz., whether a particular business is letting or not. - We are conscious .....

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Civil Appeal No. 4494 of 2004withC. A. Nos. 4491 4493 of 2004andS. L. P. (C.) Nos. 19013 -19018 of 2012. - Dated:- 9-4-2015 - A.K. Sikri And Rohinton Fali Nariman JJ. For the Appellant : MS. radha rangaswamy For the Respondent : Mrs. Anil Katiyarjudgment Judgment A. K. Sikri, J. The appellant-assessee is a company incorporated under the Indian Companies Act. Its main objective, as stated in the Memorandum of Association, is to acquire the properties in the city of Madras (now Chennai) and to let .....

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r that Head. The assessee filed the appeal before the Commissioner of Income Tax (Appeals) who allowed the same by his orders dated 06.04.1989 holding it to be income from business and directed that it should be treated as such and taxed accordingly. Aggrieved by that order, the Department filed appeal before the Income Tax Appellate Tribunal which declined to interfere with the order of the Commissioner of Income Tax (Appeals) and dismissed the appeal. The Department approached the High Court. .....

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l [(1961) 42 ITR 49] as well as the Constitution Bench judgment of this Court in 'Sultan Brothers (P) Ltd. v. Commissioner of Income Tax' [1964 (5) SCR 807]. From the aforesaid facts, it is clear that the question which is to be determined on the facts of this case is as to whether the income derived by the company from letting out this property is to be treated as income from business or it is to be treated as rental income from house property. We have heard the learned counsel for the .....

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se and Firhavin Estate both in Chennai and to let out those properties as well as make advances upon the security of lands and buildings or other properties or any interest therein. What we emphasise is that holding the aforesaid properties and earning income by letting out those properties is the main objective of the company. It may further be recorded that in the return that was filed, entire income which accrued and was assessed in the said return was from letting out of these properties. It .....

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foresaid aspects. With this background, we first refer to the judgment of this Court in East India Housing and Land Development Trust Ltd.'s case which has been relied upon by the High Court. That was a case where the company was incorporated with the object of buying and developing landed properties and promoting and developing markets. Thus, the main objective of the company was to develop the landed properties into markets. It so happened that some shops and stalls, which were developed b .....

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perty was not the object of the company at all. The court was therefore, of the opinion that the character of that income which was from the house property had not altered because it was received by the company formed with the object of developing and setting up properties. Before we refer to the Constitution Bench judgment in the case of Sultan Brothers (P) Ltd., we would be well advised to discuss the law laid down authoritatively and succinctly by this Court in 'Karanpura Development Co. .....

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s to the collieries and other companies was the business of the assessee. The income which was received from letting out of those mining leases was shown as business income. Department took the position that it is to be treated as income from the house property. It would be thus, clear that in similar circumstances, identical issue arose before the Court. This Court first discussed the scheme of the Income Tax Act and particularly six heads under which income can be categorised / classified. It .....

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stressed that the objects of the company must also be kept in view to interpret the activities. In support of the aforesaid proposition, number of judgments of other jurisdictions, i.e. Privy Counsel, House of Lords in England and US Courts were taken note of. The position in law, ultimately, is summed up in the following words: - As has been already pointed out in connection with the other two cases where there is a letting out of premises and collection of rents the assessment on property bas .....

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had to be treated as income from business and not as income from house property. We are of the opinion that the aforesaid judgment in Karanpura Development Co. Ltd.'s case squarely applies to the facts of the present case. No doubt in Sultan Brothers (P) Ltd.'s case, Constitution Bench judgment of this Court has clarified that merely an entry in the object clause showing a particular object would not be the determinative factor to arrive at an conclusion whether the income is to be trea .....

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