TMI Blog2015 (5) TMI 432X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of assessee that letting out of the godowns was continuous activity from year to year. Therefore, in our opinion, the income received by the assessee, by way of rent, was the income received from property and it would not fall under the head income from business. The character of the income would not stand altered because it was received by the firm with one of the objects of the partnership deed to let out their godowns. The income derived from letting out the property, in the facts of the present case, would not amount to profits or gains from the business. In other words, the income earned by letting out the godowns cannot be termed or treated as income from business. From the facts of the present case, it is clear that the assessee could let out their godowns only because those were not in use at the relevant time. Therefore, the rent received by the assessee would have to be computed as income from property. - Decided in favour of the Revenue - I.T.T.A. No. 316 of 2003 - - - Dated:- 11-3-2015 - Dilip B. Bhosale And A. Ramalingeswara Rao,JJ. For the Appellant : Ms. M. Kiranmai for Sri J. V. Prasad For the Respondent : Sri Challa Gunaranjan JUDGMENT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIT(Appeals) holding that so long character of the godown is retained as a godown, it should be treated as a commercial asset and its rental income must be treated as an exploitation of commercial asset in the nature of trade. In short, the order of the CIT(Appeals) was confirmed by the Appellate Tribunal, which is the subject matter of the instant appeal. 03. In this backdrop, though at the stage of admitting the appeal on 04-02-2004 no substantial question of law was formulated, in our opinion, the following questions fall for our consideration: 1. Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in holding the income from letting out of the godowns as income from business? 2. Whether on the facts and in the circumstances of the case, the Tribunal was justified in not recording any finding as to entitlement of the assessee for continuation of Registration as a firm? 04. We have heard learned counsel for the parties and with their assistance gone through the judgments relied upon by the parties in support of their contentions. It would be relevant at this stage to make brief reference to the judgments relied upon by lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that it is true, the rent for the building and the hire for furniture were separately reserved in the lease but that does not make the two lettings separable. Then after referring to the Clauses in the lease, further observed that the building and fixtures were to be used for one purpose, namely, for the purpose of running a hotel with them all together. The lessee was not to remove any article or things from the premises except for the purposes of and in the course of hotel business which latter would be for effecting repair to them or for replacing them where it was duty of the lessee to do so under the lease. In the light of these Clauses, the Supreme Court held that the lease clearly established the parties intention that the furniture and fixtures and the building should be enjoyed altogether and not one separately from other. 4.2. In the result the Supreme Court held that the rent from the building will be computed separately from the income from the furniture and fixtures and in the case of rent from the building the appellant would be entitled to the allowances mentioned in Sub-section (4) of Section 12 and in the case of income from the furniture and fixtures, to thos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the property and not from business and further held that the assessee was not entitled to the registration for assessment year 1979-80 and continuation of registration for the assessment year 1980-81. Accordingly, directions were issued to take the status of the assessee as an association of persons for the relevant assessment years 1979-80 and 1980-81. Consequently, the Assessing Officer passed the order for the assessment year 1979-80 which was upheld by the Appellate Assistant Commissioner. The assessing authority assessed the rental income as income from house property for the assessment years 1981-82 and it was upheld by the Commissioner of Income-Tax (Appeals). The Tribunal upheld the order of the Commissioner for the assessment years 1981-82 that the income derived from letting out the godowns was assessable as income from property. It, however, took the view that the letting out of the godowns to the F.C.I. would amount to exploiting the commercial asset and to carrying on of a business within the meaning of the Partnership Act. The Tribunal, therefore, held that the assessee was entitled to registration for assessment years 1979-80 and continuation of registration for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd, therefore, the assessee was entitled for registration under Section 185 (1) (a) of 1922 Act. While dealing with the contention, the Supreme Court observed thus: It is difficult to accept the contention of learned counsel for the assessee because a single act of constructing a godown and letting it out cannot be treated as a business. The expression business contemplates continuous activity from year to year. There is no evidence that the assessee is continuing the activity of constructing godowns and letting them out from year to year. There is no material that he has constructed a godown in this year. Therefore, the income from a simple letting out of the godown cannot be treated as business income for the purpose of the Income-tax Act. When once it is not business income the question of availing of benefit under section 185 (1) (a) of the Act does not arise. The income has to be assessed as income from property in accordance with sections 22 to 27 of the Income-tax Act. We are fortified in our view by a judgment of this court in Phabiomal and Sons case [1986] 158 ITR 773, wherein it was held that letting out a building and realising rents therefrom did not amount to carryi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g was only incidental and subservient to the main business of the assessee, the income derived from the letting will not be the income from property falling under Section 9 and the exception to Section 9 may also come into operation in such cases. The appeal was dismissed by the Supreme Court. In the instant case before us, the letting out of the godowns is not the main business of the assessee and therefore, income cannot be held to be from the business activity. Thus, this judgment is of no avail to the assessee. 5.2. Similarly, in Velankani Information Systems (P.) Ltd., (supra) the assessee was a real estate developer and was in the business of providing comprehensive facilities to IT industries. The case in Information Technology Park Ltd., (supra) to which one of us is a party (DBB, J), was also a case relating to the letting out buildings along with other amenities in software technology park. In M/s.NDR Warehousing Pvt. Ltd., (supra) the assessee was engaged in the business of warehousing, handling and transport business. Thus, the facts in these cases are different and, hence, these judgments also are of no avail to the assessee. 6. In the present case, the main busi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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