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2015 (5) TMI 432 - ANDHRA PRADESH HIGH COURT

2015 (5) TMI 432 - ANDHRA PRADESH HIGH COURT - [2015] 377 ITR 613 (T&AP) - Treatment to the rental income from letting out of the godowns - business income or income from property - Tribunal confirmed the order of 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 - Held that:- In the present case, the main business of .....

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e assessee had undertaken the activity of construction of godowns and letting them out as business activity. Moreover, it is not the case 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 fir .....

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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 (Per the Honble Sri Justice Dilip B. Bhosale) This Income Tax Appeal by the Revenue under Section 260-A of the Income Tax Act, 1961 (for short the Act) is directed against the order o .....

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of the assessee, as argued by his learned counsel, that the godowns, which he had let out, were being used by him for the business of export of tobacco, and whenever they were not in use, he had given them on lease to third parties and received rent therefrom. He, therefore, claimed before the authorities below, on the basis of Clause.3 of the partnership deed, that the godowns of the firm were let out, as provided for in the said deed and that being a part of their business, the rent received f .....

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pellate authority was challenged by the Revenue before the Income Tax Appellate Tribunal (ITAT). Based on the order of the Appellate Tribunal, passed for the year 1991-92, the assessment for the year 1992-93, impugned in this appeal, was completed, treating the rental income as income from property. 2.1. The CIT(Appeals), in the appeal filed by the assessee, however, held that the income from letting out of the godowns should be treated as income from business and directed the Assessing Officer .....

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ellate 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, .....

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me-Tax, Bombay City II([ (1964) I.T.R. 353 ]) the five Judge bench of the Supreme Court considered the question, how the income received as rent and hire is to be assessed, that is, under which section of Income Tax Act, 1922, (for short 1922 Act) is it assessable? According to the assessee in that case, the entire income ought to have been assessed under Section 10 as the income of a business or, in the alternative, under Section 12 as the income from residuary source, that is, a source not spe .....

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-1946 for running a hotel and for certain other ancillary purposes. The lease provided for a monthly rent of ₹ 5,950/- for the building and hire of ₹ 5,000/- for the furniture and fixtures. In this backdrop, the aforementioned question fell for consideration of the Supreme Court. One of the objects of the assessee- Company in Sultan Brothers Case (supra) was to acquire land and building and to turn the same into account by construction and reconstruction, decoration, furnishing and m .....

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s income received from property and falls under the specific head described in Section 9. The character of that income is not altered because it is received by a company formed with the object of developing and setting up markets. Then the Supreme Court considered the question and observed 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, .....

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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 those mentioned in .....

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ect factory and that it was just a make-shift transient alternative means of commercial exploitation of the commercial assets. Against this finding, the Calcutta High Court after referring to various Clauses in lease agreement, held that the assessee decided to go out of the business as far as this particular factory was concerned, the lease agreement was in fact a veiled agreement for lease-cum-sale and it could not be in the contemplation of the assessee, at the time of it entering into the li .....

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of Calcutta High Court and held that the income of the assessee was not assessable as business income. 4.4. This Court in Commissioner of Income-Tax. v. Y.Narayana Murthy ((2004) 270 I.T.R. 275) considered the question whether, on the facts and in the circumstances of the case and in law, the Appellate Tribunal was justified in holding that letting out the godowns would amount to carrying on of business within the meaning of the Partnership Act disregarding the decision of the High Court in R.C. .....

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ssment 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 an .....

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o registration for assessment years 1979-80 and continuation of registration for the assessment year 1980-81. On a reference, this Court held that the expression business contemplates continuous activity from year to year. It was not the case of the assessee that it was in the business of construction of godowns and letting them out from year to year either to the F.C.I. or to any other interested person or persons, as the case may be. Therefore, the assessee was not continuing the activity of c .....

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e in terms of Section 185 (1)(a) of the Act. 4.5. In Commissioner of Income-Tax v. Veerabhadra Industries ((1999) 240 I.T.R. 5), this Court had taken the similar view, as was taken in Y.Narayana Murthy (supra) holding the single act of constructing godowns and letting it out cannot be treated as a business. The expression business contemplates continuous activity from year to year. There was no evidence that the assessee was continuing the activity of constructing godowns and letting them out fr .....

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ects of buying and developing landed properties and promoting and developing markets. It had purchased 10 bighas of land in the town of Calcutta and had set up a market therein. The question was whether the income realized from the tenants of the shops and stalls was liable to be taxed as business income under Section 10 of 1922 Act or as income from property under Section 9. In this case, it was contended that income from letting out of the godowns is business income and, therefore, the assesse .....

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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 j .....

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33 ITR 904 (Mad), is distinguishable from the facts of the case. It is a case where the assessee went on putting up additional constructions and letting it out to various tenants which was in the nature of business activity, because, as pointed out in the earlier paragraph, it is a case where there is continuous activity and therefore that judgment is distinguishable on facts. (emphasis supplied) 05. Learned counsel for the assessee, in support of his case, placed reliance on the following judgm .....

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and not from property. 5.1. In National Storage Pvt. Ltd. Bombay (supra), the Supreme Court was considering the case of the distributors, who were required to store films only in godowns constructed strictly in conformity with the specifications laid down in the Film Rules and in a place to be approved by the Chief Inspector of Explosives, Government of India. The assessee, after purchasing a plot of land, constructed 13 units thereon. Each unit was divided into four vaults, having a ground flo .....

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me up before the High Court, it was held that where the letting 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 .....

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vt. 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 business of the assessee was the export of tobacco and for that purpose they had constructed godowns. As submitted by the learned counsel for the assessee, the assessee would let out the godowns when they would not require the same and earn rental .....

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