TMI Blog2020 (2) TMI 213X X X X Extracts X X X X X X X X Extracts X X X X ..... se property. The said application of the Head of Income by the Authorities below was not only against the facts and evidence available on record, but against the common sense itself. Even the amended definition intends to tax the notional income of the self occupied portion of the property to run Assessee's own business therein as business income. Therefore, the other rental income earned from letting out of the property, which is the business of the Assessee itself, cannot be taxed as Income from house property. Heads of Income, as defined in Section 14 of the Act do not exist in silos or in watertight compartments under the Scheme of tax and thus, these Heads of Income, as we have noted above, are fields and heads of sources of income depending upon the nature of business of the Assessee. Therefore, in cases where the earning of the rental income is the exclusive or predominant business of the Assessee, the income earned by way of lease money or rentals by letting out of the property cannot be taxed under the Head 'Income from hosue property', but can only be taxed under the Head 'Income from business income'. Where the facts of the cases are undisput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehouses situate near SIPCOT Tuticorin with total land area of 3.09 Acres and built up area of each approximately 32000 sq.ft. The Assessee earned income of ₹ 21.12 Lakhs during the Assessment Year 2000-2001 by letting out the warehouses to two companies M/s. W.Hogewoning Dried Flower Limtied and M/s. Ramesh Flowers Limited and out of the total rental income of ₹ 21.12 Lakhs, it claimed depreciation of ₹ 6.02 Lakhs on the said business asset in the form of Warehouses. The Assessee claimed that Warehousing was included in the main objects of its Memorandum of Association of the Company and not only Warehouses were utilised for storing their clients cargos, but other areas were used to park their equipments such as trucks, cranes, etc. and amenities like handling equipments like pulleys, grabs, weighing machines were fixed in the corners and such facilities were also provided to the clients. The Assessee claimed it to be the Business Income and such Income to be taxed as Income from Business. But, the Assessing Authority as well as the Appellate Authority held that the said income of Assessee to be taxable under the Head 'Income from House Property'. The Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the learned authorities below, as also the Income Tax Appellate Tribunal and placing reliance upon the earlier judgments of Madras High Court as well as the old judgments under the old Income Tax Act, 1922, rendered by the Hon'ble Supreme Court, sought to submit that the income from lease of the property deserves to be taxed under the Head 'Income from house property'. 9. In the alternative, Mr.Ravikumar, learned Standing Counsel for the Revenue also submitted that as far as the separate income earned by the Assessee from the amenities provided to the clients in the Warehouses or the property of the Assessee was concerned, such portion of income deserved to be taxed under the Head 'Income from other sources' under Section 56 of the Act and not as 'Income from Business'. He relied upon the following judgments in support of his contentions: (i) East India Housing Land Development Trust Ltd v. Commissioner of Income Tax [(1961) 42 ITR 49 (SC)] ; (ii) Sultans Brothers (P) Ltd. v. Commissioner of Income Tax [(1964) 51 ITR 353 (SC)] ; (iii) Shambu Investment (P) Ltd. v. Commissioner of Income Tax [(2003) 263 ITR 143 (SC)] ; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are quoted below for ready reference: 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. Ltd. v. Commissioner of Income Tax, West Bengal' [44 ITR 362 (SC)] . That was also a case where the company, which was the assessee, was formed with the object, inter alia, of acquiring and disposing of the underground coal mining rights in certain coal fields and it had restricted its activities to acquiring coal mining leases over large areas, developing them as coal fields and then sub-leasing them to collieries and other companies . Thus, in the said case, the leasing out of the coal fields 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out whether the letting was the doing of a business or the exploitation of his property by an owner. We do not further think that a thing can by its very nature be a commercial asset. A commercial asset is only an asset used in a business and nothing else, and business may be carried on with practically all things. Therefore, it is not possible to say that a particular activity is business because it is concerned with an asset with which trade is commonly carried on . We find nothing in the cases referred, to support the proposition that certain assets are commercial assets in their very nature. We are conscious of the aforesaid dicta laid down in the Constitution Bench judgment. It is for this reason, we have, at the beginning of this judgment, stated the circumstances of the present case from which we arrive at irresistible conclusion that in this case, letting of the properties is in fact is the business of the assessee . The assessee therefore, rightly disclosed the income under the Head Income from Business. It cannot be treated as 'income from the house property'. We, accordingly, allow this appeal and set aside the judgment of the High Court and restore tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty on the one hand and profits and gains from business on the other hand. On the facts of a particular case, income has to be either treated as income from the house property or as the business income. Tests which are to be applied for determining the real nature of income are laid down in judicial decisions, on the interpretation of the provisions of these two heads. Wherever there is an income from leasing out of premises and collecting rent, normally such an income is to be treated as income from house property, in case provisions of Section 22 of the Act are satisfied with primary ingredient that the assessee is the owner of the said building or lands appurtenant thereto. Section 22 of the Act makes annual value of such a property as income chargeable to tax under this head. How annual value is to be determined is provided in Section 23 of the Act. Owner of the house property is defined in Section 27 of the Act which includes certain situations where a person not actually the owner shall be treated as deemed owner of a building or part thereof. In the present case, the appellant is held to be deemed owner of the property in question by virtue of Section 27(iiib) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... main source of business of the Assessee, which has its business exclusively or substantially in the form of earning of the rentals only from the Business Assets in the form of such landed properties, then, in our opinion, the more appropriate Head of Income applicable in such cases would be 'Income from Business'. 18. A bare perusal of the Scheme of the Income Tax Act, 1961, would reveal that while computing the taxable income under the Head 'Income from business or profession', the various deductions, including the actual expenditure incurred and notional deductions like depreciation etc. are allowed vis-a-vis incentives in the form of deductions under Chapter VIA. But, the deductions under the Head 'Income from House Property' are restricted to those specified in Section 24 of the Act, like 1/6th of the annual income towards repairs and maintenance to be undertaken by landlords, interest on capital employed to construct the property etc. Therefore, in all cases, such income from property cannot be taxed only under the head 'Income from House Property'. It will depend upon the facts of each case and where such income is earned by the Assessee b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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