TMI Blog2022 (4) TMI 396X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacture of IMFL. The assessee has let several portions of available building on lease to different individuals/entities. The parting of possession of godown, particularly in the circumstances of the case, is more as an owner of a business asset, but not for exploiting a commercial asset. Assessing Officer, the Appellate Authority, and the Tribunal have considered the case in the right perspective and disallowed the claim of rental income as business income. We hold that the Tribunal and the authorities have rendered available findings of fact on the assessee s claim of rental income as business income and rejected the claim. No ground warranting interference is made out. The question is answered against the assessee and in favour of the Revenue. - ITA NO. 11 OF 2008, ITA NO. 12 OF 2008, ITA NO. 279 OF 2010, ITA NO. 282 OF 2010, ITA NO. 292 OF 2010, - - - Dated:- 31-3-2022 - HONOURABLE MR.JUSTICE S.V.BHATTI HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS HONOURABLE MR.JUSTICE BASANT BALAJI Appellant/S: By Advs. Sri Raja Kannan, Sri. E.K. Nandakumar; Sri. Anil D. Nair Respondent/S: By Adv Sri. Jose Joseph, SC, For Income Tax Other Present: Adv Raja Kannan For Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the asset and not with reference to it being temporarily put out of use or let to another person to use in his business or trade. The income is related to the source in question and if the source is the commercial asset, irrespective of the manner in which the asset is exploited by the owner of the business, the income would have to be understood as Income from business because to mean the situations of exigencies, the owner of the asset will have to be understood to have a right to exploit the situation to the best of his advantage. He may use it for himself or he may earn income by letting it out to someone else. Whatever may be the line of action, the source does not get polluted with regard to the understanding in the process of required classification. 4. Through Reference Order dated 22.11.2018, the Division Bench, noticing the similarity of circumstances in Malabar and Pioneer Hosiery (P.) Ltd case and the case on hand, expressed its reservations on the correctness of the view taken by the Division Bench in Malabar and Pioneer Hosiery (P.) Ltd case referred the matter to a Larger Bench. The operative portion of the Reference Order reads thus: 10. We notice that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d subsequent Assessment Years. The demised premises is a business asset of the assessee. The assessee incurs loading, unloading, transportation charges etc., for delivering the product at the doorstep of KSBC. By letting out the godown to KSBC, the assessee reduces the operational cost of IMFL product and enhances the profitability from the business activity undertaken by it. The rental income forms part of the income generated along with the manufacture of IMFL. The products manufactured by the assessee are sold only to KSBC. At any rate, the rental arrangement made with KSBC is the generation of income by exploitation of one of the business assets of the assessee. At one point, the assessee utilised the business asset; now, the business asset is let out to KSBC, and rental income received from such letting out is to be treated as income from the business. The assessee since has a right to exploit the business asset to the best of its advantage, the rental income received from KSBC should have been treated as income from the assessee's business. The yield of income from an asset of a business is the company's profit, irrespective of how that asset is put to use. 5.1 He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nse and if the argument is accepted, in the case of a godown, the same analogy is extended to other premises let out by the assessee namely to Bank, Police Station etc. He relied on the judgments reported in Sultan Brothers Private Ltd v. Commissioner of Income Tax, Bombay City II (1964) ITR 353 and Attukal Shopping Complex P. Ltd v. Commissioner of Income Tax (2003) 259 ITR 567. He contends that the findings of fact recorded by the Tribunal are with reference to the circumstances stated by the assessee and upon consideration of all the documents, including the subject lease agreement with KSBC. Therefore, the findings of fact do not warrant interference. The view of this Court in Malabar and Pioneer Hosiery (P.) Ltd case is in tune with the ratio of the Supreme Court in Karanpura Development Co. Ltd.; Shri Lakshmi Silk Mills Limited etc. or expanding the dictum. The view in Malabar and Pioneer Hosiery (P.) Ltd case is incorrect and far beyond the ratio laid down by the Apex Court in the same judgments on which the assessee is relying. 6.2 Firstly, it is argued that the ratio of Malabar and Pioneer Hosiery (P.) Ltd case in all fours is applicable to the case on hand, and, se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd he may do so either by using it himself personally or by letting it out to somebody else. 8.2 East India Housing and Land Development Trust Ltd. case dealt with the situation of an assessee whose object was promoting and developing markets. The rental income received from the shops was claimed as income taxable under profits or gains of business . The distinct heads of income specified in Section 6 of the Income Tax Act 1962 were considered and held that the sources are mutually exclusive, and the income derived from different sources falling under a specific head has to be computed for the purpose of taxation in the manner provided by appropriate section. If the income from a source falls within a specific head, set out in Section 6, the fact that it may indirectly be covered by another head will not make the income taxable under the latter head. Referring to Commercial Properties Ltd. v Commissioner of Income Tax (1928) ILR 55 Cal 1057, it is also held that merely because the owner of the property was a company incorporated with the object of owning property, the incidence of income derived from the property owned could not be regarded as altered; the income came more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perties which it sells or leases out with a view to acquiring other properties to be dealt with in the same manner, the company is not treating them as properties to be enjoyed in the shape of rents which they yield but as a kind of circulating capital leading to profits of business, which profits may be either enjoyed or put back into the business to acquire more properties for further profitable exploitation. 8.4 Next decision on the point is Sultan Brothers Pvt. Ltd. The assessee, a limited company, being the plot owner, developed it into a building fitted with furniture and let it out as a hotel on rent of ₹ 5,950/- for the building and hire ₹ 5,000/- for the fittings. The question for decision, in this background, was how to assess the income received as rent and hire, i.e., under which section of the Income Tax Act 1962 was it assessable. 8.5 The Apex Court s consideration has a bearing on the circumstances of the case on hand and are excerpted hereunder: The first contention of the appellant, as already seen, is that the assessment should be made under Section 10 as of income from a business. The reason for this preference is that under that section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is related to the source in question and if the source is the commercial asset, irrespective of the manner in which the asset is exploited by the owner of the business, the income would have to be understood as income from business because to mean the situations of exigencies, the owner of the asset will have to be understood to have a right to exploit the situation to the best of his advantage..... 8.7 Universal Plast Ltd./assessee set up a factory styled as UPL Factory for manufacturing PVC sheets. The assessee suffered losses and entered a 'leave and licence' agreement to transfer the occupational right of premises in favour of the lessee. The licence fee was shown as business income, which was negatived by the authorities and the High Court of Calcutta. The question of law considered by Calcutta High Court reads thus: Whether on the facts and in the circumstances of the case, the Tribunal was correct in law that the income received by the assessee by leasing out the factory was business income? The question of law considered by Andhra Pradesh High Court in Guntur Merchants Cotton Press Co. Ltd v. Commissioner of Income Tax (1985) 154 CTR 861 (AP) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the business. The test expounded in Malabar and Pioneer Hosiery (P.) Ltd if accepted, then, the categorisation of sources of income under Section 14 of the Income Tax Act strains the plain and straightforward language employed in the Act and corresponding allowances provided to different income categories. There could be cases where the rental income constitutes income from the business. Such claim is tested on the broad propositions noted in Sultan Brothers Private Ltd, Universal Plast Ltd, etc. We are not understood to mean that rental income, by and large, would merit as an income from house property or forms part of business income. Rental income from a property including a commercial asset is claimed as business income; in such cases, the comprehensive tests laid down in Sultan Brothers Private Ltd and Universal Plast Ltd are applied. Therefore, the view in Malabar and Pioneer Hosiery (P.) Ltd is a view expressed by the Division Bench in the peculiar facts of the case on hand and cannot be applied to all the instances of letting of godowns by an assessee. The rental income merits acceptance as income from the business. For the view we arrive at, from the discussion of bindi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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