TMI Blog1978 (3) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... ctures with no foundations but with light plinth or floors and walls made of planks of unseasoned indigenous wood or corrugated sheets fixed on frames of bamboos or local wood. The assessee claimed that the income from such constructions on the said land was income from its business or, in the alternative, income from other sources but not income from property. The ITO, following the assessment orders of earlier years, did not accept the assessee's contention and assessed the same under the head " Property ". The AAC, on appeal, upheld the decision of the ITO. Being aggrieved, the assessee preferred further appeals to the Income-tax Appellate Tribunal. It was contended before the Tribunal that in the earlier assessments the assessee had not claimed that rent realised from the said bustees were the assessee's business income, at the initial stages and, therefore, the Tribunal did not allow the assessee to agitate this point in the appeal. In the relevant assessment year, it was open to the assessee to agitate this question. It was further contended that the bustees were not " property " and, in any event, the assessee was not the owner thereof but only of the structures thereo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as held by this court that where the term of a lease, being a building lease, provided that the ownership of the structure to be built remained vested in the lessee while the ownership of the site remained in the lessor, the lessee would still be assessed in respect of the income from such structure under s. 9 of the Indian I. T. Act, 1922, as an income from the property. Therefore, such contention of Mr. Gupta cannot be sustained. Mr. Gupta next contended that the structures were not buildings within the meaning of s. 9 as they were in the nature of temporary structures. The same point was also decided in the earlier reference, that is, Income-tax Reference No.113 of 1970 (since reported as Tinsukia Development Corpn. Ltd. v. CIT [1979] 120 ITR 476 (infra)), and it was held that the structures were not seasonal structures but could be let out at least for 5 to 6 years. This contention of the assessee is, therefore, also rejected. Mr. Gupta, lastly, contended that, in any event, irrespective of the question of ownership of the property or the nature of the structure, the income arising from the bustees must be treated as the business income of the assessee. He submitted that pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gains can be brought to computation, they have to be assigned to one or more heads. These heads are in a sense exclusive of one another, and income which falls within one head cannot be assigned to, or taxed under, another head. " The Supreme Court further observed : " Ownership of property and leasing it out may be done as a part of business, or it may be done as land owner. Whether it is the one or the other must necessarily depend upon the object with which the act is done. It is not that no company can own property and enjoy it as property, whether by itself or by giving the use of it to another on rent. Where this happens, the appropriate head to apply is 'income from property' (section 9), even though the company may be doing extensive business otherwise. But a company formed with the specific object of acquiring properties not with the view to leasing them as property but to selling them or turning them to account even by way of leasing them out as an integral part of its business, cannot be said to treat them as landowner bat as trader. The cases which have been cited in this case both for and against the assessee-company must be applied with this distinction properly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round spaces to the shopkeepers, stall-holders and daily casual market vendors. The assessee claimed that its income from the said lease-hold property for the said years should be assessed under the head " business " as letting out of the property was its authorised business. The contentions of the assessee were rejected by the ITO and the AAC. The Tribunal, however, held that such income of the assessee should be assessed as business income. On a reference, the High Court held that such income was not assessable under s. 10 of the Act. The matter ultimately came up before the Supreme Court. The Supreme Court noted that there was no finding that the appellant company was the owner of the property in question or any part thereof and that it was not disputed by either side that there could be no assessment under s. 9 of the Indian I.T. Act, 1922. The Supreme Court also considered its earlier decision in Karanpura Development Co. Ltd.'s case [1962] 44 ITR 362 and quoted the observations therein noted earlier. Further observations of the Supreme Court were as follows : " The above observations have a direct bearing. It is not necessary for the purpose of this case to say anything, be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he management thereof and collection of rents therefrom. The question arose whether the income of the properties should be assessed under s. 9 or s. 10. It was held by a Special Bench of this court that the income must be assessed under s. 9. It was observed that the words of ss. 6, 9 and 10 of the Indian I.T. Act, 1922, must be so read as to give some effect to the contrast made between income arising from different sources. Merely because the owner was a company incorporated for the purpose of owning property it would not be sufficient to hold that the income derived from the properties owned must be regarded as income derived from business. Income derived from property fell in a more specific category which must be applied if the facts so warranted. (b) Ballygunge Bank Ltd. v. CIT [1946] 14 ITR 409 (Cal). Here the assessee was a limited company and its objects were to acquire land, build houses and let them out. The assessee obtained a lease, erected a house on the demised land and let out the same to tenants. The question arose whether the rent received should be assessed under s. 9 of the Indian I.T. Act, 1922. Following Commercial Properties Ltd.'s case, AIR 1928 Cal 456 [F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e received by the appellant was indisputably income from the property and, therefore, was rightly assessed under s. 9 of the Act. (d) CIT v. Chugandas Co. [1965] 55 ITR 17 (SC). The facts in this case were that the assessee, a firm dealing in securities, discontinued its business in June, 1947, and claimed benefit under s. 25(3) of the Indian I.T. Act, 1922, by way of exemption from payment of tax on income earned in the relevant previous years. To come under s. 25(3), the assessee had to establish that it was carrying on a business, tax was being charged in respect of such business and that the business was discontinued. It was contended by the revenue that, as the interest earned by the assessee from securities were liable to be assessed under s. 8 as income from other sources, and not under s. 10 as business income, the assessee was not entitled to the benefit of the said section. The Supreme Court held that the assessee was entitled to such benefit in respect of interest on securities and observed as follows : " It must, therefore, be held that even if an item of income is earned in the course of carrying on a business, it will not necessarily fall within the head 'Profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n owner can own property and earn income therefrom by way of business. Significantly, the Supreme Court in that case stopped short of holding that such income must necessarily be assessed or computed under s. 10. Distinction between income which is earned in the course of business and income which is earned as an incident to the ownership of property is important. Apart from computation and assessment of such income, other consequences may follow from such distinction. One of such consequences has been noted in Chugandas Co. [1965] 55 ITR 17 (SC), where though the income of the assessee was assessed under s. 8 of the Act of 1922, yet the same was held to be the assessee's income from business so as to enable the assessee to claim benefit under s. 25 of the Act. It is also significant that in S. G. Mercantile Corporation P. Ltd. [1972] 83 ITR 700, the Supreme Court did not elaborate on the observations in Karanpura Development Co. Ltd. [1962] 44 ITR 362 (SC) and such observations do not stand in our way in holding that the income of the assessee in the instant case from the sub-leases should be assessed and computed under s. 22 of the I.T. Act, 1961. For the reasons given abov ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
