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TMI Blog2024 (10) TMI 1209X X X X Extracts X X X X X X X X Extracts X X X X ..... f 2007 : Mr. Pheroze Mehta a/w. Mr. Abinash Pradhan, Ms. Garima Agrawal and Mr. Yash Dedhia i/b. Wadia Ghandy & Co.. For the Respondent : Mr. Suresh Kumar. JUDGMENT (PER G. S. KULKARNI, J.) 1. This batch of appeals under Section 260A of the Income Tax Act 1961, filed by the common appellant are directed against orders passed by the Income Tax Appellate Tribunal (for short 'the Tribunal'). The question of law which arises for consideration in these appeals, is whether the rent income derived by the appellant (for short 'the assessee') from its properties was assessable under the head 'Income from house property' or as claimed by the assessee under the head 'Income from Profits and Gains of Profession or Business'. 2. The nine assessment years in question relevant to each of these appeals and the date of the impugned orders passed by the Tribunal are as follows:- Sr.No. Income Tax Appeal No. Assessment Year with regard to which the Appeal is filed Impugned Order passed by the Appellate Tribunal 1. ITXA/686/2007 1989-1990 Dt. 22/02/2006 Assessed it as "income from house property" 2 ITXA/558/2007 1990-1991 Dt. 22/02/2006 Assessed it as "income from house property" 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y its letter dated 17 February 1992, disputing such contentions (although such issue is not the subject matter of the lead appeal). On 30 March 1992 the Assessing Officer passed an Assessment Order for assessment year 1989-90 (relevant to the lead appeal) under Section 143 (3) of the Act whereby the Assessing Officer inter alia calculated the annual value of the property on the basis of gross rent instead of actual rent issued by the assessee as shown in its returns. The assessee being aggrieved by the assessment order filed an appeal before the Commissioner of Income Tax (Appeal) (for short "CIT (A)") inter alia on the ground that the Assessing Officer ought to have calculated the annual value of the property on the basis of the actual rent / license received by the assessee. 8. It is the assessee's case that while the assessee's appeal before the CIT (A) was pending, the assessee filed its revised Returns computing the lease / rental income under the head "income from profits and gains of business". On 9 November 1993, the assessee filed additional grounds of appeal before CIT (A) contending that the income of the assessee should be taxed under the head "profits or gains from bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 13. As noted hereinabove, a similar view has been taken by the Tribunal in respect of other assessment years and subject matter of companion appeals by an order dated 30 June 2008. This Court by an order dated 30 June 2008 passed on the lead appeal had admitted the appeal on the following questions of law : "(a) Whether, in the facts and the circumstances of the case, and in law, the Tribunal erred in arriving at the conclusion that the income earned by the Appellant was assessable under the head "Income from house property" in very cryptic and arbitrary manner? (b) Without prejudice to the above, whether, on the facts and the circumstances of the case, and in law, the Tribunal was right in concluding that the income earned by the Appellant from its properties was assessable under the head "Income from house property" as against under the head "Profits and gains of business or profession" as contended by the Appellant? (c) whether, on the facts and the circumstances of the case, and in law, the Tribunal was correct in deciding the issue relating to the head under which the income received by the appellant was to be taxed by solely relying on the judgment of the apex court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property" but of buying and developing landed property and promoting and developing markets. It is, therefore, submitted that the Tribunal in deciding the case by purely relying on the decision in East India Housing (supra) was an untenable approach in law. iv. Mr. Cama has also submitted that in any event for several assessment years i.e. for Assessment Years 1993-94, 1994-95, 1996-97, 1997-98, 1998-99 and 1999-2000, the Assessing Officer has consistently taken a view that the income as derived by the assessee from letting out the house properties was "income from profits and gains of business", hence, on such ground applying the principles of consistency, the impugned order is rendered bad and illegal. It is submitted that in fact the Revenue itself having accepted such position for almost 11 assessment years, it now cannot turn around and contest the present appeal on the ground that the Tribunal was justified in passing the impugned order. In support of such contention, Mr. Cama has placed reliance on the decision of the Supreme Court in M/s. Radhasoami Satsang, Saomi Bagh, Agra v. Commissioner of Income Tax (1992) 1 SCC 659 and the decision in Godrej & Boyce Manufacturing Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come" or as "Income From House Property" and (ii) what should be the Annual Letting Value (ALV) for the purpose of Section 23 of the Income Tax Act, 1961 (Act) if income is assessable as "Income From House Property". 3. As far as the first issue is concerned, It is squarely covered by the Judgment of the Hon'ble Supreme Court in the case of East India Housing and Land Development Trust V/s CIT, 42 ITR 49, wherein it has been held that rental income from immovable properties is to be assessed under the specific head i.e., "Income From House Property" if such asset Is owned by the assessee even though the assessee may be in the business of real estate. The Learned Counsel for the Assessee could not make any other submissions In view of the above Judgment of the Supreme Court. Therefore, we hold that the rental income from Immovable property owned by the assessee is assessable under the head From House Property". 18. In the aforesaid circumstances, the primary question before the Court is whether the approach of the Tribunal was correct in categorising that the assessee's case would be squarely hit by the law as laid down by the Supreme Court in East India Housing (supra). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iable to be taxed as "income from property" under Section 9 of the Act. The Supreme Court examined the nature of the assessee's business and in doing so observed that the assessee was required to obtain license from the Corporation of Calcutta and to perform other acts in conformity with the provisions of the Act, and for that purpose the assessee had to maintain staff and to incur expenditure. It was observed that for such reason, the income derived from letting out property belonging to the appellant did not become "profit or gains from business", within the meaning of Sections 6 & 10 of the Income Tax Act. The Supreme Court observed that if the income from a source falls within a specific head as 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. The Supreme Court observed that the income derived by the company from shops and stalls was income received from property falling under the specific head described in Section 9. It was held that the character of the income was not altered because it was received by a company formed with the object of developing and setting up markets. The relevant obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tta v. CIT [(1958) SCR 79] this Court explained after an exhaustive review of the authorities that under the scheme of the Income Tax Act, 1922, the heads of income, profits and gains enumerated in the different clauses of Section 6 are mutually exclusive, each specific head covering items of income arising from a particular source. 4. In Fry v. alisbury House Estate Ltd. [LR (1930) AC 432] a company formed to acquire, manage and deal with a block of buildings having let out the rooms as unfurnished offices to tenants was held chargeable to tax under Schedule A to the Income Tax Act, 1918 and not Schedule D. The company provided a staff to operate the lifts and to act as porters and watch and protect the building and also provided certain services, such as heating and cleaning to the tenants at an additional charge. The taxing authorities sought to charge the income from letting out of the rooms as receipts of trade chargeable under Schedule D, but that claim was negatived by the House of Lords holding that the rents were profits arising from the ownership of land assessable under Schedule A and that the same could not be included in the assessment under Schedule D as trade recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and observed that it should be treated as such and taxed accordingly. Aggrieved by such order passed by the CIT (A), the department filed an appeal before the Tribunal, which declined to interfere with the order of the CIT (A) and dismissed the appeal. The department thereafter approached the High Court assailing the concurrent orders passed by the CIT (A) and the Tribunal. The department's appeal was, however, allowed by the High Court, when it held that the income derived by letting out of the properties would not be income from business, but could be assessed only as "income from house property". The High Court's decision primarily rested on the premise of the decision of the Supreme Court in East India Housing (supra). It is in such circumstances, the question which fell before the Supreme Court was as to whether the income derived by the company from letting out the property, is to be treated as income from business or it should be treated as rental income from house property. The Supreme Court, in answering such question, noted the Memorandum of Association of the appellant which mentioned the main objects as well as incidental or ancillary objects of the assessee. The main o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. vs. CIT (AIR 1964 SC 1389), observed that merely an entry in the object clause showing a particular object would not be the determinative factor to arrive at the conclusion, whether the income is to be treated as 'income from business', and such question would depend upon the circumstances of each case viz. whether a particular business is letting or not. The Supreme Court in Chennai Properties and Investment Ltd. (supra) referring to such settled position in law, in the facts and circumstances of the case, held that letting of properties was in fact the business of the assessee, and the assessee therefore rightly disclosed the income under the head 'income from business'. The Supreme Court held that such income of the assessee cannot be treated as 'income from the house property'. Accordingly, the judgment of the High Court was set aside. The relevant observations of the Supreme Court are required to be noted, which read thus: "6. The memorandum of association of the appellant Company which is placed on record mentions the main objects as well as the For such reasons, apparently there was an error on the part of the tribunal in holding that the assessee's income is required t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts activities to acquiring coal mining leases over large areas, developing them as coalfields and then sub-leasing them to collieries and other companies. Thus, in the said case, the leasing out of the coalfields 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. The 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 particularly six heads under which income can be categorised/classified. It was pointed out that before income, profits or gains can be brought to computation, they have to be assigned to one or the other head. 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. Thereafter, the Court pointed out that the deciding factor is not the ownership of land or leases but the nature of the activity of the assessee and the nature of the operations in relation to them. It was h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." 12. 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 the 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 [CIT v. Chennai Properties & Investments Ltd., (2004) 186 CTR 680 (Mad)] of the High Court and restore that of the Income Tax Appellate Tribunal. No orders as to costs." 24. Adverting to the law as laid down in Chennai Properties & Investments Ltd. (supra), it is clear that what must be borne in mind for the Court is to consider the main objective of the assessee as contained in the Memorandum of Association, and that the deciding factor, is not the ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contention as urged by Mr. Cama that the Assessing Officer, for almost 11 Assessment Years has consistently held that such income of the assessee is required to be treated as "income from business" and not the "income from house property". This has been the consistent approach of the department, therefore, the principles of consistency, as the law recognizes are required to be accepted. In this context, Mr. Cama has rightly referred to the decision in M/s. Radhasoami Satsang, Saomi Bagh, Agra (supra) wherein the Supreme Court has accepted the rule of consistency as a settled principle of law. In a recent decision of this Court in Banzai Estates P. Ltd. (supra), a Division Bench of this Court of which one of us (G. S. Kulkarni, J.) was a member, while referring to the decision in M/s. Radhasoami Satsang, Saomi Bagh, Agra (supra) as also the decision in Bharat Sanchar Nigam Ltd. & Anr. Vs. Union of India & Ors. [2006] 282 ITR 273 (SC) made the following observations:- "13. In the prior Assessment Years, the Assessing Officer had accepted the assessee's treatment of such income as an income from house property, which is one of the factors which has weighed with the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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