TMI Blog1999 (4) TMI 106X X X X Extracts X X X X X X X X Extracts X X X X ..... hence the ITO ought not to have allowed the aforesaid deductions. The CIT also discussed that the buildings were owned by the assessee and as such the income should have been computed under the head "Income from house property". The assessee contended before the CIT that the assessee-company had been formed with the object, inter alia, to carry on the business to purchase, taken on lease or otherwise acquire lands and construct structures thereon and to lease or deal in such structures on commercial lines. It was furthermore submitted by the assessee that in pursuance to the above-mentioned object clauses, the assessee had constructed a commercial complex on leasehold land and hence the income therefrom had rightly been assessed under the head 'Business'. The CIT however did not agree with the contention of the assessee. He held that the case of the assessee was covered by the decision of the Karnataka High Court in the case of D.R. Puttanna Sons (P.) Ltd. v. CIT [1986] 162 ITR 468/29 Taxman 158. Respectfully following the said decision of the jurisdictional High Court, the CIT rejected the objections of the assessee, set aside both the assessments and directed the AO to make fres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his own right will have to be treated as the owner of the property and the income from the property will have to be assessed in his hands as income from house property. On the issue as to whether the assessee renders common service of various nature to its tenants, the learned DR tried to point out by making reference to the Profit Loss a/c for both the years that the expenses provided for such common services were just nominal and that the main bulk of the income of the assessee arose out of letting out of the house property constructed by it. 4. Firstly, we will take into consideration some decisions relied upon by Sri Venkatesan as below --- (1) CIT v. V.S.T. Motors (P.) Ltd. [1997] 226 ITR 155/92 Taxman 205 (Mad.) In this case it was held that when the building was constructed by the assessee for use as business premises and part of the business was let to the Govt. Department on account of shifting of some of the offices of the assessee outside the city, the building was a commercial asset belonging to the assessee and hence rent receipts were taxable as business income. (2) CIT v. M.P. Bazaz [1993] 200 ITR 131/[1992] 65 Taxman 1 (Ori.) It was held in this part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the other hand in the case of Balaji Enterprises the facts were that the assessee-firm in that case, was originally constituted to carry on the business of dealing in real estate and setting up, development and exploitation of the commercial complex and market. The partnership deed also provided in that line. As to the question of whether the assessee was carrying on a business activity or not and whether the income derived by way of rent from the property developed by the assessee should be considered as income from business or as income from house property, the Hon'ble Karnataka High Court held that there was no finding by the Tribunal that the assessee was the owner of the property, that the partner ship deed itself provided that at the end of the lease period, the surviving partners had to handover possession of the leased property with the building constructed on the said property to the lessors. That the object itself of the assessee-firm was to obtain the lands either on leasehold or on freehold basis and set up commercial complex and lease them out. The Karnataka High Court thereafter held that the assessee firm had received the income as part of their business activities a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property as its owner, then the income may come under section 22 of the Income-tax Act, 1961. But if the leasing of the property was done as part of the business concern, the income received therefrom, cannot be said to be received as a landowner but as a trader. In other words, if the property is taken on lease thereafter developed and leased out to various tenants as part of the business activity of the assessee and not in its activity as the owner, then the income has to be treated as business income." 7. It thus appears that both the Supreme Court in the case of S.G Mercantile Corpn. (P.) Ltd. and the Karnataka High Court in the case of Balaji Enterprises wanted to dichotomise the activity of leasing out a property developed by the assessee according to the intention behind such leasing out operation. Both the courts also seem to take different views of the situation when the leasing out operation is done by the assessee as landowner as distinguished from when the same activity is carried on as a trader or businessmen. The Karnataka a High Court has clearly held in the case of the Balaji Enterprises that in the latter case i.e., when leasing out of the property developed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthouse and vacant land forming part of Nos. 39-40, Seshadri Road were leased out to the lessee for the purpose of constructing a commercial complex therein, subject to the lessee obtaining necessary permission and licence from the authorities concerned. The lease deed also provided that the period of lease would continue for 36 years. Clause-4 of the aforesaid lease deed provides for payment of rent by the lessee to the lessor at certain rates. It is required to be noted that the aforesaid amount of monthly rent was liable to be increased substantially on completion of the premises to be constructed by the lessee and occupation of the same by the lessee. Under clause-5, the lessee was at liberty to demolish the existing buildings and trees on the demised land and any other superstructures and was to build a commercial complex at a cost of not less than Rs. 4 Lakhs. The lessee was also required to equip the building with latest sanitary, electric and water installations with all conveniences etc. Under clause-6, the lessee was required, during the period of the lease to bear and discharge all existing and future rates, taxes, assessments, duties impositions and outgoings e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perty of the lessor and the lessor shall be the absolute owner of the same. Clause-20 on the other hand provides that the lessee shall be at liberty to lease the commercial building constructed on the scheduled land to any other person or firm or company on his own terms but shall restrict the period of such lease to the period of the lease granted to him under the lease deed. It was furthermore provided that the lessee alone shall be directly responsible to the lessor in regard to the observance of the terms and conditions contained in the lease deed. According to clause-21, the lessor covenants that the lessee paying the rent and observing and performing the covenants and agreements as mentioned in the lease deed shall peacefully hold and enjoy the demised premises during the aforesaid term without any obstruction, let or hindrance by the lessor or any other person. 9. It would appear from the different terms and conditions under the lease deed that this was not a simply a case of leasing out the land owned by the lessor to the lessee and allowing the lessee to have a complete free hand thereon. On the other hand, all the stipulations in the lease deed as discussed by us ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
