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TMI Blog1984 (12) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... hly rent of Rs. 5,000. Before the ITO, the assessee claimed that the income derived from the said property should be taken as business income. The ITO in the assessment order framed for the assessment year 1973-74 has noted that the assessee-company is only a sister concern of Karnani Properties Ltd. with some common directors. Most of the shares of the Karnani Properties Ltd. are held by the Karnani Investment (P.) Ltd., its managing director and his wife and that most of the shares of the assessee-company are held by the Karnani Properties Ltd., its managing director and his relatives. In view of these facts, the ITO was of the view that it is wrong to hold that the income from the leasehold house property of the assessee has any character of business income. It was also mentioned in the assessment order that the assessee has no general business of taking houses on lease and letting them out. So, the ITO considered the income from house property under the head 'Income from other sources'. 3. The matter was carried in appeals before the Commissioner (Appeals) for all the six assessment years under consideration. It was pointed out that the leasehold property in question is not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but three units and that renovation and repairing work has been undertaken at a large cost and that the property has, therefore, been let out in different portions to different tenants. From all these facts, the Commissioner (Appeals) came to the conclusion that the taking of the property on lease and subletting portions of the same is a part of the business activity of the assessee-company and, hence, the income derived from the property should be taxed under the head 'Profits and gains of business or profession'. It was further held that the ITO was not justified in resorting to the residuary section and taxing the 'income from other sources' under section 56. The ITO was, accordingly, directed to recompute the income from the leasehold property as business income. Aggrieved by the decision of the Commissioner (Appeals), the department has come up in separate appeals for all the six assessment years under consideration. 5. The learned departmental representative submitted before us that the Commissioner (Appeals) was wholly in error in holding that the income from the leasehold property is business income and should be assessed as such. It was urged that the ITO was fully justi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elding income of Rs. 1,010 per month and that after it had been taken on lease and subletting by the assessee, the rental income increased to Rs. 6,050 per month. It was also argued that the activities undertaken by the assessee-company after taking the property on lease amounted to commercial exploitation of the building as a trading asset and, therefore, rental income is assessable as business income and not under section 56. It was also urged that a solitary transaction may constitute a business. It was also pointed out that the renovation of the building was done according to the needs of the Allahabad Bank. Besides placing reliance upon the authorities cited before, the lower appellate authority, the learned authorised representative for the assessee has also cited before us the case of CIT v. National Storage (P.) Ltd. [1967] 66 ITR 596 (SC). 7. We have carefully considered the rival submissions as also the facts on record. We have also gone through the paper book filed by the assessee as well as the various authorities cited before us. The facts about which there is no dispute in this case and which have a bearing on the controversy between the parties are that the building ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to doing of a business. 10. In Karnani Properties Ltd's case, the assessee-company owned house properties, properly known as Karnani Mansion in Park Street, Calcutta. The said Mansion consisted of numerous residential flats and over a dozen shop premises. All those were let out to different tenants. The tenants in respect of each of the flats and shops let out had to make a monthly payment which included charges of electric current, for use of lifts. For the supply of hot and cold water for the arrangement of scavenging, for providing watch and ward facilities as well as other amenities. It was found that the services rendered by the assessee to its tenants were the result of its activities carried on continuously in an organised manner with a set purpose and with a view to earn profits. Hence, those activities were considered as business activities. 11. In Lakshminarayan Ram Gopal & Sons Ltd.'s case, it was held by the Supreme Court that the activities which constitute carrying on of business need not necessarily consist of activities by way of trade, commerce or manufacture or activities in the exercise of a profession or vocation. They may even consist of rendering services to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it also rendered other services to the vault holders. It installed a fire alarm and was incurring expenditure for the maintenance of fire alarm. Two railway booking offices were opened in the premises for the despatch and receipt of the film parcels. The assessee also maintained a regular staff. On these facts it was held in that case that the assessee was carrying on an adventure or concern in the nature of trade. 14. The assessee has placed great reliance on the case of S.G. Mercantile Corpn. (P.) Ltd. In that case one of the objects specified in the memorandum of association of the assessee-company was to take on lease or otherwise acquire and to hold, improve, lease or otherwise dispose of land, houses and other real and personal property and to deal with the same commercially [emphasis supplied]. The company took on lease a market place. It was given the right to sublet different portions. The assessee's activity during the period covered by the assessment year 1956-57 to 1958-59 consisted of developing the property and letting out portions thereof as shops, stalls and ground spaces to shopkeepers, stall holders and daily casual market vendors. It was held by their Lordships ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was carried on by the assessee with view to earn profits. Also no services were rendered by the assessee-company which may lead to the inference that it is engaged in an activity which may be characterised as a trading activity, aimed at earning profit and exploiting the property as a business asset. As has already been noted above, the assessee-company is not empowered by the memorandum of association to deal with the property commercially. So in view of the facts and circumstances of the case, we come to the conclusion that subletting of the property was not done by the assessee as a part of business but it was done merely as a lessee. The mere fact that the property was renovated and repaired at a considerable cost cannot legitimately lead to the conclusion that the activity undertaken by the assessee is in the nature of trade or business. As a lessee, the assessee was interested in renovating carrying out repair works so that the building could fetch a higher rent. This activity on its part is consistent with its status as a lessee. Even after subletting the first floor, the assessee was never engaged in any continuous or organised activity with a view to earn profit and as has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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