COMMISSIONER OF INCOME TAX Vs. SANMAR HOLDINGS LTD

JUDGEMENT

(1.) THE above tax case appeals are directed against the orders of the Income-tax Appellate Tribunal in ITA Nos.2913, 2914 & 2915/Mds/1988 respectively dated 24.11.2004, raising the following substantial question of law. "Whether in the facts and circumstances of the case, the Appellate Tribunal was right in holding that the income from letting out of building is assessable as business income?"

(2.) THE brief facts of the case are stated as follows: 2.1. THE assessee company offered the rental income of the building as business income on the ground that the income from letting out was to be treated as business income. One of the objects of the company is to carry on the business of dealers in shares, stocks, debentures, bonds, obligations, chits, securities and to purchase, take on lease or in exchange, hire or otherwise acquire and deal in any movable or immovable property. THE assessee had constructed a building at No.8, Cathedral Road, Madras. 2.2. THE assessee leased out the office space to two companies in the previous year relevant to the assessment year 1984-85. THE other floors, as and when constructed, were leased out to other tenants in the subsequent years. THE buildings are centrally air conditioned and also provided with lifts. As per the lease deed, the lease of the office building would be inclusive of the amenities and the rent was charged for the amenities also. Accordingly, the assessee claimed such rent derived from the said building and the amenities provided thereunder should be assessed as part of income from business. THE Assessing Officer was of the view that the entire income from the property was assessable under the head "income from house property" under Section 22 of the Act. 2.3. THE assessee preferred appeals before the Commissioner of Income Tax (Appeals), who, dismissed the appeals holding that the income from letting out of the building is nothing but an income from house property under Section 22 of the Act, as held by the Assessing Officer and accordingly confirmed the assessment orders. 2.4. On further appeals by the assessee, the Tribunal, by order dated 13.10.1993, after finding that the office space was let out along with amenities such as lift, centralised air condition etc. as part of the building, held that the income from letting out of the building is a business income, but not an income from house property. 2.5. Before rendering its finding, the Tribunal followed the decisions of the Supreme Court in Sultan Brothers V. Commissioner Of Income Tax (51 ITR 353) wherein it is held that inseparability is demonstrated by the intention to enjoy the building along with the amenities and therefore, the total income from the building has to be assessed only under one head and cannot be split into two and that the case has to be looked at the business man's point of view to find out whether the letting out of the building was a business or exploitation of the property by an owner. 2.6. That apart, the Tribunal also relied on the decision of the Apex Court in Karanpura Development Co. Ltd. V. Commissioner Of Income Tax (44 ITR 362) wherein the Apex Court observed that a company formed with a specific object of acquiring properties not with the view to leasing them as property but to selling them and 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 land owner, but as trader. It was further observed that the expression "turn them to account" would also include the transaction of lease also, because the essential object of the assessee was to derive profit from the properties and such income could be derived not only by sale, but also by renting them out. 2.7. Aggrieved by the said order, the revenue preferred an appeal before this Court under Section 256(2) of the Income Tax Act in T.C.Nos.43, 80 and 81 of 1999, raising the question of law. "Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that the rental income derived from the leasing out of the property at Cathedral Road, Madras should be assessed under the head profits and gains of business or profession only and not under the head "income from house property"? 2.8. This Court, by order dated 26.11.2002, found that the finding of the Tribunal cannot be accepted with materials to show that the assessee treated the property as commercial assets and without such material, it may not be proper to unilaterally come to the conclusion that the income derived out of letting out of property is a business income, but not an income from the house property, of course, placing reliance on the decision of the Apex Court in Anaikar Travels And Estates (P) Ltd. V. Commissioner Of Income Tax (186 ITR 175). This Court, in the said order dated 26.11.2002, also taking into consideration the views taken in Commissioner Of Income Tax C. Shambhu Investment Pvt. Ltd (249 ITR 47), Commissioner Of Income Tax V. B.Nagi Reddy (247 ITR 337) And Commissioner Of Income Tax V. V.S.T. Motros P. Ltd., remitted the matter to the Tribunal to reconsider the question of law afresh, in accordance with law. 2.9. In furtherance of the said remittance, the Tribunal rendered a finding in favour of the assessee that the income from the letting out of property is only a business income. THE Tribunal also took into account the material facts for holding that the income derived out of letting out of the property is business income finding that the property in question, viz. the building at No.8, Cathedral Road, Chennai, is used exclusively for commercial purpose and the plans were also approved and on that basis, the property in question was thus treated as commercial property and the same was also leased out to Chemicals and Plastics India Ltd. and Durametallic (India) Ltd. THE income on lease from the property was derived as an integral income for the construction as well as for the facilities provided thereunder and the revenue also accepted such income as business income for the similar kind of construction and amenities for the earlier period 1982-83 as income from business and the same is not challenged. Again, infuriated by the same, the revenue has preferred the present appeal raising the question of law cited supra.