Rental income from sheds & godowns by co-owners deemed property income, not business income.

The court held that the rental income derived from leasing sheds and godowns by co-owners should be treated as property income of the individual co-owners under section 26 of the Income-tax Act. The court rejected the argument that the activity constituted an "adventure in the nature of trade," emphasizing that the income allocation should be based on the co-owners' contributions and ownership interests. Consequently, the income was not assessed as business income of the association of persons but as property income of the co-owners, leading to a favorable outcome for the assessee with no costs awarded.

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Issues:
Assessment of income as "association of persons" vs. individual co-owners under section 26 of the Income-tax Act.

Analysis:
The case involved the assessment of income derived by an "association of persons" from leasing out sheds and godowns constructed on leased land by co-owners. The assessee contended that the income should be allocated to individual co-owners as per section 26 of the Income-tax Act. The Income-tax Officer treated the income as business income of the association of persons. The Commissioner of Income-tax (Appeals) and the Tribunal directed the income to be allocated to co-owners. The central issue was whether the income should be assessed as business income of the association of persons or as property income of individual co-owners.

The deed of co-ownership showed that nine parties leased land to construct sheds and godowns, contributing money in specified proportions. They would share rental income accordingly. The court held that the rental income should be treated as property income of the co-owners, not business income of the association of persons. As the co-owners contributed to the construction and were deemed as "co-owners" of the property, section 26 of the Income-tax Act applied to levy tax on each co-owner based on their share of income. The court emphasized that the intention to treat the income as business income was not reflected in the deed, supporting the treatment of income as property income of co-owners.

The court rejected the Revenue's argument that the activity was an "adventure in the nature of trade," maintaining that the income derived from leasing the sheds and godowns should be taxed in the individual hands of co-owners under section 26. Consequently, both questions were answered in favor of the assessee, and the tax case was disposed of with no order as to costs.

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