1996 (5) TMI 42 - HC - Income Tax

Court classifies rental income from premises as house property income, not business income. Focus on current utilization and intention.

The court ruled against the assessee, determining that the rental income from the premises should not be classified as business income but as income from ... Business Income, Income From Business, Income From Property, Let Out Issues:- Classification of rental income as business income or income from house propertyAnalysis:The judgment involves two references under section 256(1) of the Income-tax Act, 1961, initiated by the Revenue to determine whether the rental income of the assessee should be assessed as business income. The assessee had leased out properties for commercial purposes after closing down its manufacturing business. The Income-tax Officer contended that the rental income should be assessed under 'Income from house property,' while the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal considered it as income from business. The crucial question was whether the premises' rental income should be classified as business income or income from house property.The judgment delves into the principles of income classification under the Income-tax Act, emphasizing that income classification does not equate to separate taxes for each income head. It highlights that income from a specific source, once classified under a particular head, should be assessed accordingly. The judgment references precedents to explain that whether rental income constitutes business income depends on the circumstances of each case and the intention behind the property's utilization.The judgment scrutinizes whether the premises' rental income stemmed from business activities or mere property exploitation. It distinguishes between managing property through letting out and engaging in business activities. Drawing parallels with a similar case, the judgment emphasizes the importance of intention in determining the nature of income, especially when business activities have ceased, machinery sold, and the property repurposed.Ultimately, the judgment concludes that the rental income from the premises cannot be categorically deemed as business income due to the absence of a direct nexus with business activities. It underscores that each assessment year stands independently, and income classification should reflect the current state of affairs. The judges unanimously rule against the assessee, asserting that the Tribunal erred in classifying the rental income as business income. The judgment favors the Revenue, highlighting the importance of assessing income based on the prevailing circumstances rather than historical usage.