1965 (2) TMI 117 - HC - Income Tax

Paying Guest Operator's Income: Business or Property? High Court Decides

Manohar Singh Versus Commissioner of Income-Tax, Delhi & Rajasthan

The High Court determined that the individual running a paying guest establishment was engaged in a business, not merely earning rental income. The income ... - Issues:1. Whether the assessee was carrying on a business in providing paying guest accommodationRs.2. Whether the income from letting out of the rooms to customers was to be separately computed and assessed under section 9Rs.Analysis:Issue 1:The case involved the assessment of an individual who owned a property with thirteen suites of rooms that were let out individually, along with additional services such as meals, furnishing, and amenities. The Income-tax Officer assessed the rental income as 'income from business' under section 10, which was upheld by the Appellate Assistant Commissioner and the Tribunal. The Tribunal found that the operations involved a scheme of profit-making and business activities, not merely property rental. The High Court analyzed previous judgments and concluded that the income arose under the head 'profits and gains of business' as the assessee was running a paying guest establishment, not just earning rental income. The court highlighted the distinction between income from property and income from business, emphasizing the business nature of the operations in this case.Issue 2:The second question was contingent on the first, and the court answered it in the negative based on its affirmative answer to the first question. As the income was deemed to arise under the head of business profits and gains, it was not separately computed and assessed under section 9 for income from property. The court referred to the Bombay High Court decision in a similar matter and the Supreme Court's ruling on income classification under distinct heads. The judgment emphasized the importance of determining the specific head under which income falls for taxation purposes, which, in this case, was determined to be business income rather than property income. The court's decision was influenced by the nature of the operations and the integral role of the property in the assessee's business venture.In conclusion, the High Court answered the reframed first question in the affirmative and the second question in the negative. The judgment provided a detailed analysis of the distinction between income from property and income from business, citing relevant legal precedents to support the decision.