Paying guest accommodation receipts treated as business income where organised services, not bare ownership, generated the income.

Income from furnished paying guest rooms is assessable as business income where the receipts arise substantially from organised commercial operations, services, and amenities rather than from bare ownership of property. The Punjab HC held that temporary letting of fully furnished rooms with food and related facilities formed an integrated paying guest venture, so the statutory heads were mutually exclusive and the receipts could not be treated as income from property. The income was therefore liable to assessment under section 10 of the Indian Income-tax Act, 1922, and not under section 9. The reference was answered against the assessee and in favour of the Revenue.

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Issues: (i) Whether the income derived from letting out furnished rooms in a paying guest establishment was assessable as income from property or as business income. (ii) Whether such income was liable to be computed and assessed under section 10 rather than section 9 of the Indian Income-tax Act, 1922.

Issue (i): Whether the income derived from letting out furnished rooms in a paying guest establishment was assessable as income from property or as business income.

Analysis: The head of income depends on the true source and character of the receipts, and the statutory heads are mutually exclusive. Bare letting of property ordinarily falls under income from property, but where the subject let is a complex commercial arrangement and the receipts arise substantially from the amenities, services, and organised operations provided by the assessee, the income is not merely from ownership of property. On the facts, the rooms were fully furnished, let temporarily, accompanied by food and other facilities, and formed part of an organised paying guest venture.

Conclusion: The income was business income and not income from property.

Issue (ii): Whether such income was liable to be computed and assessed under section 10 rather than section 9 of the Indian Income-tax Act, 1922.

Analysis: Income falling directly within a specific head must be assessed under that head and cannot be shifted to another head because it may also be incidentally connected with property. Since the assessee was carrying on the business of a paying guest establishment, the building was an integral part of that business venture and the receipts arose from trading operations rather than mere exercise of property rights. The income therefore fell under the business head and not under the property head.

Conclusion: The income was correctly assessed under section 10 and not under section 9.

Final Conclusion: The reference was answered against the assessee and in favour of the Revenue, holding that the receipts from the paying guest accommodation constituted business income assessable under the business head.

Ratio Decidendi: Where income from letting property is derived substantially from organised commercial operations and substantial services rather than from bare ownership of the property, it is assessable as business income and not as income from property.

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