House property income and agricultural income principles determined tax treatment of rental and lease receipts in favour of the assessee.

Rental receipts from an owned building were assessable under the specific head of income from house property, not as business income, because mere letting of property does not amount to a business activity. The assessee was therefore entitled to the statutory deductions attached to that head, including interest on borrowed capital. Lease receipts from land actually used for agricultural operations were agricultural income, as rent or revenue derived from such land falls within the statutory exemption and cannot be taxed as ordinary income. Both additions were deleted and the revenue's appeal failed.

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Issues: (i) Whether rental income from the assessee's building was taxable as business income or as income from house property, with consequential allowance of statutory deductions and interest. (ii) Whether lease receipts from land used for agricultural operations constituted agricultural income exempt from tax.

Issue (i): Whether rental income from the assessee's building was taxable as business income or as income from house property, with consequential allowance of statutory deductions and interest.

Analysis: The assessee was the owner of the building and derived rental receipts from it. A specific head of income exists for income from house property, and ownership of a building letting out on rent does not by itself make the activity a business. The record also showed that in earlier years the same receipts had consistently been assessed under the head of house property. The deductions linked with that head, including statutory allowance and interest related to borrowed capital, were therefore allowable.

Conclusion: The rental receipts were correctly assessable as income from house property, and the assessee was entitled to the corresponding deductions. The finding was in favour of the assessee.

Issue (ii): Whether lease receipts from land used for agricultural operations constituted agricultural income exempt from tax.

Analysis: The lands in question were found to have been used for agricultural purposes. Rent or revenue derived from land situated in India and used for agricultural purposes falls within the statutory definition of agricultural income. Since the receipts were linked to agricultural use of the land, they were exempt from tax and could not be brought to charge as ordinary income.

Conclusion: The lease receipts were agricultural income and were exempt from tax. The finding was in favour of the assessee.

Final Conclusion: Both additions were deleted and the revenue's appeal failed in full.

Ratio Decidendi: Where an assessee owns a building and earns rent from it, the income is assessable under the specific head of house property rather than as business income, and rent or revenue derived from land actually used for agricultural purposes is agricultural income exempt from tax.

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