2005 (12) TMI 267 - AT - Income Tax

Tribunal Affirms Warehousing Income as Business Income, Cites Consistency and Commercial Activity Over Property Rental.

The Tribunal dismissed the revenue's appeals, affirming the treatment of warehousing income as business income. It emphasized the organized trade nature ... General Merchant and Warehousing and JCB Loader Hire Charges - whether the income from warehousing should be assessed as business income as returned by the assessee, or as income from house property as assessed by the Assessing Officer? - HELD THAT:- In the instant case, even though the customers making payment to the assessee had booked the expenditure in their books of account under the head 'Rental expenditure/payment' and deducted TDS thereon under section 194-I, yet the income so received is assessable in the assessee's hands as income from business 'and not' as income from rent or income from house property. As per our considered view for deciding the nature of income, no general principle can be laid down which is applicable to all the cases, these cases have to be decided on its own merits, facts and circumstances. In each case, what is to be seen is whether the asset is being exploited commercially by letting out or whether it is being let out for the purpose of enjoying the rent. The distinction between the two is narrow and one has to depend on certain facts peculiar to each case. Thus, in the instant case, the entire activity systematically undertaken by the assessee since years together is adventure in the nature of trade, therefore, liable to be assessed as 'business income' and not as 'income from house property'. We are, therefore, inclined to agree with the contentions of learned A.R., CA that pure and simple commercial assets like machinery, plant, tools, industrial assets and godowns having high business potential stands on a different footings from the assets like land and building. The hire charges income of such godowns has to be taxed under Part 'D' of Chapter IV of Income-tax Act, as 'income from business' rather than income from house property. In the result, all the appeals of revenue are dismissed. Issues:Whether income from warehousing should be assessed as business income or as income from house property.Analysis:The appeals were filed by the revenue against the order of the Commissioner of Income-tax for assessment years 1999-2000, 2000-01, and 2001-02. The main issue in these appeals was whether the income from warehousing should be treated as business income as returned by the assessee or as income from house property as assessed by the Assessing Officer. The Assessing Officer argued that income from warehousing is akin to income from house property, regardless of whether the objective is business or rental income. The Assessing Officer highlighted that the TDS certificates issued by parties deducting tax at source under section 194-I for warehousing charges indicated the nature of payments. The CIT(A) allowed the assessee's claim for treating income from warehousing as business income, emphasizing the nature of activities carried out by the assessee in the warehousing business.Upon careful consideration of the contentions and case laws presented, it was found that the assessee provided storage facilities measured in square feet to various customers for specific charges and periods. The assessee also offered additional services like electricity, telephone, and security. The control and ownership of the warehouse were with the assessee, indicating a business-like operation. The Tribunal concluded that the activities undertaken by the assessee were in the nature of an organized trade venture aimed at earning profits, thus classifying the income as business income rather than income from house property. The principle of assessing income based on the primary objective of exploiting the property for commercial activities was emphasized.The Tribunal also noted the previous assessment years where the warehousing income was consistently treated as business income by the department and the CIT. Applying the principle of consistency, the Tribunal found no merit in the Assessing Officer's change in conclusion without any material change in facts. The systematic business activities carried out by the assessee, the nature of services provided, and the commercial potential of the warehouse all pointed towards assessing the income as business income. The distinction between exploiting property commercially and renting it out for enjoyment was crucial in determining the nature of income.In conclusion, the Tribunal dismissed all revenue appeals, affirming the treatment of income from warehousing as business income. The technical aspect of reopening under section 147 was deemed unnecessary as the issue was decided on its merits. The judgment emphasized the need to assess income based on the commercial exploitation of assets rather than mere attachment to immovable property.