TaxTMI 
TaxTMI 
2002 (7) TMI 228
X X X X Extracts X X X X
X X X X Extracts X X X X
....der:-- (a) Repairs and maintenance expenses but only 1/6th for repairs. Rs.15,37,907 (b) Claim for house tax was not to be allowed as business expenses but under the head 'income from house property' Rs. 1,00,000 (c) Legal charges Rs. 3,38,398 (d) Security expenses &....
X X X X Extracts X X X X
X X X X Extracts X X X X
....akes no difference that the property constitutes stock-in-trade of the business and/or that it is assessee's business to let out the house properties or rooms. The rent cannot be taxed under section 29 as business income. (iv) The house owned however profitable, is not a trade or business within the meaning of the Act. (v) Even if the owner is the company incorporated for the very purpose of owning house property is an immaterial fact. (vi) In no case, does the Act regard income derived from ownership of the building as profits of business. (vii) The Supreme Court has held in the case of East India Housing & Land Development Trust Ltd that even a company incorporated with the object of promoting and developing markets was assessable under the head 'income from house property' and not under section 28 in respect of rental income of market shops stalls owned by it. (viii) In the case of commercial properties where the assessee-company having its sole object business of acquiring land/building houses and letting out the premises to tenants and its sole assets consisted of house properties. It was held that income from house property was taxable as income from house prop....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bsp; Rs. 1,00,000 (c) Legal charges Rs. 3,38,398 (d) Security expenses Rs. 58,226 (e) Court fee Rs. 1,793 &n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rmission and the assessee would be able to exploit the property commercially. It was, therefore, contended that the assessee was carrying on business in respect of the said property and hence the rental income from this property was assessable as income from business. To another query of the learned CIT(A) the assessee submitted before him that in view of the refusal of sanction by NDMC for construction of roof of the building, no construction was possible and in fact the assessee had to refund the money received as advance from prospective buyers earlier. It was however contended that the main object of the assessee was to deal in property as trade and not to earn rental income as an owner of the (property and hence the rental income from the said property had to be assessed under the head 'income from business'. Reliance was placed on the ITAT decision in the case in earlier years. 6. The learned CIT(A) was not satisfied and convinced with the submission and contentions made before him. He observed that the ITAT went into the issue for the first time in the assessment year 1980-81 vide order dated 20-4-1992 in ITA No. 7214/Delhi/89. The rental income was held not assessable as....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... holding property and deriving income which is assessed under the head 'Income from House property'. The appellant has no choice of the matter and it cannot get sanction at all for any further activity of construction even if it had intention to develop the property. It has merely receiving rent for years. Therefore, income from the said property needs to be assessed as income from house property as heads of income are mutually exclusive and this principle has been clearly enumerated in the order of the Tribunal itself for the assessment year 1980-81, and is also supported by various authorities. Further whether the appellant had at all any possibility of developing property by further construction on terrace of Scindia House has not been supported as appellant has not produced relevant enactment or byelaw of NDMC to support its contention of being in a position to develop the property. Had the NDMC acted against the law, the appellant was bound to have challenged the action of the NDMC as NDMC's action struck at its very intention to do business after it made the investment. It must be stated that these aspects were not brought on the notice of the Hon'ble ITAT when the matter was....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and the ITAT order for the assessment year 1980-81 was wrongly followed in the subsequent year holding that there was no change of fact and the issue was covered by the ITAT order for assessment year 1980-81. 12. The learned CIT(DR) further submitted that the rental income was assessable as income from house property and not as income from business because there was no organised business activity involved in the letting out of the property and earning the rental income therefrom. She added that even if the rental income is earned from letting out of the property held as stock-in-trade the rental income will be assessable under the head income from house property and not as the income derived from the business transaction of purchase and sale of the stock-in-trade which could be assessable under the head 'income from business'. She relied on the following decisions:-- 1. East India Housing & Land Development Trust Ltd v. CIT [1961] 42 ITR 49 (SC). 2. CIT v. Chugandas & Co. [1965] 55 ITR 17 (SC). 3. S.G. Mercantile Corpn. (P.) Ltd's case. 4. United Commercial Bank Ltd. v. CIT [1957] 32 ITR 688 (SC). 5. Punjab National Bank Ltd. v. CIT [1983] 141 ITR 886 (Delhi). ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ad 'income from business' and the same was rightly and legally taxable under the head 'income from house property'. The decisions cited by the learned CIT(DR) in this regard are relevant and directly on the issue. The Hon'ble Supreme Court in Chugandas & Co.'s case held that if the securities constitute stock-in-trade of the business of an assessee interest received from those securities was taxable under the head 'interest on securities' and not under the head' income from business'. The following observations of theApex Courtare directly on the issue and clinch the matter without an iota of doubt or controversy:-- 'It must therefore be held that even if an item of income is earned in the course of carrying on a business, it will not necessarily fall within the head 'profits & gains of business', within the meaning of section 10 read with section 6(iv). If securities constitute stock-in-trade of the business of an assessee interest received from those securities will for the purpose of determining the taxable income be shown under the head 'interest on securities' under section 8 read with section 6(ii) of the Act. Similarly dividends from shares will be shown under section 12(....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ome derived by such a company from the tenants of the shops and stalls constructed on the land for the purpose of setting up market would not be taxed as 'business income'. Under section 10 of the Act, to which a more detailed reference would be made hereafter, but under section 9 of the Act, a concrete instance of this type is afforded by the case of East India Housing & Land Development Trust Ltd v. Commissioner of Income tax. The appellant company in that case had been incorporated with the objects of buying and developing landed properties and promoting and setting up markets. The company purchased 10 bighas of land in the town ofCalcuttaand set up a market thereon. The question which arose for determination was whether the income realised from the tenants of shops and stalls was liable to be taxed as business income under section 10 of the Act or income from property under section 9. This court held that the income derived by the company from shops and stalls was income received from property and fell under the specific head described in section 9 it was observed in this connection:-- 'Income-tax is undoubtedly levied on the total taxable income of the taxpayer and the tax ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....me from house property' and the assessee-company was not entitled to the deduction of the expenses as claimed as it was entitled only to the deduction as provided under sections 23 and 24 of the Act. Accordingly, the deduction allowed by the Assessing Officer and upheld by the learned CIT(A) as mentioned above are confirmed. Thus, Ground Nos. 1 and 2 of the assessee's appeal stand is dismissed. 18. Ground No. 3 is as under:-- "On the facts and in the circumstances of the case, the Learned CIT(A) has erred to confirm the disallowance under section 43B of payment of PF Rs. 10,797 and ESI Rs. 3369." 19. We have heard both the sides and considered the materials on the file in respect of the above ground. It is noted that the learned CIT(A) dismissed the assessee's ground in respect of the above claims because the assessee did not press the same before him. The learned CIT(A) in paras 28 and 29 at page 11 noted the facts and gave his finding as under:-- "The appellant has agitated the disallowance of Rs. 10,797 on account of Provident Fund and tax Rs. 3,389 on account of ESI under section 43B of the Income-tax Act. According to the Assessing Officer the payment was made on27....