TaxTMI 
TaxTMI 
2022 (10) TMI 77
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....ily legal, is, as we shall presently see, a mixed question of fact and law. It would accordingly be proper to first dwell on the law in the matter, which only could then be applied to the facts and circumstances of a particular case. The law 2.1 Section 22 of the Act reads as under: Income from house property. 22. The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head "Income from house property." 2.2 Income under the Act is to be assessed under any of the 6 (now 5) heads of income, as explained by the Apex Court time and again, as in East India Housing & Land Development Trust Ltd. vs. CIT [1961] 42 ITR 49 (SC). We extract from its observations therein, one of the earliest by it, as under, to bring home the point: 'Income-tax is undoubtedly levied on the total taxable income of the taxpayer and the tax levied is a single tax on the aggregate taxable receipts from all the sources; it is ....
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...."We think each case has to be looked at from a businessman's point of view to find out whether the letting was the doing of a business or the exploitation of his property by an owner. We do not further think that a thing can by its very nature be a commercial asset. A commercial asset is only an asset used in a business and nothing else, and business may be carried on with practically all things. Therefore, it is not possible to say that a particular activity is business because it is concerned with an asset with which trade is commonly carried on. We find nothing in the cases referred, to support the proposition that certain assets are commercial assets in their very nature." (emphasis, ours) The issue raised and the principal argument before the Apex Court in that case, and which did not find favour with it, was that letting out of a commercial asset - a fully equipped hotel building in that case, is a business. The decisions in CIT v. New India Industrial Ltd. [1993] 201 ITR 208 (Guj) and CIT vs. Vikram Cotton Mills Ltd. [1997] 106 ITR 829 (All), relied upon before the ld. CIT(A) (PB pg.7), wherein this argument, i.e., that the rental income is assessable as business income....
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...., but it's value is realized by way of sale or lease as a business. That is, the income derived is not from the exercise of property rights only, but is derived from carrying on an adventure or concern in the nature of trade. The aspect stands explained by the Apex Court in Karanpura Development Co. Ltd vs. CIT [1962] 44 ITR 362 (SC), which observations stand also extracted in it's recent decision in Rayala Corp. Pvt. Ltd. v. Asst. CIT [2016] 386 ITR 500 (SC): 'As has been already pointed out in connection with the other two cases where there is a letting out of premises and collection of rents the assessment on property basis may be correct but not so, where the letting or sub-letting is part of a trading operation. The dividing line is difficult to find; but in the case of a company with its professed objects and the manner of its activities and the nature of its dealings with its property, it is possible to say on which side the operations fall and to what head the income is to be assigned.' (pg. 377) It's observations in the following para, at pages 377-378, are as under: 'Ownership of property and leasing it out may be done as a part of business, or it may be done as land....
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....all that needs to be seen is whether the leasing of the house property is in the capacity of a trader, as was found in Chennai Properties & Investments Ltd. (supra) and Rayala Corp. Pvt. Ltd (supra), as against exploiting the property, commercial or otherwise, as its owner, as was found in East India Housing & Land Development Trust (supra); Sultan Bros. (supra); and Raj Dadarkar & Ass. (supra). 2.4 The law, simply put, therefore is that income from letting is per se assessable u/s. 22. Where, however, the activity of letting is being carried on as a business activity i.e., not in the capacity of the property owner, but in the capacity of a trader, to turn it into account, whether by way of sale or lease, the same would qualify to be a trading receipt of the said business, assessable u/s. 28. In the latter case, the income is derived is not from the exercise of property rights only, but is derived from carrying on an adventure or concern in the nature of trade, again, a matter of fact. In such a case, it is the 'business' which must answer the question, of fact, as to the immediate source of the income, and not the ownership of the property or it's letting. The decision, one way o....
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....it & loss account (PB pg.43), also pointed out by the ld. CIT(A), whose finding remains un-rebutted even before us. Even otherwise, it would remain to be seen if the same would change the character of the receipt, i.e., from being a letting income from house property in the main, or to it being only incidental or subservient to the letting of house property. That is, it is the dominant object which must prevail. Activity/s is essential to a business, which activity would itself demonstrate if the same is carried on. The common strand, as would be noted, in all the decisions referred to, is if any business activity was carried in the earning of income, or the same had arisen principally on account of ownership of the house property. How could, under the circumstances, i.e., in absence of any activity, the assessee be regarded as carrying a business, the very essence of which is a regular, systematic activity, with a view to generate profit, even a explained in Raj Dadarkar & Associates (supra). The income in the instant case is principally a passive income, earned by the assessee in his capacity as the owner of the property. That the agreement does not provide for annual rent and, f....
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....e to exhibit provision of even a single service, or undertaking any activity, i.e., apart from the letting of house property simpliciter, much less undertaking a business. That is, the assessee's claim of a business gets defeated on facts. 4.2 The business code allotted by the Revenue is under the head 'Real estate and renting services', defining further areas of activity falling thereunder. That which corresponds to the assessee's case is: 'Operating of real estate of self-owned buildings (residential and non-residential)'. We have already clarified that it could in the facts and circumstances of a case be that the assessee is undertaking real estate business, as was found in Chennai Properties & Investments Ltd. (supra) and Rayala Corporation (supra), as against pure letting (which would also include leasing) in the capacity of the owner, assessable u/s. 22, as was found in East India Housing and Development Trust (supra); Raj Dadarkar & Ass. (supra); and Indian Warehousing Industries (supra), so that nothing by itself turns on the allotment of a business code by the Revenue. Why, the hire charges income in the instant case qualifies as 'rent' for tax deduction purposes u/s. 194....