TaxTMI 
TaxTMI 
2023 (9) TMI 1350
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....-company, incorporated on 27.09.1996 (as M.A.Agencies India Private Limited), purchased land in FY 1996- 1997, commencing construction thereon in the following year, which continued up to FY 2003-2004, even as improvements thereto continued to be effected even later. The built-up property, a commercial building, was let out to tenants in FY 1999- 2000 and, accordingly, disclosedas rental income since AY 2000-2001, returning it as income from house property (IFHP). For the years under reference, however, the Revenue, in view of the revenue audit objection, since accepted by it, assessed the same as business income, as indeed the income on sale of property, returned as capital gain. This outlines the controversy attending the instant case. The assessee's view having found favour with the learned CIT(A), the Revenue is in appeal. 3.1 Before us, the Revenue reiterated it's stand of the company being in the real estate business; the object clause of it's Memorandum of Association (MoA) (copy on record), amended along with the change in the name w.e.f. 28.02.2007, reading as under:- "III.A. The main object of the company to be pursued on its incorporation are: (i) To....
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.... was for the purchase of land and construction thereon, for being similarly let, yielding rental income, duly returned as IFHP. The decision in Raja J. Rameshwar Raov. CIT[1961] 42 ITR 179 (SC), relied upon by the Revenue, was distinguishable inasmuch as in that case it was found as a fact that the assessee had acquired land with a view to sell it later, resulting in profit from an activity that could only be described as a business activity and, income there-from, thus, business income. Further, reliance was placed by him on the decisions in Pr.CIT v. Rungta Properties Pvt. Ltd. [2018] 304 CTR 310 (Cal); CIT v. Gopal Purohit [2010] 188 Taxman 180 (Bom); and Parekh Traders v. CIT [1984] 150 ITR 310 (Bom). 4. We have heard the parties, and perused the material on record. The Law 4.1 Income under the Act is to be assessed under any of the 6 (now 5) heads of income. Section 22 and 28 concern income from house property and business income respectively, and read 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 prop....
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....me, and not one under which the income may indirectly fall. The issue as to the head of income qua house property or business income would thus have in each case to be decided on the basis of this framework. Letting, per se, as explained in CIT v. National Storage (P.) Ltd. [1963] 48 ITR 577 (Bom) (since affirmed in [1967] 66 ITR 596 (SC)), which thus becomes a means of realizing the annual value of a house property and, thus, is integral to it's ownership, is not 'business' under the Act. The proposition remains undiluted to date. Even if therefore the exploitation of property is one of the objects for which a company is formed, it may not, as clarified in East India Housing & Land Development Trust Ltd. (supra), be assessable as business income. That the property being exploited is being used for commercial purposes would though matter little. This stands reiterated in Sultan Brothers (P.) Ltd. v. CIT [1964] 51 ITR 353 (SC), a constitution bench decision by the Apex Court; it holding as: (pg. 358) "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 propert....
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....ty, 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 owner. Whether it is the one or the other must necessarily depend upon the object with which the act is done. It is not that no company can own property and enjoy it as property, whether by itself or by giving the use of it to another on rent. Where this happens, the appropriate head to apply is "income from property" (s. 9), even though the company may be doing extensive business otherwise. But a company formed with the specific object of acquiring properties not with the view to leasing them as property but to selling them or turning them to account even by way of leasing them out as an integral part of its business, cannot be said to treat them as landowner but as trader. The cases which have been cited in this case both for and against the assessee-company must be applied with this distinction properly borne in mind. In deciding whether a company dealt with its properties as ow....
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....ically pursued since it's inception, i.e., even for the period prior to 28.02.2007, whereat it's mandate was entirely different, i.e., manufacture of consumer and industrial goods (PB pgs. 12, 13), even as the object clause B (i.e., Objects incidental and ancillary to the attainment of the main objects [B (ii)], reproduced hereinbefore, continued to be the same. As explained in Sultan Bros. (supra), a commercial asset is only an asset used in a business and nothing else, and business may be carried on with practically all things.How would, then, it matter whether the property constructed is a commercial or a residential premises? In both the cases the purpose is to realize it's value, either by way of sale or lease, i.e., to turn it to account. In fact, that is what it's object clause B(ii) states, which, in view of the changed main object, becomes in effect a part thereof or, in any case, in complete harmony therewith. How else, one may ask, would a company generate revenue from it's undertaking? The rental income is, thus, only a manner of realizing it's value, i.e., turning it to account, as a part of it's business model. From the stand-point of the company, it is immaterial whe....
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....lps Theatre [1967] 65 ITR 377 (SC)), and building, being held as SIT, realizable on transfer, either by way of sale or lease, i.e., as a part of its business. Other Arguments 4.5 The assessee claiming a past history of acceptance of income arising thus as income from house property, is, again, misplaced. This is as there is nothing on record to suggest, much less show, such an acceptance, denoting an affirmative action on the part of the Revenue. Even as confirmed during hearing, all the so called assessments in the past, or even subsequently (up to AY 2022-23/PB pg. 24) have in fact been per processing of it's returns u/s. 143(1)which, by definition, is not an assessment, whereby only prima facie adjustments, apparent from the face of the return, could be made. Even as there is no estoppel against law, there has clearly been no examination of the assessee's case for any of the preceding or even succeeding years, so as to claim Revenue having taken a stand, much less consistent. 4.6 As regards the judicial precedents relied upon, we find nothing therein contrary to what stands stated herein. It is the ratio decidendi of a decision which constitutes the judicial precedence,....