Mangla Homes Pvt. Ltd v. Income Tax Officer 6(1)-3 & Ors

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 574 OF 2005 Mangla Homes Pvt. Ltd. .................AppellantV/sIncome Tax Officer 6(1)-3 & Ors. .................Respondents. Mr.Deepak Tralshawala with Mr.Vishnu Hadade, Adv. For theappellant. CORAM:SWATANTER KUMAR, C.J. &A.P.DESHPANDE, J.DATED: 29[th] AUGUST 2008. ORAL JUDGMENT:(Per Deshpande, J.) This appeal is filed by the assessee taking exception to an order passed by the Income Tax Appellate Tribunal, Mumbai branchdismissing the appeal directed against the order passed by theCommissioner of Income Tax (Appeals). 2.According to the appellant is a private limited companyincorporated with the objection of dealing in properties. The main object of the company as contained in the memorandum ofassociation was to carry on business of dealing and investment in properties, flats, warehouses, shops, commercial and residentialhouses. The ancillary object was to carry on business of leasing, hirepurchase, renting, selling, reselling or otherwise dispose of all formsof moveable or immovable properties and assets including buildings,godowns, warehouses and real estate of any kind. The assesseepurchased flats for trading purposes at the cost of Rs.4 crores. At thetime of purchase the building needed major repairs and according tothe assessee as it expected that the prices of flats would go up aftercompletion of repairs it made the purchases. It is then claimed by theassessee that the flat could not be sold because of recession in themarket and hence it let out the flats on license basis for temporaryperiod and earned monthly rental income as license fees. Theassessee treated the said rental income as income from the business.The authorities below have concurrently found in favour of therevenue that the rental income cannot be treated as income frombusiness and treated it as “income from house property” under section22 of the Income Tax Act. 3.The question thus raised is as to whether the Tribunal is right in so concluding that the rental income is an income from houseproperty. While reaching the said conclusion the Tribunal has reliedon a judgment reported in the case ofEast India Housing and Land-Development Trust Ltd.V/s Commissioner of Incometax, WestBengal,42 ITR 49 (SC). In the said judgment in an identical set offacts with the assessee-company having objects amongst others was(i) To buy and develop landed properties and (ii) To promote anddevelop markets the Supreme Court held that the income derived bythe Company from shops and stalls is income received from propertyand falls under the specific head described in section 9 being incomefrom the property under the Income tax Act, 1922. While reachingthe said conclusion the Supreme Court has relied upon its earlierjudgment reported in the case ofUnited Commercial Bank Limitedv/s Commissioner of Income tax,32 ITE 688 wherein the Apex Courthad explained after exhaustive review of authorities that under thescheme of income tax act the heads of income, profits and gainsenumerated in the different clauses are mutually exclusive and eachspecific head covering items of income arising from a particular source. 4.Reliance is then placed on a judgment reported in the case of source. 4.Reliance is then placed on a judgment reported in the case of Commercial Properties Ltd.V/s Commissioner of Income Tax,ILR55 Cal. 1057 wherein it is held that income derived from rentals by acompany whose sole object was to acquire lands, built houses and letthem to tenants and whose sole business was management andcollection of rents from the said properties, was held assessable undersection 9 and not under section 10 of the Income tax Act, 1922. Itwas observed in that case that merely because the owner of theproperty was a company incorporated with the object of owningproperty, the incidence of income derived from the property ownedcould not be regarded as altered, the income came from directly andspecifically under the head “property” than income from business.Relying upon the said judgments the authorities below have foundthat the income received by the appellant-assessee from the shop isindisputably an income from property and hence concluded thatcharacter of the income is not alteredmerely because the flat istemporarily leased out. The object of the company would not be relevant while determining the levy of taxes. The learned counsel forthe appellant has questioned the correctness of the said finding byplacing reliance on a judgment reported in the case ofS.G.MercantileCorporation P. Ltd.V/s Commissioner of Income-tax, Calcutta,83ITR 700 (SC) wherein assessee company was dealing in propertydevelopment and subletting of shops and stalls and the question aroseas to whether income from subletting is a business income orotherwise. While holding that the income earned from the property isa business income it noted the reasons for the same. The principalreason was that since the appellant-company was not owner of theproperty or any part thereof there was no question of making theassessment under section 9 of the Act. It is held that the liability oftax under section 9 of the Income Tax Act of 1922 would be of theowner of the building or land appurtenant thereto. It is also held thatin case the assessee is the owner of the building or land appurtenantthereto he would be liable to be taxed under section 9 even if theobject of the assessee in purchasing the landed property was topromote and develop the market estate. Thus it cane be seen even from the judgment relied upon by the appellant that distinguishingfeature in the case of S.G.Mercantile Corporation P. Ltd. (supra)was that the assessee was not the owner of the property in question.In the case in hand it is an admitted position that the assessee isowner of the property. The next judgment relied upon by theassessee is reported in the case ofCommissioner of Income Taxv/sLaxmi Silk Mills Ltd.20 ITR 451. In the said case the assessee whowas engaged in manufacture of silk cloth and dying silk yarn wasunable to operate the dying plant on account of difficulty in obtainingsilk yarn and hence had let out the dying plant temporarily. It wasfound that such letting out is part of usual activity of the business. Inthe facts of the said case the Supreme Court held that the plant doesnot cease to be commercial asset when let out temporarily and theincome earned from such letting out is business income. It is thusclear that what was let out was a commercial asset and the same wasused for the same business purpose. It is held that the yield of incomeby commercial asset is profit of the business. It was also held that theincome earned was from the normal activity of the assessee's business. Hence this judgment does not advance the case of the appellant anyfurther. We of the considered view that the assessee's case is squarelycovered by the judgment in the case ofEast India Housing and LandDevelopment Trust Ltd.(supra) on which reliance has been rightlyplaced by the authorities below in reaching the conclusion that therental income earned by the assessee was an income from the houseproperty. There being no merit in the appeal same stands dismissed. CHIEF JUSTICE Hence this judgment does not advance the case of the appellant anyfurther. We of the considered view that the assessee's case is squarelycovered by the judgment in the case ofEast India Housing and LandDevelopment Trust Ltd.(supra) on which reliance has been rightlyplaced by the authorities below in reaching the conclusion that therental income earned by the assessee was an income from the houseproperty. There being no merit in the appeal same stands dismissed. CHIEF JUSTICE A.P.DESHPANDE, J.