Business or House Property income-Onus was on assessee to show that out of income or substantial income was from letting out of the property being principal business activity – SC
ABCAUS Case Law Citation:
ABCAUS 1249 (2017) (05) SC
Important Case Laws Cited relied upon:
Chennai Properties and Investments Limited vs. v. Commissioner of Income Tax
Rayala Corporation Private Limited v. Assistant Commissioner of Income Tax
Sultan Bros. (P) Ltd. v. CIT,
Karanpura Development Co. Ltd. v. CIT
East India Housing and Land Development Trust Ltd. v. CIT
Brief Facts of the Case:
Department of Municipal Corporation Greater Bombay had auctioned the Municipal retail market portion on a monthly license (stallage charges) basis to run it. The appellant firm participated in the auction and acquired the right to conduct the market on the market portion. The appellant was handed over possession of the market portion on 28.05.1993. The premises allotted to the appellant was a bare stilt, ie, pillar/column without even four walls. In terms of the auction, it was the appellant who had to make the entire premises fit to be used a market, including construction of walls, construction of entire common amenities like toilet blocks, etc. Accordingly, after taking possession of the premises, the appellant spent substantial amount on additions/alternations of the entire premises, including demolishing the existing platform and, thereafter, reconstructing the same according to the new sanctioned plan and spent Rs. 1,83,61,488/- from Financial Year 1993-1994 to 2001-2002. The appellant constructed 95 shops and 30 stalls of different carpet areas on the Shopping Centre. The appellant also obtained, in terms of the conditions of the auction, necessary registration certificate for running a business under the Shop and Establishment Act and other licenses/permissions from Government and semi-Government bodies for carrying on trading activities on the said shopping centre. The appellant firm was responsible for day-to-day maintenance, cleanliness and upkeep of the market premises. The appellant also had to incur/pay water charges, electricity charges, taxes and repair charges. In turn, the appellant collected various compensation, fees and charges from the sub-licensees.
The appellant filed the returns of income and right from the year 1999 till 2004, it had been offering the income from the aforesaid shops and stalls sub-licensed by it under the head “Profits and Gains of Business or Profession” of the Income Tax Act, 1961 ( ‘the Act’). The income was also assessed accordingly. However, the case of the appellant for the Financial Year 1999-2000 was reopened by the Revenue by u/s 147 by issuing notice u/s 148 of the Act and in response to the same the appellant filed its return. Thereafter, notice under Section 143(2) of the Act was served and later reassessment order was framed by computing the income from the shops, and the stalls under the head “Income from House Property” of the Act.
The CIT (Appeals) allowed the appeal of the appellant and reversed the action of the respondent. However, on appeal by Revenue, The Tribunal (ITAT) reversed the order of the CIT (Appeals) and confirmed the action of the Assessing Officer.
The appellant preferred an appeal before the High Court who dismissed the appeal filed by the appellant.
Contentions of the appellant assessee:
It was submitted that the Hon’ble High Court confined its discussion only on one aspect viz. as to whether the appellant was ‘deemed owner’ of the properties in question within the meaning of Section 27(iiib) of the Act and after holding it to be so, it treated the income as “income from house property”. It was argued that the High Court totally ignored that the main business of the appellant was to take the premises on rent and to sub-let those premises. Referring to the object mentioned in the partnership deed it was pointed out that sub-licensing the premises was only a part of this predominant object of the appellant. This was the sole and the only activity of the appellant. The appellant, being a partnership firm, maintained full and complete records of these business activities. Right from the year 1999 till 2004, the appellant had been offering the income from the shops and stalls sub-licensed by it under the head “Profits and Gains of Business or Profession” of the Act.
Observations made by the Apex Court:
The Hon’ble Supreme Court observed that section 4 of the Act is the charging Section as per which the total income of an assessee, subject to statutory exemptions, is chargeable to tax. Section 14 of the Act enumerates five heads of income for the purpose of charge of income tax and computation of total income. These are: Salaries, Income from house property, Profits and gains of business or profession, Capital gains and Income from other sources. A particular income, therefore, has to be classified in one of the aforesaid heads.
The Hon’ble Supreme Court further observed that in cases of income with overlapping heads, tests which are to be applied for determining the real nature of income are laid down in judicial decisions. Wherever there is an income from leasing out of premises and collecting rent, normally such an income is to be treated as income from house property, in case provisions of Section 22 of the Act are satisfied with primary ingredient that the assessee is the owner of the said building or lands appurtenant thereto.
The Hon’ble Supreme Court opined that that merely because there is an entry in the object clause of the business showing a particular object, would not be the determinative factor to arrive at a conclusion that the income is to be treated as income from business but such a question would depend upon the circumstances of each case. Even otherwise, the Hon’ble Supreme Court observed that the object clause which contained in the partnership firm was to take the premises on rent and to sub-let. It was noted that apart from from relying upon the object clause in the partnership deed to show its objective, the learned counsel for the appellant had not produced or referred o any material.
The Hon’ble Supreme Court observed that ITAT had give a categorical finding that the assessee had let out shops/stalls to various occupants on a monthly rent. The assessee collected charges for minor repairs, maintenance, water and electricity. As per the terms of allotment, the assessee was bound to incur all these expenses. The assessee, in turn, collected extra money from the allottees. The assessee collected 20% of monthly rent as service charges. Such service charges were also used for providing services like watch and ward, electricity, water etc. which was inseparable from basic charges of rent. Thus ITAT had recorded that the appellant had not established that the firm was engaged in any systematic or organized activity of providing service to the occupiers of the shops/stalls so as to constitute the receipts from them as business income.
The Hon’ble Supreme Court observed that appellant did not argue on the above said findings of the ITAT and did not make any efforts to show those findings were perverse. The Hon’ble Supreme Court opined that it was for the appellant to produce sufficient material on record to show that its entire income or substantial income was from letting out of the property which was the principal business activity of the appellant.
Held:
The appeal filed by the firm was dismissed with cost as lacking merit.
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