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Friday, August 12, 2016

whether the income so received should be taxed under the head “Income from House Property” or “Profit and gains of business or profession”.= in the case of Chennai Properties and Investments Ltd. v. Commissioner of Income Tax [2015] 373 ITR 673 (SC) that if an assessee is having his house property and by way of business he is giving the property on rent and if he is receiving rent from the said property as his business income, the said income, even if in the nature of rent, should be treated as “Business Income” because the assessee is having a business of renting his property and the rent which he receives is in the nature of his business income.-The judgment relied upon by the learned counsel appearing for the assessee squarely covers the facts of the case involved in the appeals. The business of the company is to lease its property and to earn rent and therefore, the income so earned should be treated as its business income.In view of the law laid down by this Court in the case of Chennai Properties (supra) and looking at the facts of these appeals, in our opinion, the High court was not correct while deciding that the income of the assessee should be treated as Income from House Property.

                                                              NON-REPORTABLE

                        IN THE SUPREME COURT OF INDIA
                         CIVIL ORIGINAL JURISDICTION
                        Civil Appeal No.6437 of 2016


          M/s. Rayala Corporation Pvt. Ltd.     ...   Appellant(s)



                                   VS.



         Assistant Commissioner of Income Tax  ...   Respondent(s)



                                    WITH

                        Civil Appeal No.6438 of 2016

                                    WITH
                     Civil Appeal Nos.6439-6440 of 2016

                                    WITH
                        Civil Appeal No.6441 of 2016


                          JUDGMENT



Anil R.Dave, J.

1.    Being aggrieved by the judgment delivered by the High Court of  Madras
on 4th October, 2013 in Tax Case (Appeal) Nos.91, 99 and 212  of  2012;  and
230 and 231 of 2007, these appeals have been filed.

2.    The issue involved in all these appeals is common but it  pertains  to
different Assessment Years and therefore, all these appeals had  been  heard
together.  The facts in all these appeals, in a nutshell are as under:

The  appellant-assessee,  a  private  limited  company,  is   having   house
property, which has been rented and the assessee is  receiving  income  from
the said property by way of rent.  The main issue in all  these  appeals  is
whether the income so received should be taxed under the head  “Income  from
House Property” or “Profit and gains of business or profession”. The  reason
for which the aforestated issue has arisen is that though  the  assessee  is
having the house property and is receiving income by way of rent,  the  case
of the assessee is that the assessee company is in business of  renting  its
properties and is receiving rent as its business  income,  the  said  income
should  be  taxed  under  the  Head  “Profits  and  gains  of  business   or
profession” whereas the case of  the  Revenue  is  that  as  the  income  is
arising from House Property, the said income must be taxed  under  the  head
“Income from House Property”.

3.    The learned counsel appearing for  the  assessee  submitted  that  the
issue involved in these appeals is no more res integra  as  this  Court  has
decided  in  the  case  of  Chennai  Properties  and  Investments  Ltd.   v.
Commissioner of Income Tax [2015] 373 ITR 673 (SC) that if  an  assessee  is
having his house property and by way of business he is giving  the  property
on rent and if he is receiving rent from the said property as  his  business
income, the said income, even if in the nature of rent,  should  be  treated
as “Business Income” because the assessee is having a  business  of  renting
his property and the rent  which  he  receives  is  in  the  nature  of  his
business income.

4.    According to the learned  counsel  appearing  for  the  assessee,  the
afore-stated  judgment  in  the  case  of  Chennai  Properties  (supra)  has
referred to all the judgments on the  subject  and  more  particularly,  the
judgment in the case of Karanpura Development Co. Ltd. v. CIT [1962] 44  ITR
362 (SC) which has summed up as under:-

“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.”

5.    The learned counsel also submitted that  the  assessee  is  a  private
limited company and even as per its Memorandum of Association  its  business
is to deal into real estate and also to  earn  income  by  way  of  rent  by
leasing or renting the properties belonging to the assessee company.

6.    The learned counsel also drew our attention to the fact that the  High
Court and the authorities below had  come  to  a  specific  finding  to  the
effect that the assessee company had stopped its other  business  activities
and was having only an activity with regard to the  leasing  its  properties
and earning rent therefrom.  Thus, except leasing the  properties  belonging
to the assessee company, the company is not having any  other  business  and
the said fact is not in dispute at all.

7.    For the afore-stated reasons, the learned counsel submitted  that  the
impugned judgment delivered by the High Court is not proper for  the  reason
that the High Court has directed that the income  earned  by  the  appellant
assessee should be treated as “Income from House Property”.

8.    On the other hand, the learned counsel appearing for  the  respondent-
Revenue made an effort to justify the reasons given by  the  High  Court  in
the impugned judgment.  The learned counsel also relied  upon  the  judgment
delivered by this Court in the case of M/s. S.G. Mercantile Corpn. (P)  Ltd.
v. CIT, Calcutta  (1972)  1  SCC  465.   According  to  him,  the  important
question which would arise in all such cases is whether the  acquisition  of
property for leasing and letting out all  the  shops  and  stalls  would  be
essentially a part of business  and  trading  operations  of  the  assessee.
According to the learned counsel appearing  for  the  Revenue,  leasing  and
letting out of shops  and  properties  is  not  the  main  business  of  the
assessee as per Memorandum of Association and therefore, the  income  earned
by the assessee should be treated as  income  earned  from  House  Property.
He, therefore, submitted that  the  impugned  judgment  is  just  legal  and
proper and therefore, these appeals should be dismissed.

9.    Upon hearing the learned  counsel  and  going  through  the  judgments
cited by the learned counsel, we are of the view that the law laid  down  by
this Court in the case of  Chennai  Properties  (supra)  shows  the  correct
position of law and looking at the facts of the case in question,  the  case
on hand is squarely covered by the said judgment.

10.   Submissions made by the learned counsel appearing for the  Revenue  is
to the effect that the rent should be the  main  source  of  income  or  the
purpose for which the company is incorporated should be to earn income  from
rent, so as to make the rental income to be the  income  taxable  under  the
head “Profits and Gains of Business or Profession”.  It is an admitted  fact
in the instant case that the assessee company  has  only  one  business  and
that is of leasing its property and earning rent therefrom.  Thus,  even  on
the factual aspect, we do not find any substance in what has been  submitted
by the learned counsel appearing for the Revenue.

11.   The judgment relied upon by the  learned  counsel  appearing  for  the
assessee squarely covers the facts of the  case  involved  in  the  appeals.
The business of the company is to lease its property and to  earn  rent  and
therefore, the income so earned should be treated as its business income.

12.   In view of the law laid down by this Court  in  the  case  of  Chennai
Properties (supra) and looking  at  the  facts  of  these  appeals,  in  our
opinion, the High court was not correct while deciding that  the  income  of
the assessee should be treated as Income from House Property.

13.   We, therefore, set  aside  the  impugned  judgments  and  allow  these
appeals with no order as to  costs.   We  direct  that  the  income  of  the
assessee shall be subject to tax  under  the  head  “Profits  and  gains  of
business or profession”.



                                                          ................J.
                                                              [ANIL R. DAVE]


                                                         .................J.
                                                          [L. NAGESWARA RAO]
New Delhi;
August 11, 2016.

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