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.
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.
