Commissioner of Income Tax vs Chennai Properties and Investments Ltd.

R. Jayasimha Babu, J.—Two questions have been referred to us at the instance of the Revenue. The assessment year is 1986-87. The

questions are :

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the rent receipts derived by the

assessee-company from letting out of properties should be assessed under the head ''business'' thereby allowing the expenses incurred for letting

out the properties as business expenditure ?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in not considering the applicability of the provisions of

Section 43B for disallowing the disputed urban land tax if the income is to be assessed under ""Business"" and the non-deductibility of the cost of

supplying drinking water from the income from property?

The assessee is an incorporated company. The main object of the assessee-company is acquiring certain properties in the city of Madras, to let

out such properties to make advance on the security of land and building and earn interest thereon. The assessee rented out a property owned by it

and that rental income was claimed to be income from business. Though that stand, of the assessee had been accepted by the assessing authority in

earlier years, for this assessment year, the AO took the view that the rental income received is ""income from property"" and is to be assessed under

that head and not under the head ""income from business"". On appeal, the CIT(A) agreed with the AO. On further appeal, the Tribunal accepted

the assessee''s contention and held that the income should be treated as ''business income''.

The Supreme Court in the case of East India Housing and Land Development Trust Ltd. Vs. Commissioner of Income Tax, West Bengal, while

considering the head under which the rental realised by a company formed with the object of setting up of markets from the shops owned by it,

should be assessed, observed, ""Income derived by the company from shops and stalls was income received from property and fell under the

specific head described in Section 9. The character of that income was not altered because it was received by a company formed with, the object

of developing and setting up markets."" Section 9 referred to therein is Section 9 of the IT Act, 1922, which corresponds to Section 22 of the IT

Act, 1961.

A Constitution Bench of the Supreme Court considered the claim of an assessee who had let out a building fully equipped and furnished for the

use as a hotel, that the income derived therefrom, by way of rental as also for the hire of furniture and fixtures should be treated as business income

in the case of Sultan Brothers (P) Ltd. Vs. Commissioner of Income Tax, . The Constitution Bench negatived that claim of the assessee and

referred with approval to the observations made in the case of East India Housing and Land Development Trust Ltd. v. CIT (supra).

The facts of the present case are similar to those considered in the case of East India Housing and Land Development. The fact that the

assessee-company was formed with the object of acquiring certain properties in the city of Chennai and deriving income by letting those properties

out, would not render that income business income. It is the income from the property and is to be assessed under that head only. The first

question is answered in favour of the Revenue and against the assessee.

The second question does not require consideration in view of our answer to the first question.