COMMISSIONER OF INCOME-TAX VS MALABAR AND POINTER HOSIERY (P.) LTD.
1997 P T D 1512
[221 I T R 117]
[Kerala High Court (India)]
Before V. V. Kamat and G. Sivarajan, JJ
COMMISSIONER OF INCOME TAX
Versus
MALABAR AND POINEER HOSIERY (P.) LTD.
Original Petition No. 11346 of 1995-S, decided on /01/.
th
February, 1996. Income-tax---
----Reference---Business--Property---Business income or income from property--Income from letting out commercial asset---General principles-- Assessee engaged in manufacture of goods---Shed owned by assessee let out---Tribunal justified in holding that rental income constituted income from business---No question of law arises---Indian Income Tax Act, 1961, Ss.22, 28 & 256.
A commercial asset can be rightfully exploited by the owner thereof to the best advantage and the advantage can be materialised either by using it himself personally or by letting it out to somebody else. So long as the commercial asset to capable of being exploited as such, it has to be understood that its income is business income.
The assessee was a company engaged in the manufacture of hosiery and handloom goods. During the accounting year relevant to the assessment year 1985-86, it let out a part of its weaving shed to C on a rental of Rs.77,700. The Income Tax Officer completed the assessment accepting the said amount of income of Rs.77,700 as income derived from letting out the building under the head "business income". This assessment was opened by the Commissioner of Income-tax under section 263 of the Income Tax Act, 1961, directing the Income Tax Officer to assess the amount in question as income from house property. The Tribunal, however, held that the amount was assessable as income from business. On an application to direct reference:
Held, dismissing the application, that what was leased out was undisputedly a part of the assessee's own weaving shed which was given to C for storage of rice. The Tribunal was correct in holding that the rent received was business income. No question of law arose from its order.
C.E.P.T v. Shri Lakshmi Silk Mills Ltd. (1951) 20 ITR 451 (SC); CIT v. Ajtnera Industries (P.) Ltd. (1976) 103 ITR 245 (Cal.); CIT v. National Storage (Pvt.) Ltd. (1967) 66 ITR 596 (SC); East India Housing and Land Development Trust Ltd. v. CIT (1961) 42 ITR 49 (SC) and Karanpura Development Co. Ltd. v CIT (1962) 44 ITR 362 (SC) ref.
N.R.K. Nair for Petitioner.
P.G.K. Warriyar and M.K. Kesavan for Respondent.
JUDGMENT
V.V. KAMAT, J.---This is a petition by the Department having a grievance against the order (Annexure "C"), dated December 10, 1993, of the Income Tax Appellate Tribunal, Cochin Bench.
The year in question is 1985-86. The assessee is undisputedly a company engaged in the manufacture of hosiery and handloom goods During the accounting year in question, a part of its own weaving shed was parted with to the Civil Supplies Corporation for storage of rice on a rental of Rs.77,700 in the context. The Income Tax Officer by an order (Annexure "A"), dated March 2, 1987, completed the assessment accepting the said amount of income of Rs.77,700 as income derived from letting out the building under the head "Business income".
This completed assessment under the provisions of section 263 of the Income Tax Act, 1961, was opened by the Commissioner of Income-tax by order (Annexure "B"), directing the Income Tax Officer to assess the amount in question not as "business income", but as "income from house property". It is observed in the process of reasoning that this was on reliance of the decision of the Supreme Court in CIT v. National Storage (Pvt.) Ltd. (1967) 66 ITR 596 with regard to the proposition that the income derived from letting out of a building owned by a company should be taxed only under the head "house property" and not under the head "Business", even if one of the objects of the company is to let out its buildings.
It appears that rectification became necessary with regard to the citation of the Supreme Court decision instead of CIT v. National Storage (Pvt.) Ltd. (1967) 66 ITR 596, it was felt the correct citation would be East India Housing and Land Development Trust Ltd. v CIT (1961) 42 ITR 49.
Be that as it may, reading the order under section 263 of the Act (Annexure "B"), citation of CIT v. National Storage (Pvt.) Ltd. (1967) 66 ITR 596 (SC) appears to be dear and unequivocal describing the parties in particular.
It appears that before the very Income a Appellate Tribunal, Cochin Bench, Reference Application No. 27(Cochin) of 1994 is pending with a request for reference to this Court.
In the meantime, the matter is brought before this Court posing a challenge to the impugned order of the Income-tax Appellate Tribunal (Annexure "C "), taking a view that the income would have to be considered as assessable as "business income", by resort to the provisions of section 10 of the Indian Income-tax Act, 1922, and not under section 9 of the said Act. In reaching the said conclusion reliance is placed by the Tribunal on the decision reported in CIT v. Ajmera Industries (Pvt.) Ltd. (1976) 103 ITR 245 (Cal.) as well as the decision of the Supreme Court in National Storage (Pvt.) Lid's. case (1967) 66 ITR 596.
We have heard learned counsel in extenso and with regard to the question as to whether the income under consideration would have to be understood as "income from house property" or as "income from business", consistently three decisions of the Supreme Court in C.E.P.T. v. Shri Lakshmi Silk Mills Ltd. (1951) 20 ITR 451; East India Housing and Land Development Trust Ltd. v. CIT (1961) 42 ITR 49 and CIT v. National Storage (Pvt.) Ltd. (1967) 66 ITR 596 provide the necessary declaration of law in the context.
The principles that flow in regard to the required situation, if crystallised, show that at the initiation different heads of income are available in the provisions of section 6 of the Act. There are six different heads of income, on the basis of which tax is chargeable. They are: (1) salaries, (2) interest on securities, (3) income from property, (4) profits and gains of business, profession or vocation, (5) income from other sources, and (6) capital gains. This classification under distinct heads of income, profits and gains is to be understood as having been made on the basis of regard to the sources from which income is derived. Although there are six different heads, the assessee is taxed by the Assessing Officer which has to be understood as levy of a single tax which is known as income-tax and in the process income from all the above six sources, if it is there, is taken into consideration. It is not separate collection or separate levy on distinct heads. . In spite of this position, these heads have a mutually exclusive character. The income derived from different sources falling under different six heads referred to above gets computed for the purpose of taxation. If the income from one source falls under a specific head, even a possible situation that it can get indirectly covered by another would not justify its taxation under some other head or latter head.
In this context, it has to be appreciated that no general principle could be laid down which is applicable to all cases and each case would have to be considered for decision depending on the peculiarities of the circumstances in regard thereto. A warning is also required to be borne in mind that decisions of foreign. Courts are not to be considered readily helpful to answer peculiar problems under the Indian conditions.
If an assessee derives income from a commercial asset, which is capable of being used as a commercial asset, either uses it himself or lets it out to somebody else to be used, the character or the source of the asset, question cannot be understood to lose its original character and source, by reason of a temporary switch over.
So long as the commercial asset is capable of being exploited as such, it ha` to be understood that its income is "business income" and has no rational relationship with the manner in which the asset is exploited by the owner of the business. A commercial asset can be rightfully exploited by the owner thereof to the best advantage and the advantage can be materialised either by using it himself personally or by letting it out to somebody else.
In the manner of proceeding to classify the income under consideration with reference to the six categories, the process of understanding is the source from which income is derived.
It is also necessary, to see the situational peculiarities. If a commercial asset in a given case is not capable of being used as such and then it is let out to others, it has to be understood with reference to the character of the asset and not with reference to it being temporarily put out of use or let to another person to use in his business or trade. The income is related to the source in question and if the source is the commercial asset, irrespective of the manner in which the as is exploited by the owner of the business, the income would have to be understood as "income from business" because to mean the situations of exigencies, the owner of the asset will have to be understood to have a right to exploit the situation to the best of his advantage He may use it for himself or he may earn income by letting it out to someone else. Whatever may be the line of action, the source does not get polluted with regard to the understanding in the process of required classification.
Apart from the above position emerging from the decisions of the Supreme Court, there is re-emphasis in yet another decision of the Supreme Court in Karanpura Development Co. Ltd. v. CIT (1962) 44 ITR 362 declaring specifically that ownership of property and its leasing, if done as a part of business, or whether purely as a transfer by the land owner, determination as to under what head the income in question would fall, the answer must necessarily depend upon the object with which the act is done. It is observed that it is hot that no company can own property and enjoy it as property, whether by itself or by giving the use of it to another person or rent. If this is the situation, it is amplified, what happens is that it is required to, be considered as "income from property" because it is the property of the company, property independently of itself. In deciding whether the-company dealt with the property in question as owner, examination of the form which is given to the transaction in question may not be satisfactory and in the process consideration of the substance of the matter would require a probe to find out the real answer
In view of this crystal clear declaration of law, it is unnecessary to travel far and wide to other Courts in an attempt really to understand what the Supreme Court has declared. What is declared is also crystal clear and has to be applied to the undisputed factual position before us.
The assessee-company is engaged in the business of manufacturer of hosiery and handloom goods. What was leased out was undisputedly a part of its own weaving shed which was given to the Civil Supplies Corporation for storage of rice. The income in question of Rs.77,700 is the income of rent received with regard to transfer of possession under the lease in question. The property weaving shed is the property of the business of the company and it cannot be said that it is an independent property of the company. All these factors stare in the face of the record to show that it cannot be understood as house property and the income in question gets far away in the process of classification from the said classification contended to be as income from house property. It will have to be held as "income from business" of the company.
In view of the above conclusion that the. income of Rs.77,700 is the income that can be classified as "profits and gains of business or profession", consequently, the petition stands dismissed since no question of law arises as the question is answered by the decisions of the Supreme Court as a concluded position. Order accordingly.
M.B.A./1229/FC Order accordingly.