'REPORTABLE' IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 4494 OF 2004 M/S CHENNAI PROPERTIES & INVESTMENTS LTD., CHENNAI ... Appellant VERSUS COMMISSIONER OF INCOME TAX CENTRAL III, TAMIL NADU ...Respondent WITH CIVIL APPEAL NOS. 4491-4493 OF 2004 M/S CHENNAI PROPERTIES & INVESTMENTS LTD., CHENNAI ... Appellant VERSUS COMMISSIONER OF INCOME TAX, TAMIL NADU-I ...Respondent J U D G M E N T A. K. SIKRI, J. CIVIL APPEAL NO. 4494 OF 2004 appellant-assessee is company incorporated under Indian Companies Act. Its main objective, as stated in Memorandum of Association, is to acquire properties in city of Madras (now Chennai) and to let out those properties. assessee had rented out such properties and rental income received therefrom was shown as income from business in return filed by assessee. assessing officer, however, refuse to tax same as business income. According to assessing officer, since C.A. No. 4494/2004 etc. 1 Page 1 income was received from letting out of properties, it was in nature of rental income. He, thus, held that it would be treated as income from house property and taxed same accordingly under that Head. assessee filed appeal before Commissioner of Income Tax (Appeals) who allowed same by his orders dated 06.04.1989 holding it to be income from business and directed that it should be treated as such and taxed accordingly. Aggrieved by that order, Department filed appeal before Income Tax Appellate Tribunal which declined to interfere with order of Commissioner of Income Tax (Appeals) and dismissed appeal. Department approached High Court. This appeal of Department has been allowed by High Court vide its order dated 05.09.2002 holding that income derived by letting out of properties would not be income from business but could be assessed only income from house property. perusal of impugned judgment of High Court would show that it has primarily rested its decision on basis of judgment of this Court in 'East India Housing and Land Development Trust Ltd. v. Commissioner of Income Tax, West Bengal [(1961) 42 ITR 49] as well as Constitution Bench judgment of this Court in 'Sultan Brothers (P) Ltd. v. Commissioner of Income Tax' [1964 (5) SCR 807]. C.A. No. 4494/2004 etc. 2 Page 2 From aforesaid facts, it is clear that question which is to be determined on facts of this case is as to whether income derived by company from letting out this property is to be treated as income from business or it is to be treated as rental income from house property. We have heard learned counsel for parties on aforesaid issue. Before we narrate legal principle that needs to be applied to give answer to aforesaid question, we would like to recapitulate some seminal features of present case. Memorandum of Association of appellant-company which is placed on record mentions main objects as well as incidental or ancillary objects in clause III. (A) and (B) respectively. main object of appellant company is to acquire and hold properties known as Chennai House and Firhavin Estate both in Chennai and to let out those properties as well as make advances upon security of lands and buildings or other properties or any interest therein. What we emphasise is that holding aforesaid properties and earning income by letting out those properties is main objective of company. It may further be recorded that in return that was filed, C.A. No. 4494/2004 etc. 3 Page 3 entire income which accrued and was assessed in said return was from letting out of these properties. It is so recorded and accepted by assessing officer himself in his order. It transpires that return of total income of Rs.244030 was filed for assessment year in question that is assessment year 1983-1984 and entire income was through letting out of aforesaid two properties namely, Chennai House and Firhavin Estate . Thus, there is no other income of assessee except income from letting out of these two properties. We have to decide issue keeping in mind aforesaid aspects. With this background, we first refer to judgment of this Court in East India Housing and Land Development Trust Ltd.'s case which has been relied upon by High Court. That was case where company was incorporated with object of buying and developing landed properties and promoting and developing markets. Thus, main objective of company was to develop landed properties into markets. It so happened that some shops and stalls, which were developed by it, had been rented out and income was derived from renting of said shops and stalls. In those facts, question arose for consideration was: whether rental income that is C.A. No. 4494/2004 etc. 4 Page 4 received was to be treated as income from house property or income from business. This court while holding that income shall be treated as income from house property, rested its decision in context of main objective of company and took note of fact that letting out of property was not object of company at all. court was therefore, of opinion that character of that income which was from house property had not altered because it was received by company formed with object of developing and setting up properties. Before we refer to Constitution Bench judgment in case of Sultan Brothers (P) Ltd., we would be well advised to discuss law laid down authoritatively and succinctly by this Court in 'Karanpura Development Co. Ltd. v. Commissioner of Income Tax, West Bengal' [44 ITR 362 (SC)]. That was also case where company, which was assessee, was formed with object, inter alia, of acquiring and disposing of underground coal mining rights in certain coal fields and it had restricted its activities to acquiring coal mining leases over large areas, developing them as coal fields and then sub-leasing them to collieries and other companies. Thus, in said case, leasing out of coal fields to collieries and other companies was business of assessee. income which was received from letting out of those mining C.A. No. 4494/2004 etc. 5 Page 5 leases was shown as business income. Department took position that it is to be treated as income from house property. It would be thus, clear that in similar circumstances, identical issue arose before Court. This Court first discussed scheme of Income Tax Act and particularly six heads under which income can be categorised / classified. It was pointed out that before income, profits or gains can be brought to computation, they have to be assigned to one or other head. These heads are in sense exclusive of one another and income which falls within one head cannot be assigned to, or taxed under, another head. Thereafter, Court pointed out that deciding factor is not ownership of land or leases but nature of activity of assessee and nature of operations in relation to them. It was highlighted and stressed that objects of company must also be kept in view to interpret activities. In support of aforesaid proposition, number of judgments of other jurisdictions, i.e. Privy Counsel, House of Lords in England and US Courts were taken note of. position in law, ultimately, is summed up in following words: - As has been already pointed out in connection with other two cases where there is letting out of premises and collection of rents assessment on property basis may be correct but not so, where letting or sub-letting is part of trading operation. diving line is difficult to find; but in case of company with its professed objects and manner of its activities and nature of its dealings with its property, it is possible to say on which side operations fall and to what head income is to be C.A. No. 4494/2004 etc. 6 Page 6 assigned. After applying aforesaid principle to facts, which were there before Court, it came to conclusion that income had to be treated as income from business and not as income from house property. We are of opinion that aforesaid judgment in Karanpura Development Co. Ltd.'s case squarely applies to facts of present case. No doubt in Sultan Brothers (P) Ltd.'s case, Constitution Bench judgment of this Court has clarified that merely entry in object clause showing particular object would not be determinative factor to arrive at conclusion whether income is to be treated as income from business and such question would depend upon circumstances of each case, viz., whether particular business is letting or not. This is so stated in following words: - We think each case has to be looked at from businessman's point of view to find out whether letting was doing of business or exploitation of his property by owner. We do not further think that thing can by its very nature be commercial asset. commercial asset is only asset used in business and nothing else, and business may be carried on with practically all things. Therefore, it is not possible to say that particular activity is business because it is concerned with asset with which trade is commonly carried on. We find nothing in cases referred, to support proposition that certain assets are commercial assets in their very nature. C.A. No. 4494/2004 etc. 7 Page 7 We are conscious of aforesaid dicta laid down in Constitution Bench judgment. It is for this reason, we have, at beginning of this judgment, stated circumstances of present case from which we arrive at irresistible conclusion that in this case, letting of properties is in fact is business of assessee. assessee therefore, rightly disclosed income under Head Income from Business. It cannot be treated as 'income from house property'. We, accordingly, allow this appeal and set aside judgment of High Court and restore that of Income Tax Appellate Tribunal. No orders as to costs. CIVIL APPEAL NOS. 4491-4493 OF 2004 appeals are disposed of in terms of aforesaid order in Civil Appeal No. 4494 of 2004. ..........................., J. [ A.K. SIKRI ] ..........................., J. [ ROHINTON FALI NARIMAN ] New Delhi; April 09, 2015. C.A. No. 4494/2004 etc. 8 Page 8 Chennai Properties & Investments Ltd. v. Commissioner of Income-tax Central III, Tamil Nadu