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Chennai Properties & Investments Ltd vs. CIT (Supreme Court)
May, 14th 2015

S.22/28: Law on whether income from letting of properties is assessable as "business profits" or as "Income from house property" explained

The Supreme Court had to consider whether the income from letting of property is assessable as “profits and gains of business” or as “income from house property” and what are the tests to be applied. HELD by the Supreme Court:

(i) A mere entry in the object clause showing a particular object would not be the determinative factor to arrive at an conclusion whether the income is to be treated as income from business and such a question would depend upon the circumstances of each case, viz., whether a particular business is letting or not;

(ii) Each case has to be looked at from a businessman’s point of view to find out whether the letting was the doing of a business or the exploitation of his property by an owner. We do not further think that a thing can by its very nature be a commercial asset. A commercial asset is only an asset used in a business and nothing else, and business may be carried on with practically all things. Therefore, it is not possible to say that a particular activity is business because it is concerned with an asset with which trade is commonly carried on. There is nothing to support the proposition that certain assets are commercial assets in their very nature;

(iii) 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 diving 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 (Karanpura Development Co. Ltd. v. Commissioner of Income Tax, West Bengal‘ [44 ITR 362 (SC) & East India Housing and Land Development Trust Ltd. v. Commissioner of Income Tax, West Bengal [(1961) 42 ITR 49] as well as the Constitution Bench judgment of this Court in ‘Sultan Brothers (P) Ltd. v. Commissioner of Income Tax‘ [1964 (5) SCR 807 referred)

 
 
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