M/S CHENNAI PROPERTIES & INVESTMENTS LTD., CHENNAIversusTHE COMMISSIONER OF INCOME TAX CENTRAL 111, TAMIL NADU

                  [2015] 4 S.C.R. 413                 413


             M/S CHENNAI PROPERTIES                     A
           & INVESTMENTS LTD., CHENNAI
                            V.

        THE COMMISSIONER OF INCOME TAX
             CENTRAL 111, TAMIL NADU                    B
             Civil Appeal No. 4494 of 2004

                     APRIL 09, 2015.

        [ A.K. SIKRI AND R. F. NARIMAN,JJ. ]            C

    Income Tax Act, 1961: Business income - ff an
assessee acquires properties and lets out and such letting
out of properties is the business of assessee then the
income received from letting out of such properties is D
business income - It cannot be treated as 'income from
the house property'.

    East India Housing and Land Development Trust Ltd.
v. Commissioner of Income Tax, West Bengal (1961) 42 E
ITR 491; Sultan Brothers (P) Ltd. v. Commissioner of
Income Tax 1964 (5) SCR 807; Karanpura Development
Co. Ltd. v. Commissioner of Income Tax, West Bengal 44
ITR 362 SC - relied on.
                                                        F
                 Case Law Reference

 (1961) 42 ITR 491           relied on.      Para 2

 1964 (5) SCR 807            relied on.      Para 2
                                                        G
 44 ITR 362 SC               relied on.      Para 8

   CIVIL APPELLATE JURISDICTION: Civil Appeal No.
4494 of 2004.
                          413                           H
414        SUPREME COURT REPORTS               [2015] 4 S.C.R.


A         From the Judgment and Order dated 05.09.2002 of the
      High Court of Judicature at Madras in Tax Case No. 129 of
      1997

                                  with
 8
          C. A. Nos. 4491-4493 of 2004

          Pridesh Kapur, Ms. Radha Rangaswamy, Rupinder
      Singh, V. Balachandran, for the Appellant.

 C         Guru Kirshna Kumar, Niranjana Singh, S. A. Haseeb,
      Anil Katiyar, 8. V. Balaram Das, for the Respondent.

          The Judgment of the Court was delivered by
       A. K. SIKRI, J.
 D
       CIVIL APPEAL NO. 4494 OF 2004.
       1. The appellant-assessee is a company incorporated
  under the Indian Companies Act. Its main objective, as
  stated in the Memorandum of Association, is to acquire the
E properties in the city of Madras (now Chennai) and to let
  out those properties. The assessee had rented out such
  properties and the rental income received therefrom was
  shown as income from business in the return filed by the
F assessee. The assessing officer, however, refuse to tax the
  same as business income. According to the a:::~essing
  officer, since the income was received from letting out of
  theproperties, it was in the nature of rental income. He,
  thus, held that it would be treated as income from house
G property and taxed the same accordingly under that Head.

         2. The assessee filed the appeal before the
      Commissioner of Income Tax (Appeals) who allowed the
      same by his orders dated 06.04.1989 holding it to be
H
   CHENNAI PROP. & INVESTMENTS LTD. v. THE                       415
  COMMNR. OF l.T. CENTRAL Ill, T. N. [A. K. SIKRI, J.]

income from business and directed that it should be treated A
as such and taxed accordingly. Aggrieved by that order, the
Department filed appeal before the Income Tax Appellate
Tribunal which declined to interfere with the order of the
Commissioner of Income Tax (Appeals) and dismissed the B
appeal. The Department approached the High Court. This
appeal of the Department has been allowed by the High
Court vide its order dated 05.09.2002 holding that the
income derived by letting out of the properties would not
be income from business but could be assessed only C
income from house property. A perusal of the impugned
judgment of the High Court would show that it has primarily
rested its decision on the basis of the judgment of this
Court in 'East India Housing and Land Development Trust           D
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].               C·
                                                                  E
    3. From the aforesaid facts, it is clear that the question
which is to be determined on the facts of this case is as
to whether the income derived by the company from letting
out this property is to be treated as income from business        F
or it is to be treated as rental income from house property.

    4. Wtq_ have heard the learned counsel for the parties
on the aforesaid issue. Before we narrate the legal principle
that needs to be applied to give the answer to the                G
aforesaid question, we would like to recapitulate some
seminal features of the present case.

    5. The Memorandum of Association of the appellant-
                                                                  H
416       SUPREME COURT REPORTS                  [2015] 4 S.C.R.


A   company which is placed on record mentions main objects
    as well as incidental or ancillary objects in clause· Ill. (A)
    and (B) respectively. The main object of the appellant
    company is to acquire and hold the properties known as
8 "Chennai House" and "Firhavin Estate" both in Chennai and
    to let out those properties as well as make advances upon
    the security of lands and buildings or other properties or
    any interest therein. What we emphasise is that holding the
    aforesaid properties and earning income by letting out
C those properties is the main objective of the company. It
    may further be recorded that in the return that was filed,
  · entire income which accrued and was assessed in the said
    return was from letting out of these properties. It is so
D recorded and accepted by the assessing officer himself in
    his order.

       6. It transpires that the return of a total income of
  Rs.244030 was filed for the assessment year in question
E that is asse~sment year 1983- 1984 and the entire income
  was through letting out of the aforesaid two properties
  namely, "Chennai House" and "Firhavin Estate". Thus, there
  is no other income ot the assessee except the income
F from letting out of these two properties. We have to decide
  the issue keeping in mind the aforesaid aspects.

       7. With this background, we first refer to the judgment
  of this Court in East India Housing and Land Development
G Trust Ltd.'s case which has been relied upon by the High
  Court. That was a case where the company was
  incorporated with the object of buying and developing
  landed properties and promoting and developing markets.
H Thus, the main objective of the company was to develop
    CHENNAI PROP. & INVESTMENTS LTD. v. THE                          417
   COMMNR. OF l.T. CENTRAL Ill, T. N. [A. K. SIKRI, J.]

the landed properties into markets. It so happened that               A
some shops and stalls, which were developed by it, had
been rented out and income was derived from the renting
of the said shops and stalls. In those facts, the question
arose for consideration was: whether the rental income that           B
is received was to be treated as income from the house
property or the income from the business. This court while
holding that the income shall be treated as income from the
house property, rested its decision in the context of the
main objective of the company and took note of the fact that          C
letting out of the property was not the object of the
company at all. The court was therefore, of the opinion that
the character of that income which was from the house
property had not altered because it was received by the               D
company formed with the object of developing and setting
up properties.

     8. Before we refer to the Constitution Bench judgment
in the case of Sultan Brothers (P) Ltd., we would be well             E
advised to discuss the 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 a case where· the company, which                 F
was the assessee, was formed with the object, inter alia, of
acquiring and disposing of the 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              G
to collieries and other companies. Thus, in the said case,
the leasing out of the coal fields to the collieries and other
companies was the business of the assessee. The income
which was received from letting out of those mining leases            H
418      SUPREME COURT REPORTS                  [2015] 4 S.C.R.


A was shown as business income. Department took the
  position that it is to be treated as income from the house
  property. It would be thus, clear that in similar
  circumstances, identical issue arose before the Court. This
8 Court first discussed the scheme of the Income Tax Act and
  particularly six heads under which income can be
  categorised I classified. It was pointed out that before
  income, profits or gains can be brought to computation,
  they have to be assigned to one or the other head. These
c heads are in a sense exclusive of one another and income
  which falls within one head cannot be assigned to, or taxed
  under, another head. Thereafter, the Court pointed out that
  the deciding factor is not the ownership of land or leases
D but the nature of the activity of the assessee and the nature
  of the operations in relation to them. It was highlighted and
  stressed that the objects of the company must also be kept
  in view to interpret the activities. In support of the
E aforesaid proposition, number of judgments of other
  jurisdictions, i.e. Privy Counsel, House of Lords in England
  and US Courts were taken note of. The position in law,
  ultimately, is summed up in the following words:-

 F        "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
G       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
H       operations fall and to what head the income is to be
   CHENNAI PROP. & INVESTMENTS LTD. v. THE                  419
  COMMNR. OF l.T. CENTRAL Ill, T. N. [A K. SIKRI, J.]

     assigned."                                               A

     9. After applying the aforesaid principle to the facts,
which were there before the Court, it came to the
conclusion that income had to be treated as income from
business and not as income from house property. We are B
of the opinion that the aforesaid judgment in Karanpura
Development Co. Ltd.'s case squarely applies to the facts
of the present case.

     10. No doubt in Sultan Brothers (P) Ltd.'s case,
                                                              c
Constitution Bench judgment of this Court has clarified that
merely an 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 D
from business and such a question would depend upon the
circumstances of each case, viz., whether a particular
business is letting or not. This is so stated in the following
words: -                                                       E
        "We think 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 F
     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 G
     not possible to say that a particular activity is
     business because it is concerned with an asset with
     which trade is commonly carried on. We find nothing
     in the cases referred, to support the proposition that
     certain assets are commercial assets in their very H
420          SUPREME COURT REPORTS             (2015] 4 S.C.R.


A           nature."

       11. We are conscious of the aforesaid dicta laid down
  in the Constitution Bench judgment. It is for this reason, we
  have, at the beginning of this judgment, stated the
B circumstances of the present case from which we arrive at
  irresistible conclusion that in this case, letting of the
  properties is in fact is the business of the assessee. The
  assessee therefore, rightly disclosed the income under the
c Head Income from· Business. It cannot be treated as
  'income from the house property'. We, accordingly, allow
  this appeal and set aside the judgment of the High Court
  and restore that of the Income Tax Appellate Tribunal. No
  orders as to costs.
D
           CIVIL APPEAL NOS. 4491-4493 OF 2004

          12. The appeals are disposed of in terms of the
      aforesaid order in Civil Appeal No. 4494 of 2004.
 E
      Devika Gujral                      Appeals disposed of.