Commissioner of Income Tax vs Chirathalattu Enterprises

Arijit Pasayat, C.J.—At the instance of the Revenue, the following questions have been referred to this court u/s 256(1) of the Income Tax Act, 1961 (in short "the Act"), by the Income Tax Appellate Tribunal, Cochin Bench (in short "the Tribunal") :

"1. Whether, on the facts and in the circumstances of the case, leasing out of different properties would amount to carrying on of business ?

Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact in holding (even at the narration stage) that the assessee-firm carries on the business of leasing out of different properties" ?

Whether, on the facts and in the circumstances of the case, the assessee is entitled to registration under the Income Tax Act ?"

The factual position as highlighted in the statement of case is as follows : The assessee, a partnership firm was assessed to tax since the assessment year 1986-87 in the status of association of persons till the assessment year 1989-90. For the relevant assessment year, i.e, 1990-91, it claimed registration as a firm. A total income of Rs. 59,560 which comprised income from house property was returned. The Assessing Officer did not reckon the activity to be a business activity and refused registration u/s 185(1)(b) of the Act.

The matter was carried in appeal before the Deputy Commissioner, of Income Tax (Appeals) (in short "the Dy. CIT (A)"). The views of the Assessing Officer were confirmed by the first appellate authority.

On further appeal, the Tribunal held that the activities carried on by the assessee could be construed to be business activities and therefore registration was allowable. Reliance was placed on the decisions of the Madras High Court in Commissioner of Income Tax Vs. Admiralty Flats Motel, and CIT v. Lakshmi Company [1982] 153 ITR 904, and the decisions of the Madhya Pradesh High Court in Commissioner of Income Tax Vs. Khairagarh Timber Traders, and Prem Trading Co. Vs. Commissioner of Income Tax, . On a reference being sought for, the prayer was accepted.

Heard learned counsel for the Revenue. None appears for the assessee in spite of notice.

It is the stand of the Revenue that though it is not impermissible to tax income derived from letting out of properties and treating rent as business income, yet, much would depend upon the ownership of the property. Reliance is placed on the decision of the apex court in S.G. Mercantile Corporation P. Ltd. Vs. Commissioner of Income Tax, Calcutta, .

Learned counsel for the Revenue is correct in his submission that much would depend upon the factual aspects, more particularly, the nature of interest in the property. Since those aspects were not considered by the Tribunal, which merely relied on some decisions for the broader principle that ownership of property and earning income by letting out property can constitute business income, we think it appropriate to remit the matter back to the Tribunal to give specific finding''s on the question as to who was the owner of the property, and what was the nature of the interest of the assessee therein and thereafter consider the question whether the income can constitute business income. It goes without saying that the question of grant of registration will be consequential to such finding.

Tax reference is accordingly disposed of.