Commissioner of Income Tax vs Gulab Rai and Sons

G.G. Sohani, Actg. C.J.

This is an application u/s 256(2) of the Income Tax Act, 1961 (hereinafter referred to as " the Act ").

The material facts giving rise to this application briefly are as follows: The respondent-assessee owns a property known as "Jackson Hotel". The property was initially taken on lease by the assessee but thereafter the assessee purchased that property in the year 1973. On August 1, 1976, the assessee executed a deed of lease whereby the property was let out on a monthly rent of Rs. 4,000 for a period of 20 years. While framing the assessment for the assessment year 1978-79, the Income Tax Officer treated the rental income received by the assessee as aforesaid as his business income. The Commissioner of Income Tax, exercising his powers under the provisions of Section 263 of the Act, held that the order of the Income Tax Officer was erroneous and prejudicial to the interests of the Revenue inasmuch as the Income Tax Officer had completely overlooked certain vital facts. The Commissioner of Income Tax set aside the order passed by the Income Tax Officer and directed him to recompute the income from leasing out the hotel in accordance with the provisions of Sections 22 and 23 of the Act. Aggrieved by that order, the assessee preferred an appeal before the Tribunal. That appeal was allowed. The application Submitted by the Revenue u/s 256(1) of the Act for making a reference to this court was rejected. Hence, the Revenue has sought a reference in this application.

Learned counsel for the Revenue contended that the question sought to be referred is a question of law and that the Tribunal was not justified in rejecting the application u/s 256(1) of the Act. In reply, learned counsel for the assessee contended that no question of law arises out of the order passed by the Tribunal.

Having heard learned counsel for the parties, we have come to the conclusion that the following question of law does arise out of the order of the Tribunal :

" Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the income derived by the assessee from leasing out the property known as '' Jackson Hotel '' was income from profits and gains of business ? "

The application is accordingly allowed. The Tribunal is directed to state the case and to refer the aforesaid question of law to this court for its opinion. In the circumstances of the case, the parties shall bear their own costs.