Commissioner of Income Tax vs Indian Warehousing Industries Ltd.

R. Jayasimha Babu, J.—The assessment years are 1984-85 to 1988-89. The question referred in these tax cases is :

Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that the rental for the

mere letting of godowns received by the assessee should be assessed under the head ''Income from business'' and not ''property'' ?

The assessee had, during these years, received income by way of rent from the Food Corporation of India, which had taken the warehouses

belonging to the assessee on lease. Though the assessee had claimed that such income be treated'' as its business income and not as income from

house property, the Assessing Officer treated the rental income as income from house property and completed the assessment accordingly. On

appeal, the appellate authority, relying on the decision of the Supreme Court in the case of Karanpura Development Co. Ltd. Vs. The

Commissioner of Income Tax, West Bengal, , held that the rental income should be assessed as business income. That view of the appellate

authority having been upheld by the Tribunal, the Revenue has brought these references before us.

The income which the assessee had received was for the renting out of the warehouses owned by it to the Food Corporation of India. One of

the objects of the assessee-company was to build warehouses and to let out the same. In the case of East India Housing and Land Development

Trust Ltd. Vs. Commissioner of Income Tax, West Bengal, , the Supreme Court, in the context of facts which were similar to those found in this

case, held that the rental income is to be assessed only as income from house property. In that case, the assessee was formed with the object of

promoting and developing markets. While examining its claim that the rents it received from the shops and stalls formed its business income and

should be assessed as such, the court observed that the income derived from letting out property belonging to the appellant did not constitute

profits and gains"" from business within the meaning of Sections 6 and 10 of the Indian Income Tax Act, 1922. The court referred to Section 6 of

that Act which categorised income under six different heads and observed that (page 51) :

This classification under distinct heads of income, profits and gains is made having regard to the sources from which the income is derived. Income

Tax is undoubtedly levied on the total taxable income of the taxpayer and the tax levied is a single tax on the aggregate taxable receipts from all the

sources ; it is not a collection of taxes separately levied on distinct heads of income. But the distinct heads specified in Section 6 indicating the

sources are mutually exclusive and the income derived from different sources falling under specific heads has to be computed for the purpose of

taxation in the manner provided by the appropriate section. If the income from a source falls within a specific head set out in Section 6, the fact that

it may indirectly be covered by another head will not make the income taxable under the latter head.

The court in the concluding paragraph of the judgment held that the income received by the appellant therein from shops is indisputably income

from property ; so is the income from stalls from occupants and that (page 52) :

The character of the income is not altered merely because some stalls remain occupied by the same occupants and the remaining stalls are

occupied by a shifting class of occupants. The primary source of income from the stalls is occupation of the stalls, and it is a matter of little moment

that the occupation which is the source of the income is temporary.

Those observations of the Supreme Court will apply to the facts of the present case. The source of the income being the warehouses, it matters

little as to who the lessee for the time being is, whether it is the same lessee continuing over a period of time or a shifting class of lessees who

occupied the spaces for shorter periods and paid rental for such use.

The case of Karanpura Development Co. Ltd. Vs. The Commissioner of Income Tax, West Bengal, relied upon by the Tribunal, dealt with the

case of sub-lease given by a company which had acquired coal mining leases over large areas and the object of the company was to acquire such

leases, develop them as coalfields and then sub-lease them to collieries and other companies. In the context of the facts of that case, the court held

that the amounts paid to the lessors by the sub-lessees constituted business income.

The Tribunal was in error in holding that the rental income derived by the assessee was required to be treated as business income and not as

income from property. The question referred to us is answered in favour of the Revenue and against the assessee.