Commissioner of Income Tax, Spl. Range II vs Sanmar Holdings Ltd.

P.D. Dinakaran, J.—The above appeal is directed against the order dated 19.5.2003 made in I.T.A. No. 1633/Mds/95 on the file of

Income Tax Appellate Tribunal, Madras ''A'' Bench.

2.1. In brief, aggrieved by the assessment order dated 3.2.1995, assessing the rent from two sister concerns, viz. Chemplast & Overseas Sanmar

Financial Corporation, under the head ""income from house property"", in spite of the request made by the respondent/assessee for assessing the

receipts of the rent under the head ""profits and gains of business and for depreciation thereto"", the respondent/assessee preferred an appeal before

the Commissioner of Income Tax, who, by his order dated 17.5.1995, directed the Assessing Officer to assess the income derived from the

building under the head ""profits and gains of business"", paving way for an appeal to the Tribunal by the revenue.

2.2. The Income Tax Appellate Tribunal, by order dated 19.5.2003, holding that there is no infirmity in the order of the appellate authority

directing the Assessing Officer to assess the income derived from the building under the head ""profits and gains of business"", instead of ""the income

from house property"" as claimed by the appellant/revenue, dismissed the appeal. Hence, the present appeal.

The above appeal was admitted by this Court on the following substantial question of law, viz.

Whether in the facts and circumstances of the case, the appellate Tribunal was right in holding that the income from letting out of building is

assessable as business income?

4.1. According to the learned counsel for the appellant/revenue, as per Section 22 of the Income Tax Act (hereinafter referred to as the ""Act""),

any income from letting out of a building has to be assessed under the head income from house property, and therefore, the income of the

respondent/assessee is liable to be assessed as an income from house property.

4.2. In support of the above contention, the learned counsel for the appellant/revenue places reliance on the decision in Commissioner of Income

Tax Vs. Chennai Properties and Investments Ltd., and contends that the respondent/assessee, as owner of the building, is only exploiting the

property by leasing out the same and realising income by way of rent and such rental income was liable to be assessed under the head ""Income

from house property"".

5.1. Per contra, learned counsel appearing for the respondent/assessee, strongly placing reliance on the decision of this Court dated 26.11.2002

made in T.C. Nos. 43, 80 & 81 of 1999 (THE COMMISSIONER OF INCOME TAX, CENTRAL II, MADRAS v. M/s. SANMAR

HOLDINGS LTD., MADRAS), contends that unless there is a clear finding that the respondent/assessee is the owner of the building in question

and that the respondent/assessee is trying to exploit the property as the owner by leasing out the same and realising by way of rent, the decision in

Commissioner of Income Tax Vs. Chennai Properties and Investments Ltd., , is not applicable to the instant case.

5.2. It is further argued that, as held in Commissioner of Income Tax Vs. V.S.T. Motors P. Ltd., , the fundamental position, viz. whether a

particular building is a commercial asset or a house property has to be ascertained before the rental income is being assessed on the assessee.

5.3. It is also brought to our notice that following the decision in Commissioner of Income Tax Vs. V.S.T. Motors P. Ltd., , this Court, in

T.C.Nos.43, 80 & 81 of 1999 (THE COMMISSIONER OF INCOME TAX, CENTRAL II, MADRAS v. M/s. SANMAR HOLDINGS

LTD., MADRAS), finding that the Tribunal has failed to go into such factual question, set aside the order and remitted the matter for fresh

consideration.

We have given careful consideration to the submissions of both sides.

7.1. It is apt to refer Section 22 of the Act, which reads as follows:

Section 22: Income from house property. - The annual value of property consisting of any buildings or lands appurtenant thereto of which the

assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by

him the profits of which are chargeable to Income Tax, shall be chargeable to Income Tax under the head "" Income from house property"".

7.2. It is a settled position in law that whether a particular letting is business has to be decided in the circumstances of each case and 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. A thing is not by its very nature 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, as held by a Constitution Bench of the Apex Court in Sultan Brothers (P) Ltd. Vs.

Commissioner of Income Tax, .

7.3. A statutory burden is, therefore, cast on the revenue authorities, viz. the appellant herein, that they should satisfy whether the building or land in

question is owned by the assessee, before invoking Section 22 of the Act for the purpose of assessing the rental income of the property of the

assessee as an income from the house property. That apart, the revenue authorities are also expected to go into the question whether there is any

exploitation of the property by their owner by giving it away for rent, before assessing such rental income as an income from house property.

7.4. From the perusal of the assessment order as well as that of the appellate authorities, we do not see any finding that the respondent/assessee is

the owner of the building in question, which goes to the very root of the issue and there is a further failure on the part of the revenue authorities as

to the finding whether the assessee had exploited the property as owner by leasing out the same and realising income by way of rent.

7.5. On the other hand, the decision in Commissioner of Income Tax Vs. Chennai Properties and Investments Ltd., , falls under different footing

where the Division Bench has clearly held that the assessee therein was the owner of the property in question and he was exploiting the property as

owner by leasing out the same and realising income by way of rent. Unless these factual question is answered in clear terms, in our considered

opinion, it is difficult to accept the case of the appellant merely based on the ratio laid down in Commissioner of Income Tax Vs. Chennai

Properties and Investments Ltd., , which, in our considered opinion is not applicable to the facts of the present case and also is contrary to the

ratio laid down by the Constitution Bench of the Apex Court in Sultan Brothers (P) Ltd. Vs. Commissioner of Income Tax, , which was also

followed by the Apex Court in the subsequent decision in Universal Plast Limited Etc. Vs. Commissioner of Income Tax, Calcutta, .

7.6. For all these reasons, even though we are unable to allow the appeal, we are constrained to set aside the impugned order and remit the matter

to the Assessing Officer to go into the factual question as referred to above and to consider the question afresh, in accordance with law.