THE COMMISSIONER OF INCOME TAX. HYD. V. M/S RAJESWARI WAREHOUSE COMPLEX

RC/6/1996

AI Insights

The case revolves around a partnership firm that constructed godowns and leased them to the Food Corporation of India. The firm filed for continuation of registration under the Income Tax Act, 1961, claiming its activities constituted 'business'. However, the Income Tax Officer classified the income from these activities as 'income from property'. The appellate authority and the ITAT disagreed with the initial classification, leading to the Department's appeal. The High Court, referencing a Supreme Court decision, ultimately upheld the classification of the income as property income, not business income.

• Counselvise Citation: [1994] 140 COUNSELVISE.COM (IT) 719746 (HC-HYDERABAD)
• Appeal Type: Others
• Pronouncement Date: 29-04-1994
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax Vs. Phabiomal & Sons, East India Housing & Land Development Trust vs. Commissioner of Income Tax & Others, Commissioner of Income Tax Vs. Mithila Properties Publication & Contractor Enterprises (P) Ltd., Commissioner of Income Tax vs. Lakshmi Company & Others
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Respondent
• Court: HIGH COURT
• Assessee Lawyers: S R ASHOK
• Keywords: Business activity; Income from property; ITAT decision; Registration continuation
• Section: 9; 256(1)

Judgement Text

"THE HON'BLE SRI JUSTICE B.PRAKASH RAO And THE HON'BLE SRI JUSTICE R.KANTHA RAO R.C.No.6 of 1996 ORDER: (Per the Hon’ble Sri Justice B.Prakash Rao) Heard Sri S.R. Ashok, learned Standing Counsel appearing for the petitioner. Though served, none appeared for the respondent herein. In this reference made under Section 256(1) of the Income Tax Act, 1961, the question involved is “whether on the facts and in the circumstances of the case, the ITAT was correct in law in holding that the activity of the assessee amounts to business and the assessee was entitled to registration/continuation of registration for the assessment year 1985-86 ?” In brief, the facts that gave rise to the present reference are that the assessee, which is a partnership firm, has constructed godowns and leased out the same to Food Corporation of India. It filed return of income admitting income of Rs.2,81,540/- in respect of the assessment year 1985- 86. It also filed Form No. 12 claiming continuation of the registration, which it had earlier. However, while completing the assessment on a total income of Rs. 3,24,270/- the Income Tax Officer, the primary assessing Authority did not accept the assesee’s version on the ground that the activity of letting out the godowns does not constitute “business”, but it has to be treated as an income from the property. Thereupon, on an appeal filed by the assessee, the same was allowed by the appellate authority holding that such activity carried on by the petitioner does constitute “business”. Having regard to the fact that registration was granted to the petitioner earlier, the appellate authority held that the same needs to be continued. Aggrieved thereby, the Department filed an appeal before the Income Tax Appellate Tribunal, Hyderabad Bench and through order dated 29.4.1994, the Tribunal dismissed the said appeal. Hence, the present reference. In so far as facts are concerned, it amply transpired that except the activity of collecting rents, there is no other activity being carried on by the petitioner. In support, the Tribunal sought to place reliance on the decision of this Court in Commissioner of Income Tax Vs. Phabiomal & Sons([1]) wherein it was held that “such activity” does constitute “business”. The learned Standing Counsel appearing on behalf of the petitioner mainly placed reliance upon the decision of the Supreme Court in East India Housing & Land Development Trust vs. Commissioner of Income Tax & Others ([2]), wherein it was held that such activity does not constitute business and necessarily it has to be treated as income from the properties. In support of this contention learned counsel sought to place reliance upon the decision of the Patna High Court in Commissioner of Income Tax Vs. Mithila Properties Publication & Contractor Enterprises (P) Ltd.,([3]) and that of the Madras High Court in Commissioner of Income Tax vs. Lakshmi Company & Others([4]). In these two decisions, the Courts after taking into consideration the pros and cons of such activity, amply held that such activity does not fall within the term of ‘business”. In East India Housing2, the Supreme Court held as under: “The income received by the appellant from shops is indisputably income from property; so is the income from stalls from occupants. 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. The income-tax authorities were, in our judgment, right in holding that the income received by the appellant was assessable under Section 9 of the Income Tax Act.” In view of the aforesaid categorical finding of the Supreme Court and there being no other decision cited across the bar controverting, it is held that the question referred to has to be answered in the negative, namely to the effect that such activity does not fall within the term of ‘business’. The reference is answered accordingly. ____________________ (B.PRAKASH RAO, J) __________________ (R.KANTHA RAO, J) Date: 23rd February, 2010 [1] 158 ITR 773 [2] 42 ITR 49 [3] 228 ITR 713 [4] 133 ITR 904 "