N. Kumar, J.@mdashThese 12 appeals are preferred by the Assessees against the order passed by the Tribunal holding that the rental received by the Assessees from letting out work stations, air conditioners, electrical fittings, fire detectors etc. are to be bifurcated under the heading of ''income from other sources'' and not ''income from house property.''
2. The substantial question of law that arises for consideration in all these appeals is as under:
1) Whether the Tribunal was justified in holding that the rental income received by the Assessees from letting out the building together with furniture, fixtures and equipments should be bifurcated under two heads.
a) income from house property?
b) income from other sources?
In so far as the income from furniture, fixtures and equipments is concerned not the entire rental income under the heading of income from house property the income is to be assessed as income from house property.
3. The Assessees in all these appeals are co-owners of the property situated at 13, 14, 15, & 16 Magrath Road, Bangalore. The said property was given on joint development to M/s. Embassy Classic Private Limited. After the transfer of the portion of the interest in the property in favour of the developer or its nominees in terms of the joint development agreement, the Assessees had reported long term capital gains. The Assessees had filed returns u/s 143(1) of the Income Tax Act, 1961, (hereinafter referred to as ''the Act'' for short). The proceedings u/s 132 of the Act was initiated by the Department in the premises of the Assessees on 9-4-2005. No income or assets let alone undisclosed or the concealed income was found. After the completion of the search operations notices were issued u/s 153A and 139(1) of the Act for the assessment years 2000-01 to 2005-06 calling upon the Assessees to file returns of the income for the said years. The Assessees filed their replies on 20-4-2006 and requested the assessing authority to treat the returns of income filed earlier u/s 139(1) of the Act, as the returns of the income in response to the notices issued u/s 153A of the Act. The assessing officer thereafter proceeded to pass orders on 28-12-2007 for all years from 2000-01 to 2003-04. The assessing officer accepted the income reported by the Assessee. The assessing officer computed the long term capital gains on the joint development at Rs. 53,07,353/- as against Rs. 46,35,694/- shown by the Assessees in the return of the income. The assessing authority brought to tax the furniture, fixtures and equipment and hire charges shown under the heading "other sources" by the Assessees under the heading "Income from house property" thereby denying the deduction claimed by the Assessees for the interest paid on the monies borrowed from ICICI bank for providing the said amenities and the depreciation allowance on the furniture, fixtures and equipment. Thus aggrieved by the same, the assesses preferred an appeal to the Commissioner of income tax (Appeals). The appellate authority granted relief to the Assessees in so far as computation of long term capital gains is concerned. However, in other aspects the order of the assessing officer was confirmed. The Assessees preferred an appeal to the Tribunal challenging that portion of the order which did not give them the relief.
4. The Tribunal recorded a finding that both the authorities below misdirected themselves in disallowing the depreciation and interest on the income of hiring charges rendered by the Assessees as "income from other sources." Aggrieved by this portion of the order of the Tribunal the revenue has preferred these appeals.
5. The learned Counsel appearing for the revenue assailing the impugned order contends that the material on record discloses that the Assessees have let out the premises along with furniture and fixtures to the lessees under a common lease deed. Without those furniture and fixtures, the shell portion of the building is of no use to the lessees. Thus the furniture and fittings could not have been let out independently to any other person. Under those circumstances as held by the Calcutta High Court in the case of
6. The learned Counsel appearing for the Assessees supported the impugned order contending that there is only one lease deed and a separate rent is specified for the shell, that is the building and for the furniture and fittings which are given on hire to the tenant. In fact a loan was borrowed from ICICI bank for providing these fittings and furniture, according to the specification of the tenant and the said lease is independent of the lease of the building, though in the very same lease deed both are specifically mentioned giving separate schedules. Therefore he submits that by no stretch of imagination the rental income derived from letting out furniture and fixtures would constitute income from house property and the hire charges received in this regard would not constitute income from house property. He also contended that in respect of these appeals, the amount involved does not enable the revenue to prefer an appeal in view of Section 268A of the Act and therefore on that ground alone these appeals are liable to be dismissed.
7. The learned Counsel further submitted that in respect of some other co-owners the revenue has accepted their case that the hire charges from furniture and fixtures would constitute income from entire property. Even in respect of some Assessees in these appeals for the subsequent years, the revenue has accepted the hire charges for furniture and fixtures as falling under the head "income from other sources" and only in respect of the orders which are the subject matter of these appeals the revenue has taken such a stand which is not permissible in law.
8. In the light of the aforesaid facts and the rival contentions the question that arises for our consideration is whether the income from furniture and fixtures and other amenities provided by the owner of the property would constitute income from house property ?
9. Chapter-IV of the Act deals with computation of total income under the heads of income, "C deals with income from house property. Section 22 of the Act defines "income from house property" which reads as under:
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 under the head "Income from house property.
Therefore it is clear that it is the annual value of property consisting of:
a) any buildings or
b) amounts derived thereof
c) of which the Assessee is the owner only could be the income chargeable to income tax under the heading income from house property.
10. Section 23 of the Act provides for determination of annual value. Section 24 deals with deductions from income from house property. Section 25 deals with amounts not deductible from income from house property. Section 26 deals with property owned by co-owners which provides that:
Where the property consisting of buildings or buildings or lands appurtenant thereto is owned by two or more persons and their respective shares are definite and ascertainable, such persons shall not in respect of such property be assessed as an association of persons, but the share of each person in the income from the house property as computed in accordance with Sections 22 to 25, shall be included in his total income.
Then Section 27 deals with owner of house property.
11. It is in this background we have to see the statutory provision contained in Section 56 which deals with income from other sources. Sub-section (1) of Section 56 makes it clear that Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income tax under the head "Income from other sources", if it is not chargeable to income tax under any of the heads specified in Section 14. Items A to E. Sub-section (2) of Section 56 specifically states the rate of income tax which shall be chargeable to income tax under the head income from other sources. Sub-Clause(ii) provides that "income from machinery, plant or furniture belonging to the Assessee and let on hire, if the income is not chargeable to income tax under the head ''Profits and gains of business or profession." Clause(iii) also provides that "where an Assessee lets on hire machinery, plant or furniture belonging to him and also buildings and the letting of the buildings is inseparable from the letting of the said machinery, plant or furniture, the income from such letting, if it is not chargeable to income tax under the head "Profits and gains of business or profession." Therefore, the intention of the Legislature is explicit. If the machinery, plant and furniture is not separate from the letting of the said machinery, the income from such machinery, plant along with the income from the building, the income is chargeable to income tax under the head of income from other sources if it does not fall under "profits and gains of business or profession". Therefore, under no circumstance the income from letting out the furniture and fixture becomes chargeable to income tax under the head of income from house property.
12. It is in this background we have to see the various Judgments on which reliance is placed. In the case of Shambu Investments Ltd. referred to supra the Assessee was the owner of a building at Raheja Chambers, Mumbai. He had furnished the said premises and let it out to various persons and/or firms and/or organizations with all furniture, fixtures, light, air-conditioners for being used as ''table space''. He also had agreed to provide services like watch and ward staff, electricity, water and other common amenities. The income derived by the Assessee from the said office premises was offered for taxation as business income and accordingly he was assessed. The Commissioner of Income Tax held the income derived from the said property was actually rent received from the occupiers and not to be regarded as service charges and maintenance and cannot be termed as business income. The Tribunal set aside the order of the Commissioner and restored the order of the assessing officer. In appeal, the High Court after referring to the various judgments held that, merely because income is attached to any immovable property that cannot be the sole factor for assessment of such income as income from property. What has to be seen is what was the primary object of the Assessee while exploiting the property. If it is found applying such test that the main intention is for letting out the property or any portion thereof the same must be considered as rental income or income from property. In case it is found that the main intention is to exploit the immovable property by way of complex commercial activities in that event it must be held as business income.
13. Applying the said law to the facts of the case it was held that, the cost of the property was Rs. 5,42,443/-. A portion of the said property is used by the Assessee himself for his own business purpose. The rest of the said property has been let out to the various occupiers, the Assessee had already recovered a sum of Rs. 4,25,000/- as and by way of security free advance from three occupants. Hence, the entire cost of the property let out to those occupiers has already been recovered. Therefore it was held, it cannot be said that the Assessee is exploiting the property for its commercial business activities and such business activities are prime motive and letting out the property is a secondary one. Applying the test set down in Sultan Brothers case by the Apex Court it was held that, it is composite table space let out to various occupants, the amenities granted to those occupants including the user of the furniture and fixtures are attached to such letting out and by the said agreement, the parties have intended that such letting out would be an inseparable one. The prime object of the Assessee under the said agreement was to let out the portion of the said property to various occupants by giving them additional right of using the furniture and fixtures and other common facilities for which rent was being paid month by month in addition to the security free advance covering the entire cost of the said immovable property. Therefore, it held the said income is to be treated as income from house property. Therefore, the question in the aforesaid case was, whether the income is to be assessed as income from house property or income from business.
14. In the case of Sultan Brothers Private Limited v. Commissioner of Income Tax reported in 1964 ITR 51 353, the Constitution Bench of the Apex Court was dealing with a case where the Assessee who constructed a building on Plot No. 7 at Bombay had fitted up with furniture and fixtures for being run as a hotel. The Assessee let out the building fully equipped and furnished to one Voyantzis for a term of six years for running a hotel and for certain other ancillary purposes. The lease provided for a monthly rent of Rs. 5,950/- for the building and a hire of Rs. 5,000/- for the furniture and fixtures. The Assessee contended that the entire income should be assessed u/s 10 as the income of a business or, in the alternative, the income should be assessed u/s 12 as income from a residuary source, i.e. a source not specified in the preceding Sections 7 to 11, with the allowances respectively specified in Sub-sections (3) and (4) of that Section. Therefore, the question which arose for consideration in the said case was, whether the rental income is to be assessed as a business income or income from other sources.
15. Answering the said question, they held the rent from the building will be computed separately from the income from the furniture and fixtures and in the case of rent from the building the Appellant will be entitled to the allowances mentioned in Sub-section (4) of Section 12 and in the case of income from the furniture and fixtures, to those mentioned in Sub-section (3), and that no part of the income can be assessed u/s 9 or u/s 10. Therefore, in substance it was held the income falls under the heading of income from other sources and not income from business. Therefore, the Supreme Court did not go into the question whether income from the furniture and fixtures would fall under the income from house property at all. As such, the said judgment has no application to the facts of this case.
16. In this case the question for consideration is whether the income from furniture and fixtures is to be put under the head ''income from house property''. As both the leases are contained in very same document the said Judgments are of very little assistance in deciding the case on hand. However, the Madras High Court in the case of
That the actual rent received by the owner (Assessee) would constitute the basis for determining the annual value and it was the value which would have to form the basis for determining the income from house property and for allowing the deduction from income from house property to the extent permitted under the other provisions of the income tax Act. In making such computation, there was no provision to add other amounts received by the owner of the building as representing the value of the service charges rendered by him to his tenants as income from house property. Hence, the Tribunal was right in ho/ding that the receipts from service charges were liable to be assessed as income from other sources and not income from house property.
17. Therefore, from the aforesaid statutory provisions it is clear that if the income is to be chargeable under the heading of ''income from house property'' it should be the income which represents the annual value of property consisting of any building or lands appurtenant thereto of which the Assessee is the owner and only such income shall be chargeable to income tax under the head ''income from house property.'' When Section 56(2)(iii) makes it explicitly clear that the income from machinery or fixture belonging to the Assessee and let out on hire, if is not chargeable under the heading of ''profits and gains of business or profession'', then it has to be charged to income tax under the heading ''income other sources.'' If the aforesaid income is inseparable from letting out the said plant & machinery other than the income of such letting out cannot if it is not chargeable to income tax under ''profits and gains or profession'', is chargeable under the head ''income from other sources.'' Therefore under these circumstances, the income derived from letting out the furniture and fixture is not chargeable under the heading of ''income from house property''.
18. The finding recorded by the Tribunal is in accordance with law and does not suffer from any illegality or infirmity and therefore it does not call for interference. The substantial question of law raised in this appeal is answered in favour of the assessee and against the revenue.
19. In so far as the contention that these appeals are not maintainable at all as they are hit by Section 268A(1) in particular, as on merits itself we have held that the Assessees are entitled to the relief and dismissing the appeals upholding the order of the Tribunal, this question need not be gone into in these appeals. Accordingly, we pass the following order:
All the appeals are dismissed.
