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Commissioner of Income-tax, Tamil Nadu-i, Madras Vs. V. Shanmugham - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case Nos. 462 and 463 of 1976 (Reference Nos. 335 and 336 of 1976)
Judge
Reported in[1984]147ITR692(Mad)
ActsIncome Tax Act, 1961 - Sections 28
AppellantCommissioner of Income-tax, Tamil Nadu-i, Madras
RespondentV. Shanmugham
Appellant AdvocateJ. Jayaraman, Adv.
Respondent AdvocateT.V. Natarajan, Adv.
Excerpt:
- - on appeal the aac also rejected the asessee's contention that the said income should be assessed under the head 'business'.the tribunal on further appeal, held that in view of the number of rooms, the lenght of time for which the inmates were occupying the building and amenities provided, like cot, table, chair, electricity, water supply, room service, etc. 5. a question like the one before us is, to a large extent, capable of decision only on the basis of the facts of each case. there were no permanent tenants so to say, and the persons, who occupied the rooms, did not enjoy any tenancy rights as such. apart from providing ordinary amenities like water supply, electricity, etc......that the income derived by assessee from letting out of 'vinayaka lodge' should be assessed as business income but not income from property ?' 2. the assessee was carrying on business in groceries. he constructed a building between november, 1965, and september, 1967. the building consisted of 68 rooms, some of which had attached bath-rooms. the rooms were separately furnished and let out for varying durations. he employed a manager, a supervisor, scavengers, room boys and watchmen for the purpose of looking after the building and its amenities. he provided also the facility of telephone, electricity and water supply at his expense. he realised rs. 15,545 and rs. 39,331 as gross income from the tenants by, letting out the rooms in this property, which was known as 'vinayaka lodge'......
Judgment:

Sethuraman, J.

1. The following question has been referred in pursuance of the directions of this court :

'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the income derived by assessee from letting out of 'Vinayaka Lodge' should be assessed as business income but not income from property ?'

2. The assessee was carrying on business in groceries. He constructed a building between November, 1965, and September, 1967. The building consisted of 68 rooms, some of which had attached bath-rooms. The rooms were separately furnished and let out for varying durations. He employed a manager, a supervisor, scavengers, room boys and watchmen for the purpose of looking after the building and its amenities. He provided also the facility of telephone, electricity and water supply at his expense. He realised Rs. 15,545 and Rs. 39,331 as gross income from the tenants by, letting out the rooms in this property, which was known as 'Vinayaka Lodge'.

3. Before the ITO, the assessee claimed that this income should be assessed as 'business income'. The ITO rejected the claim and held that the income should be treated only as 'property income', and he, accordingly, determined the income at Rs. 10,631 and Rs. 27,617 respectively for the two years. On appeal the AAC also rejected the asessee's contention that the said income should be assessed under the head 'Business'. The Tribunal on further appeal, held that in view of the number of rooms, the lenght of time for which the inmates were occupying the building and amenities provided, like cot, table, chair, electricity, water supply, room service, etc., the activity of the assessee in running the lodge should be considered as 'business activity'. Arising out of the said order of the Tribunal, the question already set out, has been referred.

4. The learned counsel the Commissioner contended that the assessee was only the owner of this property, that he has done what any owner would do in earning income from the property, which was surplus to his requirement, and that, in the circumstances, the income could not be assessed as business income. The learned counsel for the assessee drew our attention to the various features in this particular case, so as to emphasise that the assessee has pursued an activity which was of a commercial nature and that the income from the lodge was, therefore, rightly assessed as 'business income' as decided by the Tribunal.

5. A question like the one before us is, to a large extent, capable of decision only on the basis of the facts of each case. It is possible to have any axiomatic principle to find out whether in running a particular lodge, the assessee has been carrying on a business or merely letting out the property. In this particular case, the following features emphasise the commercial character of the activity of the assessee. The building was constructed with 68 rooms, so as to be let out individually and these room were let out to persons, who occupy them for various periods of time. There were no permanent tenants so to say, and the persons, who occupied the rooms, did not enjoy any tenancy rights as such. the occupation of the several persons, on the particular facts here, could be treated more as a licence than as a lease. Apart from providing ordinary amenities like water supply, electricity, etc., the assessee has provided cot, table, chair, attached bath-rooms, hot and cold water, room service and also telephone facility. All these features, in our opinion, satisfy the requirements of the lodging house being run on a commercial basis, rather than as the owner of a property. It is not necessary to refer to any decision as such, as the matter is decided with reference to the facts of this case. We, therefore, answer the question referred to us in the affirmative and in favour of the assessee. The assessee will be entitled to costs. Counsel's fee Rs. 500 (one set).


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