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Commissioner of Income-tax Vs. Smt. P. Andal Ammal and anr. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case Nos. 106, 107 and 1209 of 1987 (Reference Nos. 46, 47 and 725 of 1987)
Judge
Reported in[2000]243ITR715(Mad)
ActsIncome Tax Act, 1961 - Sections 22 and 56
AppellantCommissioner of Income-tax
RespondentSmt. P. Andal Ammal and anr.
Appellant AdvocateC.V. Rajan, Adv.
Respondent AdvocateK. Rama Gopal, Adv.
Excerpt:
direct taxation - construction - sections 22 and 56 of income tax act, 1961 - whether income derived by assessee by way of rent in respect of lodging house assessable under head 'income from house property' or 'income from other sources' - letting out of premises with fittings was single and individual transaction - held, income from rent to be assessable as 'income from other sources'. - .....derived by the assessee by way of rent in respect of the lodging house is assessable under the head 'income from house property' or under the head 'income from other sources'. 2. as the question involves an interpretation of the provisions of section 56(2)(iii) of the income-tax act, 1961 (for short, 'the act'), the provisions of the section, in so far as it is relevant for the purpose of the case, are reproduced as under : '56. income from other sources.--(1) 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. (2) in particular, and without prejudice to the generality of.....
Judgment:

N.V. Balasubramanian, J.

1. The common question of law that expects our answer in the above batch of tax cases in short is whether the income derived by the assessee by way of rent in respect of the lodging house is assessable under the head 'Income from house property' or under the head 'Income from other sources'.

2. As the question involves an interpretation of the provisions of Section 56(2)(iii) of the Income-tax Act, 1961 (for short, 'the Act'), the provisions of the section, in so far as it is relevant for the purpose of the case, are reproduced as under :

'56. Income from other sources.--(1) 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.

(2) In particular, and without prejudice to the generality of the provisions of Sub-section (1), the following' income shall be chargeable to income-tax under the head 'Income from other sources', namely :--. . .

(ii) 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'. . .'

3. In deciding the question referred to us, we are of the opinion that it will be appropriate to notice the facts in T. C. Nos. 106 and 107 of 1987 as the facts in the two batch of cases are similar. The assessee therein is a co-owner of a lodging house having l/3rd share therein and she along with other two owners of the property let out the lodging house to a firm styled, Lakshmi Lodge, in which one of the co-owners, namely, P.E. Alwar, was a partner. The claim of the assessee was that the entire income derived from the lodging house by way of letting out the same should be assessed under the head, 'Income from other sources', but the Income-tax Officer as well as the first appellate authority rejected her claim and held that a portion of the income referable to and derived from the letting out of the property should be charged under the head, 'Income from house property' and the income referable to the use of amenities provided in the lodge should be charged under the head, 'Income from other sources'. The Appellate Tribunal, on consideration of the terms of lease deeds and having regard to the construction and structure of the building and availability of a number of rooms for letting out for lodging purposes and the existence of a restaurant and a number of parking stalls came to the conclusion that the building was let out for commercial exploitation as a lodging house. According to the Tribunal, the sanitary and other fitting's like pipes were meant to cater to the needs of the lodgers, and they formed part of the building', and the agreement relating to the fittings covered not only items like cots, chairs, tables, dunlop mattresses, pillows, etc., but also motors and pump sets and sanitary fitting's. The Tribunal, after going' through the terms of two agreements of tenancy, came to the conclusion that the two agreements might have been entered into for the purpose of reducing the levy of property tax by the Corporation of Chennai. The Tribunal, considering the copy of the partnership deed which provided for a composite payment of rent of Rs. 10,000 per month to the co-owners for the lease, came to the conclusion that the letting of the premises and letting of the fittings formed part of a single indivisible transaction, and applying the law laid down by the Supreme Court in the case of Sultan Bros P. Ltd. v. CIT : [1964]51ITR353(SC) , it held that the income derived by way of letting of the lodging house belonging to the assessee as a co-owner should be assessed in accordance with the provisions of Section 56 of theAct, under the head 'Income from other sources' and no part of the income received by way of rent was assessable under the head, 'Income from house property'. The two separate orders passed by the Appellate Tribunal in the two assessees' cases are the subject-matter of the present tax case references and the common question of law referred to us reads as under :

'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding and had valid materials to hold that the rental income in respect of the house property situate at No. 9, Kennet Lane, Egmore, Madras, should also be assessed under the head, 'Income from other sources' and not under the head, 'Income from property' ?'

4. The submission of learned counsel for the Revenue was that the Tribunal was not justified in treating the income derived from letting out the property as income from other sources, as the assessee was the owner of the property and derived the income by letting the same. He submitted that the agreement for providing amenities is a distinct and separate agreement and, therefore, it cannot be said that the letting out of the building is itself referable to the letting' out of the machinery, plant and furniture. According to learned counsel for the Revenue, the proper head of income in so far as it relates to the income derived from letting' out of the property would be 'income from house property'.

5. Learned counsel for the assessee, on the other hand, submitted that the letting out of the building and furniture with fittings is inseparable and, therefore, the income was properly held to be chargeable under the head 'Income from other sources'.

6. We have carefully considered the submissions of learned counsel for the parties. The Tribunal has recorded a finding that the letting out of the premises and fittings was a single indivisible transaction and the finding of the Tribunal, in our view, was arrived at on materials adduced before it. The Tribunal, on an examination of the relevant agreements, viz., two agreements of tenancy and the copy of the partnership, came to the conclusion that the firm was required to pay a rent of Rs. 10,000 per month to the co-owners which would show that it was a payment of single consideration, and the intention of the parties was to let out the building and the furniture and amenities as a single indivisible transaction. The finding of the Appellate Tribunal has not been challenged in the present reference, and the relevant deeds of tenancy agreement and the copy of the partnership deed were also not produced to establish that the conclusion of the Appellate Tribunal was in any way erroneous or arrived at without any material. Though the question challenges the finding of the Appellate Tribunal that it had no valid materials for such a finding, the relevant documents are not part of the statement of the case to prove that the finding of the Tribunal was rendered without any material on record.

7. We have seen that the Tribunal took into consideration the construction, structure of the building and other related aspects of the building to come to the conclusion that both the lettings were a single and indivisible transaction. The Tribunal has also recorded a plausible reason for entering into two separate agreements, the reason being the apprehension of the assessee that he may have to shoulder higher burden of property tax to be imposed on the building by the Corporation of Chennai if the transaction was reduced in a single document. Though the assessee had entered into two separate agreements, one for building and another for furniture and other amenities, we are of the opinion that the letting of furniture and building was a single indivisible transaction. We are of the opinion that so long as that finding of the Tribunal remains, the conclusion of the Appellate Tribunal that the income should be assessed under the head 'Income from other sources' is sustainable on the facts of the case.

8. Learned counsel for the Revenue brought to our attention the decision of the Supreme Court in the case of Sultan Brothers v. CIT : [1964]51ITR353(SC) and the Supreme Court laid down the following tests to determine what is inseparable letting (page 363) :

'It seems to us that the inseparability referred to in Sub-section (4) is an inseparability arising from the intention of the parties. That intention may be ascertained by framing the following questions : Was it the intention in making the lease--and it matters not whether there is one lease or two, that is, separate leases in respect of the furniture and the building--that the two should be enjoyed together Was it the intention to make the letting of the two practically one letting Would one have been let alone and a lease of it accepted without the other If the answers to the first two questions are in the affirmative, and the last in the negative then, in our view, it has to be held that it was intended that the lettings would be inseparable. This view also provides a justification for taking the case of the income from the lease of a building out of Section 9 and putting it under Section 12 as a residuary head of income. It then becomes a new kind of income, not covered by Section 9, that is, income not from the ownership of the building alone but an income which though arising from a building would not have arisen if the plant, machinery and furniture had not also been let along with it.'

9. Applying the tests laid down by the Supreme Court, the intention of the parties is that though there were two separate leases in respect of the furniture and building, both the species of properties were enjoyed on payment of one lump-sum which also gives an indication that the letting of the building and the letting of the furniture were one letting. The assessee would not have let out the building alone without the lease of furniture or other amenities and one does not exist without the other. The Tribunal, therefore, in our opinion, has come to the correct conclusion in holdingthat the tests laid down by the Supreme Court are satisfied in the instant case and that the income from the lease of building should be made under Section 56 of the Act. In our view, it can be said that the proper head of income would be 'income from other sources', as the assessee, in our view, had let out the plant and machinery along with the building inseparably and the question whether the income is assessable under the head 'Income from property' or 'Income from other sources' would depend upon the facts of each case and the true intention of the parties.

10. Learned counsel for the Revenue relied upon the decision of this court in the case of CIT v. Indian Metal and Mettalurgical Corporation : [1995]215ITR424(Mad) (one of us was a party) in support of the proposition of law put for-ward by him. In our opinion, the ratio of the decision in Indian Metal and Metallurgical Corporation's case : [1995]215ITR424(Mad) is not applicable to the facts of the case, as the assessee therein had not let out or hired the machinery belonging to the assessee along with others and, therefore, this court held that the hire charges collected for the purpose of providing amenities and the rent for the building would not come within the purview of Section 56(2) of the Act, The decision of the Karnataka High Court in the case of CIT v. Shankaranarayana Hotels (P.) Ltd. : [1993]201ITR138(KAR) , is also distinguishable from the facts of the case, as there were two lettings with reference to two separate entities. The decision of the Calcutta High Court in CIT v. Kanak Investments (Pvt.) Ltd. : [1974]95ITR419(Cal) , is also not applicable to the facts of the case, as the issues posed before the Calcutta High Court are entirely different, as the court held that the question referred was a limited one, whether the income from the building and the income attributable to the amenities provided by the assessee should be assessed under the head 'Income from other sources'. According to us, it is clear from the facts of the cases that the letting out of the premises with fittings was a single and indivisible transaction and, therefore, the entire rent received by the assessee from such a composite letting was liable to be and it was rightly held to be assessable under the head 'Income from other sources'. The order of the Appellate Tribunal taking this view, in our view, is quite justified and sustainable on the facts of the case.

11. Accordingly, we answer the common question of law referred in all the tax cases in the affirmative, against the Revenue and in favour of the assessee. However, in the circumstances of the case, there will be no order as to costs.


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