Karnataka High Court
Chamundi Hotels (P.) Ltd. vs Commissioner Of Income-Tax on 27 August, 1986
Equivalent citations: [1987]166ITR683(KAR), [1987]166ITR683(KARN)
Author: K. Jagannatha Shetty
Bench: K. Jagannatha Shetty
JUDGMENT
K. Jagannatha Shetty, Actg. C.J.
1. These references are either under section 256(1) or 256(2) of the Income-tax Act, 1961. They raise common questions of law and fact and they are, therefore, disposed of by this order.
2. The common question which has been referred by the Tribunal runs as follows :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the income of the assessee was not assessable under the head 'Business'?"
4. I. T. R. C. Nos. 194 and 195 of 1981 relate to the assessment years 1971-72 and 1974-75, respectively. I. T. R. C. Nos. 214 and 215 of 1979 relate to the assessment years 1972-73 and 1973-74, respectively.
5. The fats in brief are :
6. The assessee is a private limited company having been incorporated on January 1, 1971. On December 11, 1970, it has entered into an agreement for sale with the late Jayachamaraja Wadeyar of Mysore in regard to the property called "Bangalore Palace" and obtained possession of the building with the surrounding land measuring 110 acres situated within the Bangalore Corporation area. During the assessment years in question, the assessee was earning income by the uses of the property by film companies for shooting films and also by horses owners for training their race horses. The assessee was also earning some income by the sale of dairy products.
7. The assessee filed returns computing the income under the head "Business". But the Income-tax Officer computed the income as "rends" from property and the miscellaneous receipts under "Other sources". He, in other words, did not accept the claim of the assessee that the income should be computed under the head "Business".
8. On appeal by the assessee, the Appellate Assistant Commissioner took a different activities. He accepted the plea of the assessee and computed the income under the Head "Business" and he accordingly allowed deduction of the expense incurred.
9. Aggrieved by the order of the Appellate Assistant Commissioner, the Department cam up in appeal before the Tribunal. The Tribunal allowed the appeal and set aside the order of the Appellate Assistant Commissioner. The Tribunal was of the opinion that the assessee did not carry on any business and there was no concerted or organised activity which could be regarded as a business of allowing film produces to shoot films. The Tribunal observed that the assessee had only given permission to certain film producers to shoot films in the premises at the rate of Rs. 100 per day and there was no specific agreement entered into with those producers to do business. So stating, the Tribunal restored the assessment order of the Income-tax Officer.
10. The question raised may be simple enough, but it required a through factual investigation. The Tribunal in its order dated November 26, 1984, made in the appeal preferred by the Department for the subsequent years 1974-75, has found considerable difficulty in accepting its earlier decision and it has observed as follows :
"On a consideration of rival submissions, we are of the opinion that the is matter requires further investigation of facts. As pointed out by the Supreme Courts the question depends entirely on the facts of the case. There is no material at present on record to indicate whether the assessee was required by reason of the contracts with the person using the property for shooting pictures or for the supply of any other facility or services other than merely allowing the use of the assets of the assessee. It is not clear whether the assessee had incurred any expenditure specifically for entering the property fit for the shooting of the films. It is also not clear whether the assessee had to maintain staff for carrying out a concerted business activity which may not be required in a case of merely hiring out of the assets. Unless the full facts are found, it is not possible to give a satisfactory answer to the question whether the income should be assessed under the head 'Income form business' or not. We, therefore, deem it fit to sets aside the order of the authorities...."
11. It must be stated that the question whether the income is from business or from property cannot be decided by considering the activity of the assessee only for lone year. The words used in the definition of "business" in section 2(13) of the Income-tax Act are wide enough. It included any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. It connotes some real, substative and systematic or organised course of activity or conduct with a set purpose. (See Kanga and Palkhivala's The Law and Practice of Income Tax, Vol. I, seventh edition, page 342.)
12. It is, therefore, necessary for the authorities to consider the nature of the income earned by the assessee not favor an isolated year, but for a own any property of its own. It has only entered into an agreement for saw of the property on question. The agreement for sale does not concern any title on the assessee. This fact will have to be borne in mind by the authorities while considering the nature of the income derived by the assessee from a series of activities.
13. Apart from that, since the Tribunal itself has found considerable difficulty in computing the income as "rent from property for the assessment years 1977-78 and 1978-79 and remitted the matter to the Income-tax Officer for redoing the assessment matter ascertaining some more facts, it would be proper that the Income-tax Officer must be allowed to redo the assessment even in respect of the assessment years concerned in these references. Since the nature of the activities is more or less similar in all these years, it should not lead to contrary decisions for the different years by different authorities.
14. For the reasons stated above, we decline to answer the question referred and direct the Tribunal to dispose of the appeals in accordance with law and in the light of the observation made above.