Madras High Court
Commissioner Of Income-Tax vs Halai Nemon Association on 2 November, 1998
Equivalent citations: [2000]243ITR439(MAD)
Author: R. Jayasimha Babu
Bench: R. Jayasimha Babu
JUDGMENT R. Jayasimha Babu, J.
1. The question referred to us at the instance of the Revenue is "whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the income derived by the assessee from letting out of the building along with chairs, mike, etc., on the occasions of marriage and other functions, should be assessed only under the head "Income from business" and not under the heads "Income from house property" and "Income from other sources" ?"
2. The assessment years are 1980-81 and 1982-83.
3. The assessee is a charitable institution. It has put up a building, for being made available to them as also to outsiders for purposes of marriage and other functions. It also supplies chairs, mikes, etc., in the building and collects service charges from the parties to whom those facilities are made available. The assessee claimed that such income was income derived from business. The Income-tax Officer held that it was assessable as income from house property. The Tribunal upheld the claim of the assessee holding that it was income from business carried on by the assessee.
4. Counsel for the Revenue contended that if the owner of a property has let out his property to another the net income derived therefrom alone can be taxed under the head "Income from the house property", the rentals actually received being the basis for determining the annual value of a building. Counsel relied on the decision of the Supreme Court in the case of Sultan Brothers v. CIT [1964] 51 ITR 353, and contended that if an owner receives the income by letting out his building and even if such letting out includes the hiring of fixtures and furniture that portion of the income relating to the hiring can only be taxed under the head "Other sources" and not as business income.
5. In the case of Sultan Brothers [1964] 51 ITR 353, the Supreme Court has, inter alia, observed thus (page 358) :
"We think each case has to be looked at from a businessman's point of view to find out whether the letting was the doing of a business or the exploitation of his property by an owner."
6. The income received on account of the building having been given to another either by way of hire or by licence need not always be treated as income from house property. A Division Bench of this court in the case of CIT v. Admiralty Flats Motel [1982] 133 ITR 895 after referring to Sultan Brothers' case [1964J 51 ITR 553 (SC) observed that they were unable to derive any assistance from the proposition laid down in the case of Sultan Brothers' case , to the effect that in all cases where a person carries on a business of letting out flats and hiring furniture, the income derived therefrom could be assessed only under the heads "Property" and "Other sources".
7. The Supreme Court in the case of CIT v. National Storage Private Ltd. [1967] 66 ITR 596 has cited with approval the decision of the House of Lords in the case of Governors of the Rotunda Hospital v. Coman [1920] 7 TC 517 ; [1921] 1 AC 1, wherein the hospital derived a substantial income from letting out the rooms in another wing of the hospital for public entertainments, concerts, etc., for varying periods and applied the income to the general maintenance of the hospital. The said rooms were let upon terms which included the provision of seating, heating and attendance, but an additional charge was made for the gas and electricity consumed. It was held by the House of Lords in that case that the profits derived from the letting of the rooms in another wing of the hospital were assessable to income-tax.
8. The case of CIT v. Associated Building Co, Ltd. [1982] 137 ITR 339 (Bom) was relied upon by the Tribunal to hold in favour of the assessee in this case. In the said case, the assessee-company let out an auditorium in the basement of the building owned by the assessee therein with air-conditioning services and the Division Bench of the Bombay High Court held that it was in the nature of a business activity and the income derived from such letting out was business income. The court further held that the object of the activity by putting up a building and providing various services therein was to earn income and it could not be regarded as a mere better exploitation of the building.
9. In this case, the building was put up by the assessee with the aid of donations and it has been let out by the assessee to others for functions such as marriages, and other functions, etc., and while making available the premises for limited periods, chairs, mikes, etc., were also made available to others for which a charge is levied. This activity of earning an income from making the building available to others for a charge for limited periods is not to be equated with the letting out of a building on lease from month to month or year to year, wherein it could be said that the building was being exploited by the owner to earn a rental income. Here the expression "letting out" is used only for a limited purpose. The building remains under the control of the owner. What is granted by the owner is only a licence for a prescribed fee for a specified period. This activity of the assessee can be described as a business carried on by the assessee with the intention of earning income from the building, the business being that of making available the building to others for a charge for a limited duration. The overall control of the building at all times being retained by the assessee.
10. The Tribunal is therefore right in holding that the income derived by the assessee from making the building owned by it available to others for a limited period for various purposes is only business income. We therefore answer the question referred to us in favour of the assessee and against the Revenue.