RAJ DADARKAR ASSOCIATES vs. ACIT -CC-46

C.A. No.-006455-006460 - 2017Supreme Court2017 INSC 45709 May 2017Bench: HON'BLE MR. JUSTICE A.K. SIKRI HON'BLE MR. JUSTICE ASHOK BHUSHANAuthor: HON'BLE MR. JUSTICE A.K. SIKRI21 pages
For Petitioner: BHARGAVA V. DESAI
AI SummaryDismissed

What were the facts?

The appellant, Raj Dadarkar & Associates, obtained a license from the Municipal Corporation of Greater Bombay (MCGB) in 1993 to run a municipal market on a stilt portion of a building. The appellant spent approximately ₹1.83 crore from FY 1993-94 to 2001-02 to develop the premises, constructing 95 shops and 30 stalls, naming it 'Saibaba Shopping Centre'. The appellant was responsible for maintenance, utilities, and taxes, and collected compensation, leave & license fees, and service charges from sub-licensees. For assessment years 1999-2004, the appellant offered income under the head 'Profits and Gains from Business or Profession'. However, the Assessing Officer (AO) reopened the case and assessed the income under 'Income from House Property', deeming the appellant the 'owner' under Section 27(iiib) of the Income Tax Act, 1961, citing leasehold rights exceeding 12 years, use of terms like 'lease compensation' and 'sub-lease deposits' in agreements, and property tax levied on the appellant. The CIT(Appeals) ruled in favor of the appellant, but the ITAT reversed this, confirming the AO's order. The High Court dismissed the appellant's appeal, leading to the present Supreme Court appeals.

What did the Supreme Court hold?

The Supreme Court held that the appeals lacked merit and were dismissed. Regarding Issue 1, the Court affirmed the Tribunal's finding that the appellant was a 'deemed owner' under Section 27(iiib) of the Income Tax Act, 1961, due to having leasehold rights for over 12 years. This finding was based on the terms of the agreement and the appellant's actions. Concerning Issue 2, the Court agreed with the Tribunal that the income was to be taxed under the head 'Income from House Property'. The reasoning was that the appellant received income by letting out shops/stalls, and it had not established a systematic or organized activity of providing services that would constitute the receipts as business income. The Court distinguished the appellant's case from Chennai Properties & Investments Ltd. and Rayala Corporation (P) Ltd., finding the principle in East India Housing and Land Development Trust Ltd. applicable, where letting out property was not the main object of the company, and the income retained its character as income from house property. On Issue 3, the Court found no perversity in the Tribunal's order, as the appellant had not produced sufficient material to demonstrate that its principal business activity was letting out property. The ITAT, as the final fact-finding authority, had made its findings, which were not shown to be perverse by the appellant. The operative direction was the dismissal of the appeals.

What were the issues?

1. Whether, in law and facts, the Tribunal erred in holding the appellant as the 'owner' of the shopping centre within the meaning of Section 22 read with Section 27 of the Income Tax Act, 1961? 2. Whether, in law and facts, the Tribunal was right in holding that the income earned by the appellant from the shopping centre was taxable under the head 'income from House Property' instead of 'Profits and Gains from the Business or Profession' as claimed by the appellant? 3. Whether, in law and facts, the order of the Tribunal confirming the AO's action was perverse, based on surmises, conjectures, and irrelevant considerations while ignoring relevant materials? Assessee's arguments: The appellant argued that the High Court and ITAT erred by focusing solely on the 'deemed owner' aspect under Section 27(iiib). The appellant contended that its primary business was taking premises on rent and sub-letting them, making the income derived from this activity business income. The appellant relied on judgments like Chennai Properties & Investments Ltd. and Rayala Corporation (P) Ltd. Revenue's arguments: The revenue's position, as upheld by the AO and ITAT, was that the appellant was a 'deemed owner' under Section 27(iiib) and the income was from letting out property, hence taxable as 'Income from House Property'. The revenue relied on the Supreme Court decision in Shambu Investment Pvt. Ltd. and the principles laid down in East India Housing and Land Development Trust Ltd.

Which sections of the Income-tax Act were involved?

Section 22,Section 27(iiib),Section 148,Section 143(2)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NOS. 6455-6460 OF 2017 (ARISING OUT OF SLP(C) NO(S). 17277-17282 OF 2015) RAJ DADARKAR & ASSOCIATES .....APPELLANT(S) VERSUS ACIT – CC-46 .....RESPONDENT(S)

J U D G M E N T A.K. SIKRI, J.

The substantial questions of law which have been raised by the appellant in these appeals, which were also the questions before the High Court on which High Court has rendered the impugned judgment, are the following: “(1) Whether in the facts and circumstances of the case, and in law, the Tribunal erred in holding that the appellant was owner of the shopping centre within the meaning of Section 22 read with Section 27 of the Income Tax Act, 1961? Civil Appeal Nos.6455-6460 of 2017 (@ SLP (c) Nos. 17277-17282 of 2015) (2) Whether in the facts and circumstances of the case, and in law, the Tribunal was right in holding that the income earned by the appellant from the shopping centre was required to be taxed under the head “income from House Property” instead of the head “Profits and Gains from the

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 22

All 635 judgments and leading authorities on Section 22 →

Recent GST High Court judgments

Search GST case law →