L G FOUNDATIONS PRIVATE LTD.,,CHENNAI vs. CIT, CHENNAI

आदेश / O R D E R

ITA No.3320/Mds/2016. :- 2 -:

As per ld. Authorised Representative the hotel business could not be commenced and the building was in the meantime let out to various tenants, including Reliance Web Store Limited, Popular Financiers, Channel Foods and Johney Arakkal Ulahannan. As per ld. Authorised Representative, Union Bank of India mentioned as tenant, was actually not a tenant and the income from M/s. Union Bank of India was interest and not rentals. Submission of the ld. Authorised Representative was that the receipts were correctly offered under the head ‘’ profits and gains from business/profession’’, since intention of the assessee was to run a hotel and this was only a interim arrangement. As per ld. Authorised Representative, Assessing Officer had erroneously relied on the judgment of Hon’ble Jurisdictional High Court in the case of CIT vs. Chennai Properties and Investments Ltd 266 ITR 685 for holding that such income was to be assessed only under the head ‘’income from house property’’. Further, as per ld. Authorised Representative, ld. Commissioner of Income Tax (Appeals) erred in confirming the change of head, despite pointing out that Hon’ble Apex Court had reversed the judgment of Hon’ble Jurisdictional High Court in the case of Chennai Properties and Investments Ltd (supra). As per ld. Authorised Representative there

ITA No.3320/Mds/2016. :- 3 -: was a specific object clause in its MOA which allowed it to do any other business in connection with running a hotel. In any case, according to ld. Authorised Representative, part of the income was from providing amenities to the tenants and not due to tenancy. As

per ld. Authorised Representative there were common facilities like garden which was maintained by the assessee. Thus, according to him, shifting of rental income from the head of business to house property was incorrectly done.

I have heard rival submissions and perused the orders of the 4. lower authorities. It is not disputed that assessee had derived income on account of tenancy. Assessee had constructed a building and let out to various parties. Though the building might have been constructed with the intention to run a hotel, the fact is that income of the assessee came from tenancy of the said building to various persons. What was held by the Hon’ble Apex Court in the case of Chennai Properties and Investments Ltd (supra) has been reproduced by ld. Commissioner of Income Tax (Appeals) in his order. For brevity it is once again printed hereunder:-

ITA No.3320/Mds/2016. :- 4 -:

‘’No doubt in Sultan Brothers (P) Ltd. 's case, Constitution Bench judgment of this Court has clarified that merely an entry in the object clause showing a particular object would not be the determinative factor to arrive at an conclusion whether the income is to be treated as income from business and such a question would depend upon the circumstances of each case, viz., whether a particular business is letting or not. This is so stated in the following words :- 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. We do not further think that a thing can by its very nature be a commercial asset. A commercial asset is only an asset used in a business and nothing else, and business may be carried on with practically all things. Therefore, it is not possible to say that a particular activity is business because it is concerned with an asset with which trade is commonly carried on. We find nothing in the cases referred, to support the proposition that certain assets are commercial assets in their very nature." We are conscious of the aforesaid dicta laid down in the Constitution Bench judgment. It is for this reason, we have, at the beginning of this judgment, stated the circumstances of the present case from which we arrive at irresistible conclusion that in this case, letting of the properties is in fact is the business of the assessee’’.

In our opinion, ld. Commissioner of Income Tax (Appeals), after reproducing the above vital part of the judgment of Hon’be Apex Court, however failed to verify the facts of the case, to judge whether assessee’s case came within a four corners of the law laid down by the Apex Court. Further, one of the contention of the assessee is that Union Bank of India was not a tenant at all and a part of the income was from letting out facilities. Considering all these, I

ITA No.3320/Mds/2016. :- 5 -: am of the opinion that the matter requires a fresh look by the ld. Assessing Officer himself. I set aside the orders of the lower authorities and remit the question whether rental income derived by the assessee needs to be considered under the head ‘’ Profits and gain from business or profession’’ income from house property’’ back to the file of the ld. Assessing Officer for consideration afresh in accordance with law.

In the result, appeal of the assessee is allowed for statistical 5. purpose.

Order pronounced on Tuesday, the 7th day of March , 2017, at Chennai.