Case Law Details
If letting out could be demonstrated as part of complex commercial activity then rental income is to be assessed as income from business
RELEVANT PARAGRAPHS
10. We have considered the rival submissions and perused the record of the case. From the various case laws cited by Id Counsel for the assessee and discussed in detail by the lower revenue authorities, the following two principles are clearly discemable. Firstly, if the income has been earned by mere exploiting of the ownership of the property, then the same is asses sable as income from house property.
However exception to this rule is that if the immovable property has been temporarily let out with the primary object to exploit the same by way of complex commercial activity then the income is asses-sable as income from business. The Honourable Calcutta High Court in the case of Shambhu Investment P. Ltd. (supra) after considering the various case laws, concluded as under:- “the main intention of the assessee is to let out the property or any portion thereof (he income must he considered as rental income or income from property whereas if the primary object is to exploit the immovable property by way of complex commercial activities, in that event it must be held as business income. “
This principle has now been approved by the Honourable Supreme Court in the case of Shambhu Investments (P)Ltd., 263 1TR I43(SC). Thus, primarily, it depends on facts and circumstances of each case whether the assessee is only exploiting the ownership right of the property or letting out the property as a part of complex commercial activities. The complex commercial activity implies that the dominant object of exploitation of the property is for commercial purpose and in order to achieve the same object, the property has been put to some other use e.g. temporarily let out. Before we consider the facts of the present case, we examine the facts in the case of Shambhu Investments P. Ltd (supra). In that case, the cost of the property was Rs. 5,42.443/ -. A portion of the property was used b the assessee itself for its own business purpose. The rest of the property had been let out after duly furnishing the same to various persons and/ or organisations with furniture, fixtures, lights, air-conditioners for being used as table space. Under an agreement with those occupants, the assessee provided services like watch and ward staff, electricity, water and other common amenities. It was noticed that the assessee had already recovered a sum of Rs. 4.25,000 – as and of security advance from three occupants. Hence, the entire cost of the property let out to those occupants had already been recovered as and by way of interest free advance. Therefore, it was held that it could not be said that the assessee was exploiting the property for its commercial business activities and such business activities was the primary motive and letting out of the property was only a secondary one. It was concluded that the only intention was to let out a portion of the premises to the respective occupants. The Honourable Calcutta High Court also considered the decision of the Honourable Supreme Court in the case of Sultan Brothers (supra) and considered the following three questions framed by the Honourable apex Court:
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