Case Law Details
RELEVANT PARAGRAPH
5. From the facts of this case, it transpires that the Hon’ble Supreme Court has not laid down any universally applicable principle that income from immovable property, be invariably taxed under the head ‘Income from House Property’. It was on the consideration of the cumulative effect of all the factors prevailing in case, which have been noted above, that the income from immovable property was held to be taxable under this head. It becomes more explicit when we go through the judgment in entirety and note that different tests have been formulated in this case to determine the head under which such income be taxed. It has been laid down in this case that : “Merely because income is attached to immovable property, it cannot be the sole factor for assessment of such income as income from house property. The primary object of the assessee while exploiting the property has to be seen. If it is found, applying such decisions that the main intention is for letting out of property or any portion thereof, the same must be considered as rental income or income from house property. In case it is found that the main intention is to exploit the immovable property by way of commercial activities, in that event it must be held as business income.’ It is therefore, clearly borne out that the main test to determine the head under which the income from immovable property be taxed is the purpose for_which the income from immovable property be taxed is the purpose for which the property is used. If it is exploited commercially, then the resulting income would be taxed under the head `Business income’.
6. We have come across an order passed by the Pune Bench of the Tribunal in Nutan Warehouseing Co. (P) Ltd. v. ITO (2007) 106 TTJ (Pune) 137, in which the godown income has been held to be taxable under the head “Income from house property’. On the contrary the Id. AR has relied on the order passed by the Rajkot Bench of the Tribunal in the case of ITO v. Tejmalbhai and Co. (2006 282 ITR (AT) 224 (Rajkot) in which it has been held that income from storage facilities provided by the assessee to customers is to be taxed under the head “Profits and gains from business or profession’. On going through these orders in juxtaposition to the judgment in the case of Shambhu Investment (supra), we find that no straitjacket formula can be devised to determine conclusively as to under which head income from immovable property should fall. All the relevant factors need to be necessarily looked into to decide the character of income. If the facts show that the assessee is doing a complex commercial activity by exploiting the immovable property, then the income would fall under the head ‘Profits and gains from business or profession’. If on the other hand, the assessee has simply let out the space and is earning the rental income, it would fall under the head “Income from house property. On the examination of the facts of the case before Pune Bench in Nutan Warehousing (supra), the assessee had let out his godown. Other activities carried on by the assessee such as the provision of electricity and security etc. were found by the Tribunal to be only incidental to the main activity of letting out. The tribunal has recorded a categorical finding that no complex commercial activity was done by the assessee. On the other hand the Rajkot Bench in the case of Tejmalbhai & Co. (supra) found that the services provided by the assessee were a commercial activity and hence the income was eligible to be considered under the head “Business income’. On the analysis of these decisions we observe that what is material to consider is the nature of activity done by the assessee and not the manner in which the rental income is measured. A person may simply let out his immovable property and get compensated by way of a percentage in the profits from the business carried on by the tenant in that premises. In such a situation, the nature of income from property would not get altered to “Business income’ only because it is a not a fixed monthly rent. It would continue to be categorized under the head “Income from house property’ notwithstanding the way in which it is quantified. On the contrary, an owner of property may get compensated by way of a fixed monthly payment, but for the activities of the complex commercial nature, then the resultant income would not partake of the character of “Income from house property. Thus the decisive test is the true nature of activity carried out by the assessee which produces the income from immovable property and not the way in which it is measured.
7. Adverting to the facts of the instant case we note that the assessee had a warehouse which was let out to 17 persons during the year in question. Sixty percent of the first floor was let out to M/s Glaxo India Ltd, with which agreement dated 30.9.1999 was entered into. This agreement is considered as a representative of such other agreements entered into by the assessee with the other customers because the AO as well as the CIT(A) have taken cognizance of this agreement. A copy of the said agreement is placed on record, the relevant clauses of which are as under :-
“- Effective 1st October, 1999, from the total space admeasuring approximately 9,500 sq. ft. on the ground floor of your premises situated at Plot No.D- 22/1, TTCArea, MIDC-Turbhe, Navi Mumbai, 60% space will be used by Glaxo India Ltd. for storage of their stocks of bulk-drugs & pharmaceuticals.
– No security deposit will be paid by Glaxo India Ltd. to Rasiklal & Co. for use of this warehouse.
– Glaxo India Ltd. shall pay a monthly rent of Rs.60,000/- to M/s. Rasiklal & Co. Pvt. Ltd. for use
of this space upon receipt of Debit Note.
– Rasiklal & Co. shall provide adequate security for safety of the material stored at above place.
– Rasiklal and Co. shall depute responsible officer to receive & deliver stocks, maintain records of incoming & outgoing stocks in the register, preparation of relevant documents like Goods Received Notes, Delivery Challans, Monthly Stocks Report etc. and send the same to Glaxo India Ltd.
– Physical stock check shall be carried out by Rasiklal & Co. at regular intervals to see that block stocks & physical stocks are matching.
– Labours for loading/un-loading and stacking of the material, sampling & inspection of the material by GLAXO’s quality assurance department or by any other agency like SGS, OMIC, affixing of labels/shipping marks etc. will be provided by Rasiklal & Co. and will be charged at actuals.
– Rasiklal & Co. shall obtain requisite licences under Form-20B & Form-21Bfrom FDA for storage of bulk drugs & pharmaceuticals at above place and renew it from time to time.
– Rasiklal & Co. shall store the material as per the storage conditions mentioned on the label.
– Rasiklal & Co. shall ensure that pesticides are sprayed in the godown at various corners and records of the same shall be maintained. Also rodent baits shall be kept at few places and any unusual observation shall be envisaged and reported to Glaxo /BWIL.
– Rasiklal & Co. shall provide weighing balance of 100 Kgs. Capacity and shall do the calibration of the same at regular intervals. Godown keeper shall check at random the weights of the packages/drums received & shortage/excess shall be reported to Glaxo.”
8. On the perusal of the above clauses it can be easily noted that the assessee company was under obligation to provide adequate security for the safety of the material stored apart from the responsibility of receiving and delivering stock, maintaining record of incoming and outgoing stock in the register etc. and also taking of physical inventory at regular intervals. It was also under duty to do the loading and unloading and stock taking of material was also to be done by the assessee in addition to ensuring that the pesticides were properly sprayed in godown. From these responsibilities fastened on the assessee, it is discernible that the assessee was not mere letting out its premises for warehousing but was doing a complex commercial activity. All the duties cast upon the assessee by its customers do really go to show that the assessee was responsible for ensuring the incoming of goods, its proper storage and their outgoing apart from providing adequate security and host of other activities noted above. It is still further noted that unlike the case of Shambu Investment P. Ltd. (supra), no security deposit was paid by Glaxo India Ltd. to the assessee for the use of its warehouse. Thus, the major contention which weighed with the Hon^ble Supreme Court, being the receipt of security deposit for a sum sufficient to recover the cost of the property, in holding that the income from letting of the immovable property was taxable under the head “income from house property”, is lacking in our case since no security was received by the assessee as is clearly emanating from the clauses of the agreement noted above. We further note that except for minor reimbursement of some expenses, one composite payment has been received by the assessee towards the provision of services as well as space for warehousing. We are unable to appreciate that how this income can be categorized under the head ‘Income from house property’ as the services provided by the assessee are of complex commercial nature. We therefore, approve the view taken by the Id. CIT(A) on this score.
