M/s. Suyash Holding & Estate Developers Pvt. Ltd. Vs ITO (ITAT Mumbai)
From the record we found that assessee has purchased only one flat which was also let out to one of its Directors of the company on rent which was found to be much lower than the market rate of the property. There is no other transaction of assessee of letting out the house property nor assessee has any other house property for doing the business of letting out. The decision relied on by learned AR in case of Chennai Properties Vs Investments Ltd and Rayala Corporation Pvt. Ltd (supra) are not applicable to the peculiar facts of instant case. So far as in those cases, assessees were actually engaged in commercial exploitation of property, whereas in the instant case only one flat was taken by the assessee and which was also let out to its Directors and not in the open market to carry reasonable rent. Even in the objects of the company only passing reference was made to the activity of renting the property. However, from the act of the assessee over the period of time, we do not find any such activity having been undertaken by the assessee to assess business profit by letting out the property. Property let to the Director at a fixed monthly rent cannot be treated as business of the assessee. Even as per initial agreement dated 31/03/1998 the rent of the property was fixed at Rs.25,000/- per month and deposit of Rs.70 lakhs was taken. The initial period of lease was one year. It was also mentioned in the agreement that if it extends further one year, lease rent could be Rs.30,000/- per month. However, contrary to this agreement, the assessee made a supplementary agreement on 05/04/1999, through which lease was extended for a further period of five years, a monthly rent was reduced to Rs.25,000/- per month and other conditions remain unchanged. We also found that same rent was continuing till date without any change after entering into supplementary agreement with the Director on 05/04/1999, even the rental agreement is not made and lease of the property was extended through oral agreement only. While deciding the appeal by the Hon’ble Supreme court in the case of Chennai properties & Investments ltd., it concluded that “merely an 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 form business and such a question would depend upon the circumstances of each case i.e., whether a particular business is letting or not”. Further it is pointed out by the hon’ble Supreme court that “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. A commercial asset is only an asset Used in a business and nothing else, and business may be carried on which practically all things. In 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.”
