CA Sandeep Kanoi
The respondent-assessee is a partnership Firm engaged in export of Tobacco. The respondent- assessee filed return of income on 27-08-1992 admitting the net income of Rs.4,78,520/-. During the previous year relating to the assessment year 1992-93, the assessee had let out his godowns. He offered the rental income for taxation under the head income from business. It is the case of the assessee, as argued by his learned counsel, that the godowns, which he had let out, were being used by him for the business of export of tobacco, and whenever they were not in use, he had given them on lease to third parties and received rent therefrom. He, therefore, claimed before the authorities below, on the basis of Clause.3 of the partnership deed, that the godowns of the firm were let out, as provided for in the said deed and that being a part of their business, the rent received from the lessee should be treated as income from business. It has come on record that such income of the assessee for the earlier years i.e. 1990-91, 1991-92 was assessed as income from property on the ground that no business as such was carried on by the assessee during those years. The assessee had carried that order in appeal before the Commissioner of Income Tax (Appeals), who decided the matter in favour of the assessee treating the entire income as income from business. That order of the appellate authority was challenged by the Revenue before the Income Tax Appellate Tribunal (ITAT). Based on the order of the Appellate Tribunal, passed for the year 1991-92, the assessment for the year 1992-93, impugned in this appeal, was completed, treating the rental income as income from property.
The CIT(Appeals), in the appeal filed by the assessee, however, held that the income from letting out of the godowns should be treated as income from business and directed the Assessing Officer to grant renewal of registration as a firm. Feeling aggrieved and dissatisfied by the order of the CIT(Appeals), the Revenue filed appeal before the Appellate Tribunal. The Tribunal confirmed the order of the CIT(Appeals) holding that so long character of the godown is retained as a godown, it should be treated as a commercial asset and its rental income must be treated as an exploitation of commercial asset in the nature of trade. In short, the order of the CIT(Appeals) was confirmed by the Appellate Tribunal, which is the subject matter of the instant appeal.
Held by High Court- In the present case, the main business of the assessee was the export of tobacco and for that purpose they had constructed godowns. As submitted by the learned counsel for the assessee, the assessee would let out the godowns when they would not require the same and earn rental income therefrom. Apart from letting out the godowns, no other services/amenities, admittedly were extended by the assessee to the lessees. Merely because one of the objectives, in the partnership deed, was to let out the godowns would not mean that the assessee had undertaken the activity of construction of godowns and letting them out as business activity. Moreover, it is not the case of assessee that letting out of the godowns was continuous activity from year to year. Therefore, in our opinion, the income received by the assessee, by way of rent, was the income received from property and it would not fall under the head income from business. The character of the income would not stand altered because it was received by the firm with one of the objects of the partnership deed to let out their godowns. The income derived from letting out the property, in the facts of the present case, would not amount to profits or gains from the business. In other words, the income earned by letting out the godowns cannot be termed or treated as income from business. From the facts of the present case, it is clear that the assessee could let out their godowns only because those were not in use at the relevant time. Therefore, the rent received by the assessee would have to be computed as income from property.