EAST INDIA HOUSING & LAND DEVELOPMENT TRUST LTD. V. C.I.T. (1961) 42 ITR 49

EAST INDIA HOUSING & LAND DEVELOPMENT TRUST LTD. V. C.I.T. (1961) 42 ITR 49

 

FACTS

• The appellant, a private company, was incorporated to buy and develop landed properties, and to promote and develop markets.
• In 1946, the appellant purchased ten bighas of land in Calcutta and established a market, constructing shops and stalls.
• For the Assessment Year 1953-54, the appellant received income from tenants of shops and stalls.
• The Income Tax Officer assessed the income under Section 9 of the Income Tax Act, confirmed by the Appellate Assistant Commissioner and by the Tribunal.
• Hence the present appeal with special leave against the Judgment of the Income Tax Appellate Tribunal, Calcutta Bench, Calcutta.

ISSUE

• Whether the income derived from shops and stalls should be taxed under Section 9 or Section 10 of the Income Tax Act 1922.

RULE

• Income is derived from property through rent which falls under the income from property as one of the heads specifically mentioned u/s 6 of the Act,1922. (Sec 14 of IT Act,1961). hence, taxable under section 9 of the Act,1922 as income from property.

HELD-

• In the United Commercial Bank Ltd., Calcutta v. CIT [(1958) SCR 79]- the heads of income, profits and gains enumerated in the different clauses of Section 6 are mutually exclusive, each specific head covering items of income arising from a particular source. 
• Commercial Properties Ltd. v. CIT (1928) 3 ITC 23, a company focused on acquiring lands, building houses, and leasing them to tenants. Despite its business model centered around property ownership and rent collection, the court ruled that the income derived from rents fell under Section 9, not Section 10 of the Income Tax Act. 
• The court emphasized that the company's objective of property ownership didn't alter the nature of the income, distinguishing income from property from income from business.
• The appellant earned income from shops and stalls, both classified as property income. Despite changing occupancy, the primary source of income was occupation of the stalls, unaffected, by whether occupants were temporary or not. Consequently, the Income Tax Authorities rightly assessed the income under Section 9.
• The appeal failed, and the court upheld the assessment of income from shops and stalls under Section 9 of the Income Tax Act. Consequently, the appellant's appeal was dismissed, with costs.

COMMENTARIES RATIO/NOTE-

• Any income earned by an assessee ought to be taxed under the five heads of income as mentioned in s 14 of the Act. When there arises a conflict as to which head of income a particular income ought to taxed, it is settled law that income which is specifically chargeable under a distinct head cannot be brought to charge under a different head in lieu of, or in addition to, being charged under its specific head.7. Over the years, there have been numerous disputes on the taxability of income earned out of renting of house property held as stock-in-trade in the business of the assessee. Some high courts held that it makes no difference as to whether the property constitutes stock-in-trade of a business8. or that it is the assessee’s business to let out house properties or rooms,9. whereas others held to the contrary. 

in Karanpura Development Co. Ltd. v CIT,12. where it was held that when the main object of the assessee is to acquire property and sell or lease out with a view to acquiring other properties to be dealt with in the same manner, the income derived out of the same ought to charged as business income.