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The Tax Publishers2005 TaxPub(DT) 0023 (Mad-HC) : (2005) 002 (I) ITCL 0376 : (2005) 272 ITR 0341 : (2003) 183 CTR 0346 : (2003) 129 TAXMAN 0025 CIT v. Sanmar Holdings Ltd. (No. 1) () INCOME TAX --Head of income----Business income or property incomeLease rental from building-- Catch Note: Assessee claimed that the lease rental received by it from a building given on lease would be assessed under the head 'profit and gains of business'. The revenue authorities rejected the assessee's claim and assessed the lease rental as 'income from house property'. The Tribunal relying on object clause of the Memorandum of Association of the assessee-company allowed assessee's appeal. Held: Not justified. The assessee had to establish that the property was a commercial asset, apart from the object clause, then alone the income derived from the property could be treated as income from business. As the Tribunal failed to record the finding that the building was a commercial asset the matter was remanded back. Ratio: When a finding of fact was not recorded by the Tribunal as to the fact that the assessee was exploiting the property as a commercial asset, the lease rental from that property could not be assessed as 'income from business'. Held: The Tribunal has focussed its attention only to the objects clause of the assessee-company. That there must be material to show that the assessee treated the property as commercial asset. On the facts of the case, the CIT(A) decided the matter on the ground that the company did not have any objects clause and hence he held that the income should be assessed as income from house property. The Tribunal decided on the basis of the objects clause. The Tribunal did not examine the question as to what are the main objects and what are the incidental objects of the company, but decided the case on the basis of the objects clause, particularly, with reference to the expression 'turn them to account' in the said objects clause. There must be some material before the Tribunal to show that the property in question was a commercial asset and the assessee must establish that the property was a commercial asset apart from the object clause then only the income derived from the property must be treated as income derived from commercial asset. Since the essential facts are lacking, the matter should go back to the Tribunal to decide the question in the light of the prmciples laid down earlier. Case Law Analysis: followed :CIT v. Shambhu Investment P. Ltd. (2001) 249 ITR 47 (Cal)Distinguished :CIT v. B. Nagi Reddy (1984) 147 ITR 337 (Mad) and CIT v. V. S. T. Motors P. LTD. (1997) 226 ITR 155 (Mad) Decision: Matter remanded. Date of Judgment: 26 November 2002 Assessment Year: 1984-85 to 1986-87 Cases Referred: Anaikar Traders and Estates P. Ltd. v. CIT (No. 1) (1990) 186 ITR 175 (Mad), CIT v. Indian Warehousing Industries Ltd. (2002) 258 ITR 93 (Mad) and Earanpura Development Co. Ltd. v. CIT (1962) 44 ITR 362 (SC). SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2005 TaxPub(DT) 0023 (Mad-HC) : (2005) 002 (I) ITCL 0376 : (2005) 272 ITR 0341 : (2003) 183 CTR 0346 : (2003) 129 TAXMAN 0025

CIT v. Sanmar Holdings Ltd. (No. 1) ()

INCOME TAX

--Head of income----Business income or property incomeLease rental from building--

Catch Note:

Assessee claimed that the lease rental received by it from a building given on lease would be assessed under the head 'profit and gains of business'. The revenue authorities rejected the assessee's claim and assessed the lease rental as 'income from house property'. The Tribunal relying on object clause of the Memorandum of Association of the assessee-company allowed assessee's appeal. Held: Not justified. The assessee had to establish that the property was a commercial asset, apart from the object clause, then alone the income derived from the property could be treated as income from business. As the Tribunal failed to record the finding that the building was a commercial asset the matter was remanded back.

Ratio:

When a finding of fact was not recorded by the Tribunal as to the fact that the assessee was exploiting the property as a commercial asset, the lease rental from that property could not be assessed as 'income from business'.

Held:

The Tribunal has focussed its attention only to the objects clause of the assessee-company. That there must be material to show that the assessee treated the property as commercial asset. On the facts of the case, the CIT(A) decided the matter on the ground that the company did not have any objects clause and hence he held that the income should be assessed as income from house property. The Tribunal decided on the basis of the objects clause. The Tribunal did not examine the question as to what are the main objects and what are the incidental objects of the company, but decided the case on the basis of the objects clause, particularly, with reference to the expression 'turn them to account' in the said objects clause. There must be some material before the Tribunal to show that the property in question was a commercial asset and the assessee must establish that the property was a commercial asset apart from the object clause then only the income derived from the property must be treated as income derived from commercial asset. Since the essential facts are lacking, the matter should go back to the Tribunal to decide the question in the light of the prmciples laid down earlier.

Case Law Analysis:

followed :CIT v. Shambhu Investment P. Ltd. (2001) 249 ITR 47 (Cal)Distinguished :CIT v. B. Nagi Reddy (1984) 147 ITR 337 (Mad) and CIT v. V. S. T. Motors P. LTD. (1997) 226 ITR 155 (Mad)

Decision:

Matter remanded.

Date of Judgment:

26 November 2002

Assessment Year:

1984-85 to 1986-87

Cases Referred:

Anaikar Traders and Estates P. Ltd. v. CIT (No. 1) (1990) 186 ITR 175 (Mad), CIT v. Indian Warehousing Industries Ltd. (2002) 258 ITR 93 (Mad) and Earanpura Development Co. Ltd. v. CIT (1962) 44 ITR 362 (SC).