I let furnished table space with security, electricity, water and common amenities for a single monthly charge. Is that business income or income from house property?
Income from house property, on these facts. The Calcutta High Court held that the mere attachment of income to immovable property is not by itself decisive; what must be seen is the assessee's primary object in exploiting the property. If the main intention is to let the property or a portion of it, the receipt is rental income; if it is to exploit the property by way of complex commercial activities, it is business income. Here there was no separate charge or agreement for furniture, fixtures or services, the monthly rent was comprehensive, and interest-free security advances of Rs 4,25,000 had already recovered the whole cost of the let portion. Applying the Sultan Brothers tests, the letting was inseparable and the object was letting.
Decided by the High Court (Calcutta High Court; Ashim Kumar Banerjee J and Y.R. Meena J, judgment by Ashim Kumar Banerjee J) on 2001-03-16, reported as (2001) 249 ITR 47 (Cal). It bears on section 22, section 28(i), section 263, section 256(2) of the Income Tax Act 1961, in House Property and Revision & Rectification matters.
This is the source of the primary-object test that decides the recurring dispute over furnished office and table-space arrangements, and it was later affirmed by the Supreme Court. The test is easy to state and hard to satisfy: complex commercial activity, not the mere addition of amenities, is what moves the receipt into business income. The judgment also shows how the Sultan Brothers questions are applied in practice, and it introduces a factual indicator practitioners still use, that an interest-free deposit which recovers the whole cost of the property points towards letting rather than commercial exploitation. Read together with the cases it surveys, it maps the line: film vaults with retained keys and maintenance in National Storage, a hostel, a motel, a hall let for functions, and a building with an auditorium and central air-conditioning all fell on the business side, whereas furnished accommodation let for a comprehensive rent did not.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The assessee owned a building at Raheja Chambers, Nariman Point, Mumbai. It furnished the premises and let them to various persons, firms and organisations with all furniture, fixtures, lights and air-conditioners for use as 'table space', undertaking under the agreements to provide watch and ward staff, electricity, water and other common amenities. A specimen agreement was produced in court. Part of the property was used by the assessee for its own business. The cost of the property was Rs 5,42,443, and the assessee had received Rs 4,25,000 as interest-free security advances from three occupants. The income from the premises was returned as business income and assessed as such under section 143(3). The Commissioner examined the assessment, took the view that what was received was rent from the occupiers rather than service and maintenance charges and could not be treated as business income, and issued a notice under section 263 on the footing that the assessment was erroneous and prejudicial to the interests of the Revenue. After hearing the assessee he remanded the matter to the Assessing Officer with a direction to assess the income as property income. The Tribunal allowed the assessee's appeal and cancelled the order under section 263, holding that the assessment was not erroneous and prejudicial to the interests of the Revenue and that, considering the services and facilities offered, the income was business income; it also held that there was no relationship of landlord and tenant. On the Court's direction under section 256(2) the Tribunal referred three questions, on the finding that there was no landlord and tenant relationship, on the assessment of the income as business income, and on the cancellation of the section 263 order.
All three questions were answered in the negative, in favour of the Revenue and against the assessee. The Court held that the income derived from the property is income from property and must be assessed as such, and that in fact there was a relationship of landlord and tenant between the assessee and the persons who hired the office accommodation. It held that the prime object of the assessee under the agreement was to let out a portion of the property to various occupants, giving them the additional right of using the furniture, fixtures and other common facilities, for which rent was paid month by month in addition to an interest-free security advance covering the entire cost of the immovable property. Applying the tests laid down by the five-judge Bench in Sultan Brothers Pvt Ltd v CIT, the Court held that the parties intended the letting to be inseparable. Since the order under section 263 was therefore right, the Tribunal's cancellation of it could not stand.
The Court reviewed the authorities cited for the assessee and drew from them a single organising principle. Sultan Brothers Pvt Ltd v CIT, a five-judge Bench, concerned a building filled with furniture and fixtures and let fully equipped for running a hotel, with a monthly rent for the building and hire charges for the furniture; the letting was held not to amount to carrying on a business, and the Court laid down three questions: whether the intention in making the lease, whether by one lease or two, was that the two should be enjoyed together; whether the intention was to make the letting of the two practically one letting; and whether one would have been let alone and a lease of it accepted without the other. If the first two are answered yes and the last no, the lettings are inseparable. CIT v National Storage Pvt Ltd concerned film vaults licensed to distributors, with the vault keys retained by the holders, the main gate key with the assessee and fire alarm and maintenance charges borne by it; the Supreme Court held the letting complex and the return an income from an adventure in the nature of trade. Admiralty Flats Motel concerned lodging house keepers, Saswad Mali Sugar Factory a student hostel and Halai Nemon Association a fully furnished building let for marriages and social functions, each treated as business. Associated Building Co. Ltd concerned office accommodation whose character changed once an auditorium and a central air-conditioning plant were added, making the activity a complex one. K.L. Puri (HUF) turned on there being two separate agreements, one for rent and one for hire of furniture. Mukherjee Estate (P) Ltd treated income from display of signboards as income from other sources. Taking the sum of these, the Court held that merely because income is attached to immovable property that cannot be the sole factor for assessing it as property income; what has to be seen is the primary object of the assessee in exploiting the property. If the main intention is letting, the receipt is rental income; if it is to exploit the property by way of complex commercial activities, it is business income. Applying that here, the agreement let the furnished office at a monthly rent payable month by month, the services were not separately charged, and the rent was inclusive of all charges. The Court added the deposit point: the cost of the property was Rs 5,42,443, and Rs 4,25,000 had already been recovered as interest-free advances from three occupants, so that the entire cost of the let portion had been recovered, which told against the assessee exploiting the property for commercial business activities as its prime motive. Turning to the Sultan Brothers questions, it found no separate agreement for furniture, fixtures, security or amenities, so the intention was that the table space and furniture be enjoyed together, and that the letting was practically one letting on a comprehensive monthly rent; and since what was let was composite table space with the amenities attached to it, neither would have been let alone. The letting was accordingly inseparable.
merely because income is attached to any immovable property that cannot be the sole factor for assessment of such income as income from property. What has to be seen is what was the primary object
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Handle my notice → Ask a CA on WhatsAppIncome from house property, on these facts. The Calcutta High Court held that the mere attachment of income to immovable property is not by itself decisive; what must be seen is the assessee's primary object in exploiting the property. If the main intention is to let the property or a portion of it, the receipt is rental income; if it is to exploit the property by way of complex commercial activities, it is business income. Here there was no separate charge or agreement for furniture, fixtures or services, the monthly rent was comprehensive, and interest-free security advances of Rs 4,25,000 had already recovered the whole cost of the let portion. Applying the Sultan Brothers tests, the letting was inseparable and the object was letting. This was decided by the High Court (Calcutta High Court; Ashim Kumar Banerjee J and Y.R. Meena J, judgment by Ashim Kumar Banerjee J) and bears on section 22, section 28(i), section 263, section 256(2) of the Income Tax Act 1961. It is reported as (2001) 249 ITR 47 (Cal). This is the source of the primary-object test that decides the recurring dispute over furnished office and table-space arrangements, and it was later affirmed by the Supreme Court. The test is easy to state and hard to satisfy: complex commercial activity, not the mere addition of amenities, is what moves the receipt into business income. The judgment also shows how the Sultan Brothers questions are applied in practice, and it introduces a factual indicator practitioners still use, that an interest-free deposit which recovers the whole cost of the property points towards letting rather than commercial exploitation. Read together with the cases it surveys, it maps the line: film vaults with retained keys and maintenance in National Storage, a hostel, a motel, a hall let for functions, and a building with an auditorium and central air-conditioning all fell on the business side, whereas furnished accommodation let for a comprehensive rent did not. If it applies to you, the first step is this: Identify the primary object in your own documents; if the case is that the property is being commercially exploited, the agreement and the accounts must show an activity, not just amenities added to a letting.
The assessee owned a building at Raheja Chambers, Nariman Point, Mumbai. It furnished the premises and let them to various persons, firms and organisations with all furniture, fixtures, lights and air-conditioners for use as 'table space', undertaking under the agreements to provide watch and ward staff, electricity, water and other common amenities. A specimen agreement was produced in court. Part of the property was used by the assessee for its own business. The cost of the property was Rs 5,42,443, and the assessee had received Rs 4,25,000 as interest-free security advances from three occupants. The income from the premises was returned as business income and assessed as such under section 143(3). The Commissioner examined the assessment, took the view that what was received was rent from the occupiers rather than service and maintenance charges and could not be treated as business income, and issued a notice under section 263 on the footing that the assessment was erroneous and prejudicial to the interests of the Revenue. After hearing the assessee he remanded the matter to the Assessing Officer with a direction to assess the income as property income. The Tribunal allowed the assessee's appeal and cancelled the order under section 263, holding that the assessment was not erroneous and prejudicial to the interests of the Revenue and that, considering the services and facilities offered, the income was business income; it also held that there was no relationship of landlord and tenant. On the Court's direction under section 256(2) the Tribunal referred three questions, on the finding that there was no landlord and tenant relationship, on the assessment of the income as business income, and on the cancellation of the section 263 order. The matter was decided on 2001-03-16 by the High Court (Calcutta High Court; Ashim Kumar Banerjee J and Y.R. Meena J, judgment by Ashim Kumar Banerjee J). On those facts the High Court held as follows. All three questions were answered in the negative, in favour of the Revenue and against the assessee. The Court held that the income derived from the property is income from property and must be assessed as such, and that in fact there was a relationship of landlord and tenant between the assessee and the persons who hired the office accommodation. It held that the prime object of the assessee under the agreement was to let out a portion of the property to various occupants, giving them the additional right of using the furniture, fixtures and other common facilities, for which rent was paid month by month in addition to an interest-free security advance covering the entire cost of the immovable property. Applying the tests laid down by the five-judge Bench in Sultan Brothers Pvt Ltd v CIT, the Court held that the parties intended the letting to be inseparable. Since the order under section 263 was therefore right, the Tribunal's cancellation of it could not stand.
The Court reviewed the authorities cited for the assessee and drew from them a single organising principle. Sultan Brothers Pvt Ltd v CIT, a five-judge Bench, concerned a building filled with furniture and fixtures and let fully equipped for running a hotel, with a monthly rent for the building and hire charges for the furniture; the letting was held not to amount to carrying on a business, and the Court laid down three questions: whether the intention in making the lease, whether by one lease or two, was that the two should be enjoyed together; whether the intention was to make the letting of the two practically one letting; and whether one would have been let alone and a lease of it accepted without the other. If the first two are answered yes and the last no, the lettings are inseparable. CIT v National Storage Pvt Ltd concerned film vaults licensed to distributors, with the vault keys retained by the holders, the main gate key with the assessee and fire alarm and maintenance charges borne by it; the Supreme Court held the letting complex and the return an income from an adventure in the nature of trade. Admiralty Flats Motel concerned lodging house keepers, Saswad Mali Sugar Factory a student hostel and Halai Nemon Association a fully furnished building let for marriages and social functions, each treated as business. Associated Building Co. Ltd concerned office accommodation whose character changed once an auditorium and a central air-conditioning plant were added, making the activity a complex one. K.L. Puri (HUF) turned on there being two separate agreements, one for rent and one for hire of furniture. Mukherjee Estate (P) Ltd treated income from display of signboards as income from other sources. Taking the sum of these, the Court held that merely because income is attached to immovable property that cannot be the sole factor for assessing it as property income; what has to be seen is the primary object of the assessee in exploiting the property. If the main intention is letting, the receipt is rental income; if it is to exploit the property by way of complex commercial activities, it is business income. Applying that here, the agreement let the furnished office at a monthly rent payable month by month, the services were not separately charged, and the rent was inclusive of all charges. The Court added the deposit point: the cost of the property was Rs 5,42,443, and Rs 4,25,000 had already been recovered as interest-free advances from three occupants, so that the entire cost of the let portion had been recovered, which told against the assessee exploiting the property for commercial business activities as its prime motive. Turning to the Sultan Brothers questions, it found no separate agreement for furniture, fixtures, security or amenities, so the intention was that the table space and furniture be enjoyed together, and that the letting was practically one letting on a comprehensive monthly rent; and since what was let was composite table space with the amenities attached to it, neither would have been let alone. The letting was accordingly inseparable. In the words reproduced by the source cited on this page: "merely because income is attached to any immovable property that cannot be the sole factor for assessment of such income as income from property. What has to be seen is what was the primary object"
It was decided by the High Court on 2001-03-16 and is reported as (2001) 249 ITR 47 (Cal). Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 22, section 28(i), section 263, section 256(2), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. All three questions were answered in the negative, in favour of the Revenue and against the assessee. The Court held that the income derived from the property is income from property and must be assessed as such, and that in fact there was a relationship of landlord and tenant between the assessee and the persons who hired the office accommodation. It held that the prime object of the assessee under the agreement was to let out a portion of the property to various occupants, giving them the additional right of using the furniture, fixtures and other common facilities, for which rent was paid month by month in addition to an interest-free security advance covering the entire cost of the immovable property. Applying the tests laid down by the five-judge Bench in Sultan Brothers Pvt Ltd v CIT, the Court held that the parties intended the letting to be inseparable. Since the order under section 263 was therefore right, the Tribunal's cancellation of it could not stand. It arises in House Property and Revision & Rectification matters, on section 22, section 28(i), section 263, section 256(2) of the Income Tax Act 1961, and was decided by Calcutta High Court; Ashim Kumar Banerjee J and Y.R. Meena J, judgment by Ashim Kumar Banerjee J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Charge separately, and by separate agreement where possible, for furniture, fixtures and services, since a single comprehensive monthly rent was one of the two things that decided this case. Work through the Sultan Brothers questions before taking a position: whether the two were intended to be enjoyed together, whether the letting was practically one letting, and whether either would have been let alone. Be careful with large interest-free deposits; the Court treated a deposit that had recovered the entire cost of the let property as showing that letting, not business, was the prime motive.
Still good law. A judgment of 16 March 2001, reported at (2001) 249 ITR 47 (Cal), applying the five-judge Bench in Sultan Brothers Pvt Ltd v CIT. The source page records that it has been cited in 89 later matters, which were not read in this session. The primary-object test it states is widely applied, and the decision is commonly cited as having been affirmed by the Supreme Court, but that later judgment was not read in this session and the position was not independently verified here. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The judgment is printed as authored by Ashim Kumar Banerjee J with Y.R. Meena J concurring in a single line, but the bench line in the harvested page names only the author. Paragraph 4 records the Tribunal's conclusion with an editorial insertion, that the Assessing Officer's order was '(not ?) erroneous', so the harvested text is uncertain at that point, though the sense is clear from the answer to question 3. Associated Building Co. Ltd is cited as 137 ITR 359 in one paragraph and 137 ITR 339 in another, and most of the other decisions are named without citations in the text as harvested; none of them was read in this session. The judgment does not set out the terms of the specimen agreement beyond saying that services were not separately charged, so the reader cannot see what the occupants were actually given. It does not say what proportion of the building the assessee used for its own business, nor how the interest-free advances were dealt with in the accounts. Because the matter came up under section 263, the Court's conclusion is that the Commissioner was right to direct a fresh assessment; the quantification was left to the Assessing Officer. The batch line gave the sections as 22, 28(i) and 256(2), which matches; section 263 is the provision under which the proceedings began. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
All three questions were answered in the negative, in favour of the Revenue and against the assessee. The Court held that the income derived from the property is income from property and must be assessed as such, and that in fact there was a relationship of landlord and tenant between the assessee and the persons who hired the office accommodation. It held that the prime object of the assessee under the agreement was to let out a portion of the property to various occupants, giving them the additional right of using the furniture, fixtures and other common facilities, for which rent was paid month by month in addition to an interest-free security advance covering the entire cost of the immovable property. Applying the tests laid down by the five-judge Bench in Sultan Brothers Pvt Ltd v CIT, the Court held that the parties intended the letting to be inseparable. Since the order under section 263 was therefore right, the Tribunal's cancellation of it could not stand.
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