Our deed says sub-letting is our business. Does that make the licence fees business income?
No. The Supreme Court held the objects clause in a partnership deed is not the conclusive factor in deciding the head of income; with no material showing organised commercial exploitation, the compensation and licence fees from the sub-licensed shops and stalls were assessable as income from house property.
Decided by the Supreme Court (A.K. Sikri J and Ashok Bhushan J) on 2017-05-09, reported as [2017] 394 ITR 592 (SC); [2017] 248 Taxman 1 (SC); [2017] 298 CTR 117 (SC); [2017] 81 taxmann.com 193 (SC); Civil Appeal Nos. 6455-6460 of 2017. It bears on section 22, section 23, section 27, section 27(iiib), section 28, section 269UA(f), section 148 of the Income Tax Act 1961, in House Property matters.
This favours the revenue and it is what the department cites to move rental receipts out of the business head. The trap is evidentiary: the firm lost not because its objects were wrong but because it filed nothing to show an organised, systematic activity of exploiting the property commercially. It is regularly distinguished on facts where such material exists, so the entry is as useful for what it demands of the assessee as for what it decides.
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MHADA built three cooperative society buildings at Jariwala Compound Market, Lamington Road, Mumbai, and because the plot carried a reservation for a municipal retail market it handed the ground floor stilt portion, about 17,925 sq ft, to the Market Department of the Municipal Corporation of Greater Bombay. In 1993 that department auctioned the market portion on a monthly licence basis; the appellant firm bid successfully and took possession on 28 May 1993. The premises were a bare stilt structure without walls, and under the auction terms the firm had to make them fit for use as a market, including walls and common amenities. It spent Rs 1,83,61,488 between financial years 1993-94 and 2001-02 and built 95 shops and 30 stalls under the name Saibaba Shopping Centre, obtained registration under the Shops and Establishments Act, and was responsible for day-to-day maintenance, water, electricity, taxes and repairs. From the sub-licensees it collected compensation at the same stallage rate the Corporation charged it, leave and licence fees, and service charges of 20 per cent of monthly rent for services including watch and ward, electricity and water (paras 2, 3, 17). From 1999 to 2004 it returned this income as business income and was assessed accordingly. The assessment for financial year 1999-2000 was reopened under s.148, and the reassessment order of 29 March 2005 computed the income under the head income from house property, on the footing that s.27(iiib) made the firm the deemed owner, that the sub-licensing documents used the language of lease, and that property tax had been levied on it. The Commissioner (Appeals) allowed the firm's appeal on 30 December 2005; the Tribunal reversed that on 10 September 2009; and the Bombay High Court dismissed the firm's appeal on 19 September 2014 (paras 4, 5).
The appeals were dismissed with costs (para 21). It was not in dispute that the firm was the deemed owner of the premises under s.27(iiib), the rights it acquired being traceable to s.269UA(f) (paras 10, 11). On the head of charge, an entry in the object clause showing a particular object is not the determinative factor; the question depends on the circumstances of each case, as the Constitution Bench held in Sultan Bros. (P) Ltd. (paras 15, 16). The firm had produced nothing beyond the object clause of its partnership deed, while the Tribunal had found as a fact that it was not engaged in any systematic or organised activity of providing service to the occupiers, and those findings had attained finality and were never challenged as perverse (paras 17, 18). It was for the firm to place material showing that its entire or substantial income was from letting out property as its principal business activity, and no such effort was made (para 18). The income was therefore assessable as income from house property.
The Court set out the scheme of the Act - s.4 as the charging section, s.14's five heads, the computation rules in ss.22 to 27 for house property and ss.28 to 44DB for business, and that income tax is one tax on the aggregate rather than a collection of separate taxes (para 13). Where income falls potentially under two heads, the tests laid down in the decisions apply; income from leasing premises and collecting rent is normally house property income where s.22 is satisfied and the assessee is the owner, s.27 extending ownership to deemed owners, but income from letting can still be business income if letting the premises is itself the business of the assessee (para 14). On the test, the Court applied Sultan Bros. (P) Ltd., quoting the Constitution Bench that each case must be looked at from a businessman's point of view to see whether the letting was the doing of a business or the exploitation of property by an owner, and that no asset is a commercial asset by its very nature (para 15). The object clause was therefore not conclusive and the matter had to be examined on the facts (para 16). On the facts nothing was produced beyond the object clause, and the Tribunal's findings - that the service charges were inseparable from the basic rent and that no systematic or organised service activity had been established - stood unchallenged (paras 17, 18). Chennai Properties and Rayala Corporation were distinguished: in those cases the assessee's entire income was from letting the properties it owned and that was its business, whereas here the position was the reverse, and East India Housing & Land Development Trust Ltd. was the applicable authority (paras 19, 20).
In view thereof, the object clause, as contained in the partnership deed, would not be the conclusive factor. Matter has to be examined on the facts of each case as held in Sultan Bros. (P) Ltd. case.
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Handle my notice → Ask a CA on WhatsAppNo. The Supreme Court held the objects clause in a partnership deed is not the conclusive factor in deciding the head of income; with no material showing organised commercial exploitation, the compensation and licence fees from the sub-licensed shops and stalls were assessable as income from house property. This was decided by the Supreme Court (A.K. Sikri J and Ashok Bhushan J) and bears on section 22, section 23, section 27, section 27(iiib), section 28, section 269UA(f), section 148 of the Income Tax Act 1961. It is reported as [2017] 394 ITR 592 (SC); [2017] 248 Taxman 1 (SC); [2017] 298 CTR 117 (SC); [2017] 81 taxmann.com 193 (SC); Civil Appeal Nos. 6455-6460 of 2017. This favours the revenue and it is what the department cites to move rental receipts out of the business head. The trap is evidentiary: the firm lost not because its objects were wrong but because it filed nothing to show an organised, systematic activity of exploiting the property commercially. It is regularly distinguished on facts where such material exists, so the entry is as useful for what it demands of the assessee as for what it decides. If it applies to you, the first step is this: Do not rest a business income claim on the objects clause of a partnership deed or memorandum; the Court held it is not conclusive.
MHADA built three cooperative society buildings at Jariwala Compound Market, Lamington Road, Mumbai, and because the plot carried a reservation for a municipal retail market it handed the ground floor stilt portion, about 17,925 sq ft, to the Market Department of the Municipal Corporation of Greater Bombay. In 1993 that department auctioned the market portion on a monthly licence basis; the appellant firm bid successfully and took possession on 28 May 1993. The premises were a bare stilt structure without walls, and under the auction terms the firm had to make them fit for use as a market, including walls and common amenities. It spent Rs 1,83,61,488 between financial years 1993-94 and 2001-02 and built 95 shops and 30 stalls under the name Saibaba Shopping Centre, obtained registration under the Shops and Establishments Act, and was responsible for day-to-day maintenance, water, electricity, taxes and repairs. From the sub-licensees it collected compensation at the same stallage rate the Corporation charged it, leave and licence fees, and service charges of 20 per cent of monthly rent for services including watch and ward, electricity and water (paras 2, 3, 17). From 1999 to 2004 it returned this income as business income and was assessed accordingly. The assessment for financial year 1999-2000 was reopened under s.148, and the reassessment order of 29 March 2005 computed the income under the head income from house property, on the footing that s.27(iiib) made the firm the deemed owner, that the sub-licensing documents used the language of lease, and that property tax had been levied on it. The Commissioner (Appeals) allowed the firm's appeal on 30 December 2005; the Tribunal reversed that on 10 September 2009; and the Bombay High Court dismissed the firm's appeal on 19 September 2014 (paras 4, 5). The matter was decided on 2017-05-09 by the Supreme Court (A.K. Sikri J and Ashok Bhushan J). On those facts the Supreme Court held as follows. The appeals were dismissed with costs (para 21). It was not in dispute that the firm was the deemed owner of the premises under s.27(iiib), the rights it acquired being traceable to s.269UA(f) (paras 10, 11). On the head of charge, an entry in the object clause showing a particular object is not the determinative factor; the question depends on the circumstances of each case, as the Constitution Bench held in Sultan Bros. (P) Ltd. (paras 15, 16). The firm had produced nothing beyond the object clause of its partnership deed, while the Tribunal had found as a fact that it was not engaged in any systematic or organised activity of providing service to the occupiers, and those findings had attained finality and were never challenged as perverse (paras 17, 18). It was for the firm to place material showing that its entire or substantial income was from letting out property as its principal business activity, and no such effort was made (para 18). The income was therefore assessable as income from house property.
The Court set out the scheme of the Act - s.4 as the charging section, s.14's five heads, the computation rules in ss.22 to 27 for house property and ss.28 to 44DB for business, and that income tax is one tax on the aggregate rather than a collection of separate taxes (para 13). Where income falls potentially under two heads, the tests laid down in the decisions apply; income from leasing premises and collecting rent is normally house property income where s.22 is satisfied and the assessee is the owner, s.27 extending ownership to deemed owners, but income from letting can still be business income if letting the premises is itself the business of the assessee (para 14). On the test, the Court applied Sultan Bros. (P) Ltd., quoting the Constitution Bench that each case must be looked at from a businessman's point of view to see whether the letting was the doing of a business or the exploitation of property by an owner, and that no asset is a commercial asset by its very nature (para 15). The object clause was therefore not conclusive and the matter had to be examined on the facts (para 16). On the facts nothing was produced beyond the object clause, and the Tribunal's findings - that the service charges were inseparable from the basic rent and that no systematic or organised service activity had been established - stood unchallenged (paras 17, 18). Chennai Properties and Rayala Corporation were distinguished: in those cases the assessee's entire income was from letting the properties it owned and that was its business, whereas here the position was the reverse, and East India Housing & Land Development Trust Ltd. was the applicable authority (paras 19, 20). In the words reproduced by the source cited on this page: "In view thereof, the object clause, as contained in the partnership deed, would not be the conclusive factor. Matter has to be examined on the facts of each case as held in Sultan Bros. (P) Ltd. case." The decision followed or applied Sultan Bros. (P) Ltd. v. CIT [1964] 51 ITR 353 (SC) (Constitution Bench); East India Housing & Land Development Trust Ltd. v. CIT [1961] 42 ITR 49 (SC).
It was decided by the Supreme Court on 2017-05-09 and is reported as [2017] 394 ITR 592 (SC); [2017] 248 Taxman 1 (SC); [2017] 298 CTR 117 (SC); [2017] 81 taxmann.com 193 (SC); Civil Appeal Nos. 6455-6460 of 2017. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 22, section 23, section 27, section 27(iiib), section 28, section 269UA(f), section 148, 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. The appeals were dismissed with costs (para 21). It was not in dispute that the firm was the deemed owner of the premises under s.27(iiib), the rights it acquired being traceable to s.269UA(f) (paras 10, 11). On the head of charge, an entry in the object clause showing a particular object is not the determinative factor; the question depends on the circumstances of each case, as the Constitution Bench held in Sultan Bros. (P) Ltd. (paras 15, 16). The firm had produced nothing beyond the object clause of its partnership deed, while the Tribunal had found as a fact that it was not engaged in any systematic or organised activity of providing service to the occupiers, and those findings had attained finality and were never challenged as perverse (paras 17, 18). It was for the firm to place material showing that its entire or substantial income was from letting out property as its principal business activity, and no such effort was made (para 18). The income was therefore assessable as income from house property. It arises in House Property matters, on section 22, section 23, section 27, section 27(iiib), section 28, section 269UA(f), section 148 of the Income Tax Act 1961, and was decided by A.K. Sikri J and Ashok Bhushan 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. File the evidence of the actual activity - the services and amenities provided and the systematic commercial exploitation - because it was the absence of that material that decided the case. Where the department relies on this decision, check whether your facts show organised commercial exploitation, since it has been distinguished on exactly that basis.
Still good law. Searched the itatonline digest by case name for later treatment. It has not been overruled, but it is regularly distinguished on facts: PCIT v. Krome Planet Interiors (P.) Ltd. (2019) 265 Taxman 308 / (2020) 423 ITR 62 (Bom.)(HC) carries an express editorial note that Raj Dadarkar is distinguished, holding income from leasing shop space in malls with facilities and amenities to be business income; PCIT v. City Centre Mall Nashik Pvt. Ltd. (2020) 424 ITR 85 (Bom.)(HC) is to similar effect. Read with PCIT v. M. P. Entertainment and Developers Pvt. Ltd. (2024) 469 ITR 428 (SC), the practical position is that the head depends on whether letting is the business, so Raj Dadarkar governs only where the assessee cannot show organised commercial exploitation. That finding was checked against a published source, which is linked on this page, on 2026-08-25. 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 case is lost on evidence, not on principle. The Court accepted at para 14 that income from letting can be business income where letting is itself the business, and held at para 16 that the object clause is not conclusive either way; what defeated the firm was that it produced nothing beyond that clause, while the Tribunal's contrary findings of fact had become final and were never attacked as perverse (paras 17, 18). Chennai Properties and Rayala Corporation were distinguished, not doubted, on the footing that in those cases the whole of the assessee's income came from letting the properties it owned (paras 19, 20). The deeming provision relied on was s.27(iiib), which operates through the definition of transfer in s.269UA(f) and applies to rights acquired by a lease of not less than twelve years (para 10). Read with the later decisions in the entry's validity note, the working position is that the head depends on whether letting is the business, so this decision governs where the assessee cannot show organised commercial exploitation. 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.
The appeals were dismissed with costs (para 21). It was not in dispute that the firm was the deemed owner of the premises under s.27(iiib), the rights it acquired being traceable to s.269UA(f) (paras 10, 11). On the head of charge, an entry in the object clause showing a particular object is not the determinative factor; the question depends on the circumstances of each case, as the Constitution Bench held in Sultan Bros. (P) Ltd. (paras 15, 16). The firm had produced nothing beyond the object clause of its partnership deed, while the Tribunal had found as a fact that it was not engaged in any systematic or organised activity of providing service to the occupiers, and those findings had attained finality and were never challenged as perverse (paras 17, 18). It was for the firm to place material showing that its entire or substantial income was from letting out property as its principal business activity, and no such effort was made (para 18). The income was therefore assessable as income from house property.
TaxSphere, “Raj Dadarkar & Associates v ACIT”, https://taxnotice.vittsphere.com/caselaw/case/raj-dadarkar-v-acit-head-of-income-sublicence/ (validity last checked 2026-08-25)
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