I let a building together with its furniture and fittings under one agreement. Is that rent house property income?
It depends, and the Supreme Court refused to lay down a formula. Whether a particular letting is a business is decided on the circumstances of each case, and whether the building and the plant, machinery or furniture are inseparably let turns on the intention of the parties - whether the two were meant to be enjoyed together and whether one would have been let without the other.
Decided by the Supreme Court (Supreme Court of India - B.P. Sinha CJ, A.K. Sarkar, M. Hidayatullah, K.C. Das Gupta and N. Rajagopala Ayyangar JJ (judgment delivered by Sarkar J)) on 1963-12-06, reported as [1964] 51 ITR 353 (SC); 1964 AIR 1389; 1964 SCR (5) 807; Civil Appeal No. 63 of 1961. It bears on section 22, section 28(i), section 56(2)(ii), section 56(2)(iii) of the Income Tax Act 1961, in House Property and How Tax Law Is Read matters.
This is the decision every composite rent argument starts from, on both sides. The department uses it to say a furnished letting is not automatically a business; the assessee uses it to say the head cannot be fixed by looking at the lease alone. The intention test it lays down is what decides whether the whole receipt goes to the residuary head under s.56(2)(iii) or is split between s.22 and s.56(2)(ii).
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The assessee, a limited company, owned a building on Plot No. 7 on the Church Gate Reclamation in Bombay which it had fitted with furniture and fixtures for use as a hotel. By a lease dated 30 August 1949 it let the building fully equipped and furnished to one Voyantzis for a term of six years certain from 9 December 1946, for running a hotel and certain ancillary purposes, at a monthly rent of Rs 5,950 for the building and a hire of Rs 5,000 for the furniture and fixtures. It had never itself run a hotel there. For assessment year 1953-54 the Income-tax Officer assessed the building under s.9 of the 1922 Act on annual value and the furniture hire under s.12. The Appellate Assistant Commissioner and the Tribunal agreed, on the view that s.12(4) applied only where the letting of the building was incidental to the letting of the furniture. The Bombay High Court, on a reference under s.66(1), answered that the building fell under s.9, the furniture under s.12(3), and no part under s.10. The company appealed, contending primarily that the whole income was business income under s.10 and alternatively that it fell under s.12 with the allowances in sub-sections (3) and (4).
The appeal succeeded on the alternative case, with costs here and below, and the High Court's judgment was set aside. The Court answered the reference: the rent from the building is computed separately from the income from the furniture and fixtures; on the rent from the building the assessee is entitled to the allowances in s.12(4), and on the furniture income to those in s.12(3); and no part of the income is assessable under s.9 or under s.10. Three propositions carry it. Whether a particular letting is a business has to be decided on the circumstances of each case, looked at from a businessman's point of view; nothing is a commercial asset by its nature. On these covenants the lessor rendered no service in the hotel business and was doing no business at all, so the income was not business income - the assessee lost that limb. Where a building and plant, machinery or furniture are inseparably let, the Act treats the rent from the building as falling under the residuary head, not under the property head. And inseparability is a matter of the parties' intention, tested by three questions: was the intention that the two be enjoyed together; was it to make the letting of the two practically one letting; would one have been let alone and a lease of it accepted without the other.
The heads of income are mutually exclusive and no one of them is more specific than another, so a variety of income must be assignable to one of them. On the business limb, the Court declined to extract a test from the cases cited: whether a letting is a business depends on the circumstances of each case, seen from a businessman's point of view, and nothing is a commercial asset in its very nature - a commercial asset is only an asset used in a business. The company's object clause, even assuming the activity in it to be a business activity, would not by itself turn this lease into a business deal; that follows from East India Housing, where the character of income from shops and stalls was not altered by the company's object of developing markets. It distinguished the plant-and-machinery cases as ones where the assessee had itself been running the concern and had let it out temporarily; Bosotto Brothers did not apply because this company had never carried on a hotel business at all, and Mangalagiri turned on wear and tear to machinery, with s.9 not even argued - and both predated s.12(4). The lessor's covenants were ordinary covenants in a lease of a furnished building and showed no service rendered in the lessee's hotel business. On the second limb, s.12(4) grants a depreciation allowance in respect of a building 'being the property of the assessee', so it must contemplate letting by the owner; if the owner could never be assessed under s.12 in respect of rent, s.12(4) would be redundant, and a construction producing that result is not natural. So where a building is inseparably let with plant, machinery or furniture, the rent from the building is residuary income. The Court rejected both readings of 'inseparable' urged below: nothing in the language requires the letting of the machinery to be primary, and physical inseparability cannot be the test because machinery can always be dismantled and furniture merely rests on the floor. Inseparability is therefore inseparability of intention. Applying that, separate reservation of rent and hire did not make the lettings separable; the lessee's covenant restricting use of the premises and the furniture to running a hotel, and the covenant against removing anything from the premises, put the intention beyond doubt, and the lessor's renewal and fire clauses were answered by the lessor's obligation to provide and maintain the furniture throughout.
Whether a particular letting is business has to be decided in the circumstances of each case. We do not think that the cases cited lay down a test for deciding when a letting amounts to a business. We think each case has to be looked at from a businessman's point of view to find out whether the letting was the doing of a business or the exploitation of his property by an owner.
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Handle my notice → Ask a CA on WhatsAppIt depends, and the Supreme Court refused to lay down a formula. Whether a particular letting is a business is decided on the circumstances of each case, and whether the building and the plant, machinery or furniture are inseparably let turns on the intention of the parties - whether the two were meant to be enjoyed together and whether one would have been let without the other. This was decided by the Supreme Court (Supreme Court of India - B.P. Sinha CJ, A.K. Sarkar, M. Hidayatullah, K.C. Das Gupta and N. Rajagopala Ayyangar JJ (judgment delivered by Sarkar J)) and bears on section 22, section 28(i), section 56(2)(ii), section 56(2)(iii) of the Income Tax Act 1961. It is reported as [1964] 51 ITR 353 (SC); 1964 AIR 1389; 1964 SCR (5) 807; Civil Appeal No. 63 of 1961. This is the decision every composite rent argument starts from, on both sides. The department uses it to say a furnished letting is not automatically a business; the assessee uses it to say the head cannot be fixed by looking at the lease alone. The intention test it lays down is what decides whether the whole receipt goes to the residuary head under s.56(2)(iii) or is split between s.22 and s.56(2)(ii). If it applies to you, the first step is this: Read the lease for the intention: was the building meant to be enjoyed with the plant or furniture, and would either have been let on its own?
The assessee, a limited company, owned a building on Plot No. 7 on the Church Gate Reclamation in Bombay which it had fitted with furniture and fixtures for use as a hotel. By a lease dated 30 August 1949 it let the building fully equipped and furnished to one Voyantzis for a term of six years certain from 9 December 1946, for running a hotel and certain ancillary purposes, at a monthly rent of Rs 5,950 for the building and a hire of Rs 5,000 for the furniture and fixtures. It had never itself run a hotel there. For assessment year 1953-54 the Income-tax Officer assessed the building under s.9 of the 1922 Act on annual value and the furniture hire under s.12. The Appellate Assistant Commissioner and the Tribunal agreed, on the view that s.12(4) applied only where the letting of the building was incidental to the letting of the furniture. The Bombay High Court, on a reference under s.66(1), answered that the building fell under s.9, the furniture under s.12(3), and no part under s.10. The company appealed, contending primarily that the whole income was business income under s.10 and alternatively that it fell under s.12 with the allowances in sub-sections (3) and (4). The matter was decided on 1963-12-06 by the Supreme Court (Supreme Court of India - B.P. Sinha CJ, A.K. Sarkar, M. Hidayatullah, K.C. Das Gupta and N. Rajagopala Ayyangar JJ (judgment delivered by Sarkar J)). On those facts the Supreme Court held as follows. The appeal succeeded on the alternative case, with costs here and below, and the High Court's judgment was set aside. The Court answered the reference: the rent from the building is computed separately from the income from the furniture and fixtures; on the rent from the building the assessee is entitled to the allowances in s.12(4), and on the furniture income to those in s.12(3); and no part of the income is assessable under s.9 or under s.10. Three propositions carry it. Whether a particular letting is a business has to be decided on the circumstances of each case, looked at from a businessman's point of view; nothing is a commercial asset by its nature. On these covenants the lessor rendered no service in the hotel business and was doing no business at all, so the income was not business income - the assessee lost that limb. Where a building and plant, machinery or furniture are inseparably let, the Act treats the rent from the building as falling under the residuary head, not under the property head. And inseparability is a matter of the parties' intention, tested by three questions: was the intention that the two be enjoyed together; was it to make the letting of the two practically one letting; would one have been let alone and a lease of it accepted without the other.
The heads of income are mutually exclusive and no one of them is more specific than another, so a variety of income must be assignable to one of them. On the business limb, the Court declined to extract a test from the cases cited: whether a letting is a business depends on the circumstances of each case, seen from a businessman's point of view, and nothing is a commercial asset in its very nature - a commercial asset is only an asset used in a business. The company's object clause, even assuming the activity in it to be a business activity, would not by itself turn this lease into a business deal; that follows from East India Housing, where the character of income from shops and stalls was not altered by the company's object of developing markets. It distinguished the plant-and-machinery cases as ones where the assessee had itself been running the concern and had let it out temporarily; Bosotto Brothers did not apply because this company had never carried on a hotel business at all, and Mangalagiri turned on wear and tear to machinery, with s.9 not even argued - and both predated s.12(4). The lessor's covenants were ordinary covenants in a lease of a furnished building and showed no service rendered in the lessee's hotel business. On the second limb, s.12(4) grants a depreciation allowance in respect of a building 'being the property of the assessee', so it must contemplate letting by the owner; if the owner could never be assessed under s.12 in respect of rent, s.12(4) would be redundant, and a construction producing that result is not natural. So where a building is inseparably let with plant, machinery or furniture, the rent from the building is residuary income. The Court rejected both readings of 'inseparable' urged below: nothing in the language requires the letting of the machinery to be primary, and physical inseparability cannot be the test because machinery can always be dismantled and furniture merely rests on the floor. Inseparability is therefore inseparability of intention. Applying that, separate reservation of rent and hire did not make the lettings separable; the lessee's covenant restricting use of the premises and the furniture to running a hotel, and the covenant against removing anything from the premises, put the intention beyond doubt, and the lessor's renewal and fire clauses were answered by the lessor's obligation to provide and maintain the furniture throughout. In the words reproduced by the source cited on this page: "Whether a particular letting is business has to be decided in the circumstances of each case. We do not think that the cases cited lay down a test for deciding when a letting amounts to a business. We think each case has to be looked at from a businessman's point of view to find out whether the letting was the doing of a business or the exploitation of his property by an owner." The decision followed or applied United Commercial Bank Ltd. v. CIT [1957] 32 ITR 688 (SC) - the heads of income are mutually exclusive; East India Housing and Land Development Trust Ltd. v. CIT [1961] 42 ITR 49 (SC) - the character of income is not altered by the company's objects.
It was decided by the Supreme Court on 1963-12-06 and is reported as [1964] 51 ITR 353 (SC); 1964 AIR 1389; 1964 SCR (5) 807; Civil Appeal No. 63 of 1961. 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 28(i), section 56(2)(ii), section 56(2)(iii), 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 taxpayer. The appeal succeeded on the alternative case, with costs here and below, and the High Court's judgment was set aside. The Court answered the reference: the rent from the building is computed separately from the income from the furniture and fixtures; on the rent from the building the assessee is entitled to the allowances in s.12(4), and on the furniture income to those in s.12(3); and no part of the income is assessable under s.9 or under s.10. Three propositions carry it. Whether a particular letting is a business has to be decided on the circumstances of each case, looked at from a businessman's point of view; nothing is a commercial asset by its nature. On these covenants the lessor rendered no service in the hotel business and was doing no business at all, so the income was not business income - the assessee lost that limb. Where a building and plant, machinery or furniture are inseparably let, the Act treats the rent from the building as falling under the residuary head, not under the property head. And inseparability is a matter of the parties' intention, tested by three questions: was the intention that the two be enjoyed together; was it to make the letting of the two practically one letting; would one have been let alone and a lease of it accepted without the other. It arises in House Property and How Tax Law Is Read matters, on section 22, section 28(i), section 56(2)(ii), section 56(2)(iii) of the Income Tax Act 1961, and was decided by Supreme Court of India - B.P. Sinha CJ, A.K. Sarkar, M. Hidayatullah, K.C. Das Gupta and N. Rajagopala Ayyangar JJ (judgment delivered by Sarkar 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. Do not argue the point on the number of documents - the Court treated one lease or two separate leases as immaterial to the enquiry. If the lettings are inseparable, compute the whole receipt under s.56(2)(iii) rather than splitting it; if they are separable, split it between s.22 and s.56(2)(ii). Keep the business question separate from the inseparability question - a letting can fail the business test and still be a composite letting.
Still good law. The itatonline note on Chennai Properties & Investments Ltd v. CIT (Supreme Court, 9 April 2015) lists Sultan Brothers (P) Ltd v. CIT (1964) 5 SCR 807 among the decisions the later Bench referred to, so it was still being applied by the Supreme Court in 2015. No page found doubts or overrules it. What I could not check is whether any later Bench has confined it to the 1922 Act provisions. 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.
Decided under the Indian Income-tax Act 1922, on ss.9, 10, 12(3) and 12(4). The corresponding provisions of the 1961 Act are s.22, s.28(i) and s.56(2)(ii) and (iii), and the decision is applied to them. Two things are commonly mis-stated about it. It is not authority that a letting of a fully equipped commercial building is a business - the company lost that argument, because it had never run a hotel and its lessor's covenants were the ordinary covenants of a furnished letting. And its inseparability holding takes the rent from the building out of the property head entirely and into the residuary head, so that the owner is taxed on the rent actually received with s.12(4) allowances rather than on annual value: that was the relief the assessee obtained. The number of documents is immaterial - the Court says in terms that it matters not whether there is one lease or two. The Bombay High Court decision reversed is Sultan Bros. (P.) Ltd. v. CIT [1960] 38 ITR 85. The judgment as reported carries no paragraph numbers; it is a single running judgment delivered by Sarkar J, so passages are cited by reference to the judgment rather than to a paragraph. The Court answered the reference and did not itself recompute anything, so the entry cannot tell you what figures resulted; the appellant was given its costs here and below. The alternative case that the letting was a business exploitation of a commercial asset was argued and rejected - the Court held that nothing is a commercial asset by its nature - so this decision does not help an assessee arguing that head. It expressly declines to lay down a test for when a letting is a business, which is a real limit on citing it either way. It left open whether the Madras decision in Mangalagiri Sri Umamaheswara Gin and Rice Factory was rightly decided, and observed that both that case and Bosotto Brothers were decided before s.12(4) was enacted. The report gives no paragraph numbering, so a rendering that supplies numbers will not match. 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 appeal succeeded on the alternative case, with costs here and below, and the High Court's judgment was set aside. The Court answered the reference: the rent from the building is computed separately from the income from the furniture and fixtures; on the rent from the building the assessee is entitled to the allowances in s.12(4), and on the furniture income to those in s.12(3); and no part of the income is assessable under s.9 or under s.10. Three propositions carry it. Whether a particular letting is a business has to be decided on the circumstances of each case, looked at from a businessman's point of view; nothing is a commercial asset by its nature. On these covenants the lessor rendered no service in the hotel business and was doing no business at all, so the income was not business income - the assessee lost that limb. Where a building and plant, machinery or furniture are inseparably let, the Act treats the rent from the building as falling under the residuary head, not under the property head. And inseparability is a matter of the parties' intention, tested by three questions: was the intention that the two be enjoyed together; was it to make the letting of the two practically one letting; would one have been let alone and a lease of it accepted without the other.
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