Chennai Properties & Investments

Ltd. vs CIT, Central - III, Tamil Nadu.

By Dinesh Babu S, ITI
O/o. Addl.CIT, Range-8, Hyderabad

 Context
The Supreme Court, in the case of M/s Chennai
Properties & Investments Limited, had to consider
whether the income from letting of properties is
assessable as “profits and gains of business” or as
“income from house property”.
 Related Sections of the Act
Section 22: This section deals with the Income from House Property.
The annual value of property consisting of any buildings or lands
appurtenant thereto of which the assessee is the owner, other than
such portions of such property as he may occupy for the purposes of
any business or profession carried on by him, the profits of which are
chargeable to income-tax, shall be chargeable under this head.

Section 28: This section deals with the type of income that needs to
be chargeable under the head “Profits and Gains of Business or
Profession”.

 Facts of the Case

• The tax payer (company) was incorporated with the main
object of acquiring properties on an ownership basis and
letting it out on lease.

• In the return of Income filed by the taxpayer, the rental

income from such property was offered to tax under the
head ‘profits and gains of business or profession’. The
taxpayer had not received any other income apart from
rental income.

 Facts of the Case

• The Assessing officer (AO) held that since the income was
received from the letting out of properties, the income was
taxable under the head ‘income from house property’.

• In the return of Income filed by the taxpayer, the rental

income from such property was offered to tax under the
head ‘profits and gains of business or profession’. The
taxpayer had not received any other income apart from
rental income.
 CIT(A)’s Order
The Commissioner of Income-tax (Appeals) [CIT (A)] reversed
the order of the AO. The Ld. CIT(A) held such income to be
income from business.

 ITAT’s Order
The Department filed appeal before the Income Tax
Appellate Tribunal which declined to interfere with the order
of the Commissioner of Income Tax (Appeals) and dismissed
the appeal.
 The High Court’s Decision
On further appeal, the Madras High Court (HC) held that the
rental income was taxable under the head ‘income from
house property’. The HC placed reliance on the decisions of
the SC in the case of East India Housing and Land
Development Trust Limited and Sultan Brothers (P) Limited .
2
Issue before the Supreme Court
Whether the income earned by the taxpayer was taxable
under the head ‘profits and gains of business or profession’
or under the head ‘income from house property’?

 Judgements Referred to
While deciding on the case, the SC based its ruling on three
previous Judgements of its own. They are:

(i) East India Housing and Land Development Trust Limited.

(ii) Karanputra Development Co. Ltd.
(iii) Sultan Brothers (P) Limited.





 East India Housing and Land

Development Trust Limited
The SC in the case of East India Housing and Land Development
Trust Limited, observed that the main objective of the taxpayer was
(i) Buying and Developing the properties
(ii) Promoting and Developing markets.
The letting out of properties was not the object of the company.
In such a case, income earned from the renting out of shops and
stalls, developed by it, was held to be taxable under the head
‘income from house property’.

 Karanputra Development Co. Ltd. vs CIT

The SC referred to this case and held that the deciding factor was
not the ownership of land or leases, but the nature of the activity of
the taxpayer and the nature of the operations in relation to the
same. The objectives of the company must also be kept in view to
interpret the activities of the company.

 Sultan Brothers (P) Limited

The SC took into account the principles laid down in its decision in
the case of Sultan Brothers (P) Limited wherein it had held that
merely an entry in the objects clause showing a particular object
would not be a determining factor to arrive at a conclusion that
income was to be treated as business income. Each case needed to
be looked at from a businessman’s point of view, to determine
whether the letting out was for doing business or exploitation of
property by its owner.


 The Supreme Court's decision
From the above cases, the SC came to the conclusion that letting of
properties is in fact is the business of the Assessee. The SC upheld
that income earned by the taxpayer by letting out of its property
was taxable as business income.

 References
1. Chennai Properties & Investments Ltd vs. CIT (Supreme Court). (2015,
May 6). Retrieved from itatonline.org: https://itatonline.org/
archives/chennai- properties-investments-ltd-vs-cit-supreme-court-
s-2228-law-on-whether- income-from-letting-of-properties-is-
assessable-as-business-profits-or-as- income-from-house-property-
explained/
2. Mukherjee, S. (2015, May 6). Rental Income from property assessable
under the head ‘profits and gains of business or profession’. Retrieved
from https://www.pwc.in/assets/pdfs/news-alert-tax/2015/
pwc-news-alert-6-may-2015-chennai-properties-investments-
limited.pdf