Income from letting out of buildings is to be assessed under the head 'Income from properties/income from house properties', except when inseparable from the letting of machinery, plant, or furniture.

R. Jayasimha Babu, J.

At the instance of the Revenue, the following questions have been referred

"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in law in holding that the rental receipts derived from letting out of properties should be assessed under the head 'Business'?

(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in law in holding that the expenses incurred for the purpose of letting out of the properties should be allowed as 'business expenditure?"

2. The assessment years are 1979-80, 1983-84 and 1984-85. The assessee owns two buildings in the city of Chennai, 'Chennai House' and 'Firhavan Estates' and received rental income by letting out those buildings. The assessing officer declined to assess that rental income under the head "income from business" and assessed the same under the head "income from property". The Commissioner, having allowed the assessee's appeal, the Revenue carried the matter to the appellate Tribunal which has confirmed the view of the Commissioner.

3. The main objects of the assessee company which was registered on 24.5.1974 with a capital of Rs.1,00,000/= are as under:-

"(1) To purchase or otherwise acquire and hold the properties known as "Chennai House", at Esplanade, Madras and "Firhavan Estate" at South Beach Road, Madras, and lands, buildings and other property of any tenure and any interest therein, and to let out such properties and to make advances upon the security of lands or buildings or other property, or any interest therein.

(2) To buy, sell, underwrite, invest in, exchange or otherwise acquire, and to hold, manage, develop, deal with and turn to account any bonds, stocks, obligations or securities of British, Foreign or Colonial Governments, states, dominions, sovereigns, provinces, municipalities, or ruling or public authorities, or the bonds, debentures, debenture stocks, scrips, obligations, shares, stocks, whether preference or ordinary, and whether fully paid or not, or securities of railway and other companies, public works and undertakings incorporated or established by Act of Parliament, Royal Charter, or under the Joint Stock Companies Acts in England or the Colonies, or by state authority, or under the laws of any foreign country or State, and to invest in or upon real estate, whether incumbered or otherwise, including equities of redemption, and whether by way of contributory mortgage or otherwise."

4. The Tribunal, relying on those objects, held that letting out space in the building owned by the assessee is the business of the assessee and therefore, the income derived from such letting is business income in respect of which expenses incurred by it for the purpose of letting are deductable.

5. Learned Senior Counsel for the Revenue submitted that the view taken by the Tribunal is unsustainable having regard to the law laid down by the Apex Court and this Court.

6. A Constitution Bench of the Supreme Court, in the case of Sulthan Brothers v. Commissioner of Income-Tax ((1964) 51 ITR 353), while approving the decision rendered by the three Judge Bench in the case of EAST INDIA HOUSING AND LAND DEVELOPMENT TRUST LTD. v. COMMISSIONER OF INCOME TAX (42 ITR 49) has held thus

"The object of the appellant company no doubt was to acquire land and buildings and to turn the same into account by construction and reconstruction, decoration, furnishing and maintenance of them and by leasing and selling the same. The activity contemplated in the aforesaid object of the company, assuming it to be a business activity, would not by itself turn the same in the present case into a business deal. That would follow from the decision of this court in East Indian Housing and Land Development Trust Ltd. v. Commissioner of Income-tax where it was observed that "the income derived by the company from shops and stalls is income received from property and falls under the specific head des