Warehousing income : Whether business income or income from property : S. 22 and S. 28 of Income-tax Act, 1961 : A.Y. 2001-02 : Income would be business income if dominant purpose was commercial activity and it would be income from property if dominant ob

[Nutan Warehousing Co. P.
Ltd. v. Dy. CIT, 326 ITR 94 (Bom.)]

The assessee-company was
carrying out warehousing activities since 1972. For the A.Y. 2001-02, the
Assessing Officer assessed the warehousing charges as income from business and
the rental income as income from house property. In appeal, the Commissioner of
Income Tax (Appeals) treated even the warehousing charges as income from house
property. The Tribunal upheld the decision of the Commissioner (Appeals).

On appeal by the assessee,
the Bombay High Court remanded the matter and held as under :

“(i) The question whether
the income received by the assessee from a transaction entered into in respect
of immovable property should be treated as income from house property or as
income from business, would have to be resolved on the basis of the
well-settled tests laid down by the law in decided cases. What is material in
such cases is the primary object of the assessee while exploiting the
property. If the primary or the dominant object is to lease or let out
property, the income derived from the property would have to be regarded as
income from house property. Conversely, if the dominant intention of the
assessee is to exploit a commercial asset by carrying on a commercial
activity, the income would have to be treated as income from business. What
has to be deduced is as to whether the letting out of the property constitutes
a dominant aspect of the transaction or whether it was subservient to the main
business of the assessee.

(ii) The terms of the
warehousing agreements were not considered by the Tribunal. Merely styling an
agreement as a warehousing agreement would not be conclusive of the nature of
the transaction since it was for the Tribunal to determine as to whether the
transaction was a bare letting out of the asset or whether the assessee was
carrying on a commercial activity involving warehousing operations.“