Sultan Brothers v CIT

Facts

• Sultan Brothers Pvt Ltd owned a cinema theatre building which it let out to operators
• The main objects clause of the company included dealing in property and letting
• The CIT assessed rental income under "Income from House Property" (S.22)
• The assessee claimed it was "Profits and Gains of Business" since letting was its business

Issues

1. Whether rental income of a company whose primary activity is property letting is assessable under "Business" or "House Property"
2. What test determines the correct head when letting is the dominant activity

Held

• Where the letting of buildings is the main and primary activity of the company (its business), the income is assessable as business income
• The test: is the company merely exploiting property as owner (House Property), or is it conducting the business of letting (Business Income)?
• Sultan Brothers' dominant activity was letting; rental income is business income
• Business deductions under S.28-44 are available

Ratio Decidendi

The character of income depends on the nature of the activity, not the nature of the asset. A company formed to let property, whose primary revenue and activity is letting, carries on the business of letting. The distinction: a passive owner collects rent (House Property head); an active business operator runs a letting enterprise (Business head). The MOA, scale, and systematic nature indicate which.