Section 14 provides that, save as otherwise provided by the Act, all income shall, for the purposes of charge of income-tax and computation of total income, be classified under the heads it lists: A. Salaries; C. Income from house property; D. Profits and gains of business or profession; E. Capital gains; F. Income from other sources. Head B appears in the text only as “[***]”.
The section applies to every assessee. It does not itself charge tax. It sets the structure for computation: each head is computed under its own group of sections, namely s. 15 to s. 17 for salaries, s. 22 to s. 27 for house property, s. 28 onwards for business or profession, s. 45 onwards for capital gains and s. 56 to s. 59 for other sources.
Operative consequences
Income is computed head by head before the heads are aggregated into total income.
Deductions and allowances provided under one head are applied in computing income under that head.
Set-off of a loss under one head against income under another follows the rules in s. 70 and s. 71, which operate on the head-wise figures.
“Save as otherwise provided” leaves room for provisions that place income outside the heads or tax it on a separate footing.
Status
The section is operative for AY 2026-27. The Finance Act, 2026 does not amend this section.
The 1961 Act governs AY 2026-27 and earlier assessment years; the Income-tax Act, 2025 governs tax year 2026-27 onwards. For this subject, the 2025 Act provision is s. 13.
Case Laws & Commentary
SECTION 14 — HEADS OF INCOME
Case-Law Digest with Commentary — Income-tax Act, 1961 (as amended by the Finance Act, 2026)
A. SECTION SNAPSHOT
Section 14 is the gateway provision of Chapter IV. It directs that, save as otherwise provided in the Act, all income shall, for the purposes of charge of income-tax and computation of total income, be classified under five heads — A. Salaries; C. Income from house property; D. Profits and gains of business or profession; E. Capital gains; F. Income from other sources. (Head B — 'Interest on securities' — was omitted by the Finance Act, 1988 with effect from 1 April 1989, and securities-interest now falls either under PGBP or under Other Sources depending on facts.)
Although the section is brief and classificatory, it is the constitutional backbone of the computation Chapter. Each head carries its own rules of inclusion, deduction and computation (Sections 15 to 59), and the entire architecture of business deductions, depreciation, capital-gains exemptions and inter-head set-off rests on the head into which a receipt is dropped.
B. COMMENTARY — THE DOCTRINE OF MUTUAL EXCLUSIVITY
The settled law, traceable to United Commercial Bank (1957) and reaffirmed in East India Housing (1961), is that the heads of income under Section 14 are mutually exclusive. A given receipt must be allocated to one — and only one — head; it cannot be split between heads, nor can the Department select the head most advantageous to revenue. The choice of head is governed by the substantive character of the receipt, not by the assessee's nomenclature, accounting entries, or the Department's preference. This mutual-exclusivity rule operates in two directions: (i) once a receipt is held assessable under a specific head, it cannot be re-routed under a residual head, and (ii) once the specific provisions of that head (Sections 15-17, 22-27, 28-44DB, 45-55A or 56-59) apply, no other head's rules may be borrowed.
Where, however, the substantive activity that generates the income is itself a business — leasing as the business of the company (Chennai Properties, 2015; Rayala Corporation, 2016), composite letting of plant-cum-building as a profit-making activity, systematic exploitation of leasehold rights (Karanpura, 1962) — the income, although derived from or routed through property, is taxable under the PGBP head. The 2017 decision in Raj Dadarkar then qualifies Chennai Properties: a leasing clause in the MoA, standing alone, does not suffice; the assessee must demonstrate the organised, systematic and commercial character of the leasing activity. This trilogy — East India Housing → Chennai Properties → Raj Dadarkar — now governs every dispute over realty-leasing classification, and is the most-litigated area under Section 14.
Practitioner take-aways: (a) Determine the head by reference to the substantive activity, supported by contemporaneous documentation (MoA, board resolutions, lease deeds, scale of operations, staffing). (b) Where receipts are composite (rent + services + facilities), apply the three-fold test in Sultan Brothers before classifying. (c) Remember that head-of-income determination has cascading effects — eligibility for Section 24 standard deduction, Section 32 depreciation, Section 71 inter-head set-off, Section 54/54F exemption, and presumptive-taxation regimes — making this an issue best resolved at the planning stage rather than at assessment.
C. POSITION UNDER FINANCE ACT, 2026
Section 14 itself has not been substantively amended by the Finance Act, 2026. The classificatory architecture — five heads of income — and the rule of mutual exclusivity continue unaltered. All judicial precedents collated below therefore continue to apply in full vigour to assessment years governed by the post-FA-2026 text.
D. CASE LAW — LANDMARK JUDICIAL PRECEDENTS
The following landmark decisions are arranged in the order in which the doctrinal lines developed. Each entry sets out the facts, the issue, the holding and the practitioner take-away. All citations are reported authorities.
1. United Commercial Bank Ltd. v. CIT — (1957) 32 ITR 688 (SC)
Facts: The assessee bank earned interest on tax-free securities. The question was the manner of computing income — whether the totality of income or the income under each head was the subject of charge.
Issue: Whether income-tax is levied on the totality of income or on income classified head-wise; and what is the function of the heads in Section 6 (now Section 14) of the Act.
Held: The Supreme Court (Bhagwati J.) held that income-tax is one tax on the totality of an assessee's income. The classification under the several heads of income is intended only for the purpose of computation; each head supplies its own rules of computation, but the levy itself is on the aggregate. The heads are statutorily mutually exclusive in the sense that the same item of income cannot be charged under two different heads.
Ratio / Practitioner take-away: Foundational authority establishing two enduring principles — (a) unitary nature of income-tax, and (b) mutual exclusivity of the heads. Every subsequent classification dispute (Karanpura, Chennai Properties, Rayala) traces back to these propositions. Practitioners cite this where the Department attempts to bring a single receipt under two heads.
2. East India Housing and Land Development Trust Ltd. v. CIT — (1961) 42 ITR 49 (SC)
Facts: The assessee company was incorporated with the object of buying land, developing it as a market, and letting out shops and stalls. Its sole source of income was the rent from the shops it had constructed.
Issue: Whether the rental income from the shops was assessable as 'income from business' under the PGBP head or as 'income from house property' under Section 22.
Held: The Supreme Court held that the income was chargeable under the head 'Income from House Property' and not as business income, even though letting out of the property was the assessee's main business. The character of the income, as derived from the ownership of property, determined the head; the motive or the object clause of the company was immaterial.
Ratio / Practitioner take-away: Established the orthodox rule that rental income from owned property is taxable under Section 22 — irrespective of whether letting is the principal business — because the heads are mutually exclusive and Section 22 is the specific provision for the income flowing from ownership of building. This rule survived intact for over five decades until Chennai Properties (2015) carved out an exception.
3. Karanpura Development Co. Ltd. v. CIT — (1962) 44 ITR 362 (SC)
Facts: The assessee company acquired coal-mining leases from the colliery owners and, in turn, sub-leased portions to working colliery operators, collecting salami and royalties.
Issue: Whether the income from sub-leases was chargeable as business income under the PGBP head or as income from other sources / property.
Held: The Supreme Court held that the income was business income. The assessee was not enjoying the leasehold for its own use; rather, it was engaged in the systematic activity of acquiring leases and sub-letting them on commercial terms — that activity constituted a business, and the receipts were the profits of that business.
Ratio / Practitioner take-away: Counterpoint to East India Housing. Where the assessee is not the owner of the property but exploits limited rights commercially (leasehold sub-let), the income is PGBP, not house property. Useful authority where the assessee holds property under leasehold or licence and exploits it for profit-making activity.
4. Sultan Brothers (P) Ltd. v. CIT — (1964) 51 ITR 353 (SC)
Facts: The assessee constructed a building, fitted it with furniture, fixtures and air-conditioning, and let it out fully equipped to a hotel operator under a single, indivisible lease for a composite rent.
Issue: Whether the income was assessable under Section 22 (house property), Section 28 (PGBP) or Section 56 (other sources) — specifically whether the composite letting attracted then-Section 12(4) (now Section 56(2)(iii)).
Held: The Supreme Court (Sarkar J.) laid down a three-fold inquiry: (i) was there a letting of the building? (ii) was there a letting of the plant, machinery or furniture? (iii) were the two lettings inseparable? Where the lettings were inseparable and the assessee's intention was to enjoy them together, the income fell under 'other sources' by virtue of the specific provision. Whether a particular letting constitutes 'business' depends on the circumstances of each case.
Ratio / Practitioner take-away: The 'three-tier test' continues to govern composite-letting cases. Where furnished accommodation, plant or commercial assets are let together with the building, the practitioner must apply this test before classifying under House Property or Other Sources.
Facts: The assessee, a company, took a market on lease from the Calcutta Corporation, developed it and sub-let stalls to occupants. The Department sought to tax the income under the head 'House Property'.
Issue: Whether the income from sub-letting was assessable as business income under Section 28 or as income from house property under Section 22, given that the assessee was not the owner of the property.
Held: The Supreme Court held that since the assessee was not the owner of the property within the meaning of Section 22 — it merely held a leasehold — Section 22 was inapplicable. The systematic activity of sub-letting amounted to a business; the income was assessable under Section 28.
Ratio / Practitioner take-away: Confirms that ownership (or deemed ownership under Section 27) is a sine qua non for taxation under Section 22. A leaseholder who commercially exploits leasehold premises is taxed under PGBP. Practitioners must verify ownership status before invoking Section 22.
Facts: The assessee, which had been carrying on manufacturing, temporarily discontinued production owing to commercial difficulties and leased out its factory premises along with the plant and machinery. The receipts were sought to be taxed as business income; the Department contended that they were income from other sources.
Issue: Whether the rental income from a temporarily-leased manufacturing unit retained its business character or stood converted into income from other sources.
Held: The Supreme Court enumerated five propositions and held that the question is one of intention: did the assessee intend to part with the asset permanently or temporarily? Where the intention is to resume the business after a hiatus, the rent retains its business character. On the facts, the income was business income.
Ratio / Practitioner take-away: Provides the 'intention test' for temporary leasing of business assets — vital authority where a business is suspended and its assets let out. Practitioners must document intention (board resolutions, lease tenure, resumption clauses) to defend a business-income characterisation.
Facts: The assessee owned a property, furnished it, provided services such as security, common-area maintenance and utilities, and let it out to occupants on monthly tenancy. The receipts included rent and service charges.
Issue: Whether the receipts from such furnished, serviced letting were assessable as business income or as income from house property.
Held: The Supreme Court affirmed the High Court's view that the primary intention of the assessee was to derive income from the property as the owner, and the additional services were merely incidental. The income was therefore assessable under the head 'Income from House Property'.
Ratio / Practitioner take-away: Established the 'primary intention' test for serviced lettings: where the dominant object is exploitation of the property qua property, mere provision of incidental services does not convert HP income into business income. Cited extensively in disputes over service apartments, commercial complexes with maintenance charges, and similar arrangements.
8. Chennai Properties and Investments Ltd. v. CIT — (2015) 373 ITR 673 (SC)
Facts: The assessee company was incorporated with the principal object — clearly stated in its Memorandum of Association — of acquiring properties in Chennai and letting them out. Its entire income consisted of rentals from such commercial properties.
Issue: Whether the rental income was taxable under Section 22 (House Property) or Section 28 (PGBP), in light of the longstanding rule in East India Housing.
Held: The Supreme Court reviewed the entire line of authority and held that where the main object of the company is to acquire properties and earn income by letting them out, such rental income is business income chargeable under the PGBP head. The Court distinguished East India Housing on facts and revived the principle that the character of the activity, not merely the source, governs classification when the activity itself is the business.
Ratio / Practitioner take-away: A watershed decision that reopened the East India Housing rule for closely-held leasing companies. Where MoA expressly contemplates leasing as the business and the activity is conducted systematically, rental income is PGBP — with the consequential advantage of business-loss set-off and depreciation. Routinely invoked by realty-leasing companies.
Facts: The assessee company had earlier been engaged in manufacturing typewriters; it had subsequently discontinued manufacturing and was solely engaged in leasing out its commercial properties. The Department sought to assess the rental income as house-property income.
Issue: Whether, after the assessee had discontinued its manufacturing operations and was exclusively in the business of leasing, the rental income could still be classified as business income.
Held: Following Chennai Properties, the Supreme Court held that since the only business of the assessee was leasing the properties and earning rents, the income was business income, not house-property income. The Court reaffirmed that the business character of the activity, once established, determines the head.
Ratio / Practitioner take-away: Reinforces Chennai Properties. Even a former manufacturing company can transition to a leasing business and have its rentals taxed under PGBP, provided the leasing activity is the substantive and sole business. Useful for restructured companies that have pivoted to real-estate leasing.
Facts: The assessee was a firm holding properties (shops in a market) which were let out to occupants. The MoA / partnership deed referred to leasing as one of its activities. The Department invoked Section 22; the assessee relied on Chennai Properties.
Issue: Whether the mere presence of a leasing object in the constitution document was sufficient to render the rental income as business income under Chennai Properties, or whether something more was required.
Held: The Supreme Court held that the mere existence of an object clause permitting leasing is insufficient. The Court must examine whether the assessee, in substance and through its conduct, carried on the leasing activity as a business — i.e., whether the activity bore the indicia of organised, systematic, profit-motivated exploitation. On the facts, the assessee had failed to demonstrate this, and the income was correctly taxable under House Property.
Ratio / Practitioner take-away: Critical limiter on Chennai Properties — practitioners cannot blindly rely on object-clause language. To bring rentals under PGBP one must establish, by documentary evidence, that leasing is conducted as an organised business: staffing, infrastructure, systematic acquisition and disposal, scale, etc. Frequently cited by AOs to deny Chennai Properties relief.
11. Sambhu Investment (private)/ followed in CIT v. Anil Kumar Lath — Various HC decisions following Sultan Brothers principle
Facts: In several reported decisions, including before various High Courts, assessees let out godowns, warehouses or industrial sheds together with limited services. Departmental contention varied between House Property, PGBP and Other Sources.
Issue: How to classify storage-cum-warehouse-cum-service arrangements where neither the building element nor the service element clearly dominates.
Held: Where the building is the substantive subject-matter of the letting and services are ancillary, the income is HP; where services predominate and the building is incidental (cold storage, container freight stations), the income is business or other sources. The Sultan Brothers three-fold test is applied at first instance.
Ratio / Practitioner take-away: Group of authorities clarifying the borderline between HP and PGBP/Other Sources in modern warehousing and logistics arrangements. Important for CFS, cold-storage, data-centre and co-working operators in classifying receipts.
12. CIT v. P.M. Mohammed Meerakhan — (1969) 73 ITR 735 (SC)
Facts: The assessee, an individual, acquired an estate, exploited it commercially over several years by selling parcels, and the Department sought to tax the gains as business income; the assessee claimed capital gains.
Issue: Whether the receipts constituted business income (PGBP) or capital gains, applying the doctrine of 'venture in the nature of trade'.
Held: The Supreme Court held that on the facts the activity bore the indicia of an 'adventure in the nature of trade' — the holding period, the systematic sub-division and sale, the absence of personal use — and the receipts were business income.
Ratio / Practitioner take-away: Demonstrates that the heads of income are not static labels but are determined by the substantive character of the assessee's activity. Critical authority on the PGBP-versus-Capital-Gains classification for real-estate transactions, share dealings, and similar receipts.
E. CONNECTED PROVISIONS AND CROSS-REFERENCES
Section 14 must be read with Section 4 (charge of income-tax on total income), Section 5 (scope of total income), Section 14A (disallowance of expenditure for exempt income — discussed in the companion digest), Sections 15-17 (Salaries), Sections 22-27 (House Property), Sections 28-44DB (PGBP), Sections 45-55A (Capital Gains), Sections 56-59 (Other Sources), and Sections 70-80 (set-off and carry-forward of losses, which operate on the head-wise computation produced under Section 14).
F. NOTE ON CITATIONS AND VERIFICATION
All citations above are drawn from reported decisions and are widely cited authorities on Section 14. Practitioners are advised to verify the pin-cite and headnote currency before reproducing in court briefs or written submissions, particularly for HC decisions that may have been carried to the Supreme Court in SLP. The summary statements of facts, issue, holding and ratio reflect the established understanding of these authorities; for verbatim extracts the practitioner should consult the original law-report text.
Function in the statutory architecture
Section 14 provides that, save as otherwise provided by the Act, all income shall, for the purposes of charge of income-tax and computation of total income, be classified under the heads it lists: A. Salaries; C. Income from house property; D. Profits and gains of business or profession; E. Capital gains; F. Income from other sources. Head B appears in the text only as “[***]”.
The section applies to every assessee. It does not itself charge tax. It sets the structure for computation: each head is computed under its own group of sections, namely s. 15 to s. 17 for salaries, s. 22 to s. 27 for house property, s. 28 onwards for business or profession, s. 45 onwards for capital gains and s. 56 to s. 59 for other sources.
Operative consequences
Status
The section is operative for AY 2026-27. The Finance Act, 2026 does not amend this section.
The 1961 Act governs AY 2026-27 and earlier assessment years; the Income-tax Act, 2025 governs tax year 2026-27 onwards. For this subject, the 2025 Act provision is s. 13.
Case Laws & Commentary
SECTION 14 — HEADS OF INCOME
Case-Law Digest with Commentary — Income-tax Act, 1961 (as amended by the Finance Act, 2026)
A. SECTION SNAPSHOT
Section 14 is the gateway provision of Chapter IV. It directs that, save as otherwise provided in the Act, all income shall, for the purposes of charge of income-tax and computation of total income, be classified under five heads — A. Salaries; C. Income from house property; D. Profits and gains of business or profession; E. Capital gains; F. Income from other sources. (Head B — 'Interest on securities' — was omitted by the Finance Act, 1988 with effect from 1 April 1989, and securities-interest now falls either under PGBP or under Other Sources depending on facts.)
Although the section is brief and classificatory, it is the constitutional backbone of the computation Chapter. Each head carries its own rules of inclusion, deduction and computation (Sections 15 to 59), and the entire architecture of business deductions, depreciation, capital-gains exemptions and inter-head set-off rests on the head into which a receipt is dropped.
B. COMMENTARY — THE DOCTRINE OF MUTUAL EXCLUSIVITY
The settled law, traceable to United Commercial Bank (1957) and reaffirmed in East India Housing (1961), is that the heads of income under Section 14 are mutually exclusive. A given receipt must be allocated to one — and only one — head; it cannot be split between heads, nor can the Department select the head most advantageous to revenue. The choice of head is governed by the substantive character of the receipt, not by the assessee's nomenclature, accounting entries, or the Department's preference. This mutual-exclusivity rule operates in two directions: (i) once a receipt is held assessable under a specific head, it cannot be re-routed under a residual head, and (ii) once the specific provisions of that head (Sections 15-17, 22-27, 28-44DB, 45-55A or 56-59) apply, no other head's rules may be borrowed.
Where, however, the substantive activity that generates the income is itself a business — leasing as the business of the company (Chennai Properties, 2015; Rayala Corporation, 2016), composite letting of plant-cum-building as a profit-making activity, systematic exploitation of leasehold rights (Karanpura, 1962) — the income, although derived from or routed through property, is taxable under the PGBP head. The 2017 decision in Raj Dadarkar then qualifies Chennai Properties: a leasing clause in the MoA, standing alone, does not suffice; the assessee must demonstrate the organised, systematic and commercial character of the leasing activity. This trilogy — East India Housing → Chennai Properties → Raj Dadarkar — now governs every dispute over realty-leasing classification, and is the most-litigated area under Section 14.
Practitioner take-aways: (a) Determine the head by reference to the substantive activity, supported by contemporaneous documentation (MoA, board resolutions, lease deeds, scale of operations, staffing). (b) Where receipts are composite (rent + services + facilities), apply the three-fold test in Sultan Brothers before classifying. (c) Remember that head-of-income determination has cascading effects — eligibility for Section 24 standard deduction, Section 32 depreciation, Section 71 inter-head set-off, Section 54/54F exemption, and presumptive-taxation regimes — making this an issue best resolved at the planning stage rather than at assessment.
C. POSITION UNDER FINANCE ACT, 2026
Section 14 itself has not been substantively amended by the Finance Act, 2026. The classificatory architecture — five heads of income — and the rule of mutual exclusivity continue unaltered. All judicial precedents collated below therefore continue to apply in full vigour to assessment years governed by the post-FA-2026 text.
D. CASE LAW — LANDMARK JUDICIAL PRECEDENTS
The following landmark decisions are arranged in the order in which the doctrinal lines developed. Each entry sets out the facts, the issue, the holding and the practitioner take-away. All citations are reported authorities.
1. United Commercial Bank Ltd. v. CIT — (1957) 32 ITR 688 (SC)
Facts: The assessee bank earned interest on tax-free securities. The question was the manner of computing income — whether the totality of income or the income under each head was the subject of charge.
Issue: Whether income-tax is levied on the totality of income or on income classified head-wise; and what is the function of the heads in Section 6 (now Section 14) of the Act.
Held: The Supreme Court (Bhagwati J.) held that income-tax is one tax on the totality of an assessee's income. The classification under the several heads of income is intended only for the purpose of computation; each head supplies its own rules of computation, but the levy itself is on the aggregate. The heads are statutorily mutually exclusive in the sense that the same item of income cannot be charged under two different heads.
Ratio / Practitioner take-away: Foundational authority establishing two enduring principles — (a) unitary nature of income-tax, and (b) mutual exclusivity of the heads. Every subsequent classification dispute (Karanpura, Chennai Properties, Rayala) traces back to these propositions. Practitioners cite this where the Department attempts to bring a single receipt under two heads.
2. East India Housing and Land Development Trust Ltd. v. CIT — (1961) 42 ITR 49 (SC)
Facts: The assessee company was incorporated with the object of buying land, developing it as a market, and letting out shops and stalls. Its sole source of income was the rent from the shops it had constructed.
Issue: Whether the rental income from the shops was assessable as 'income from business' under the PGBP head or as 'income from house property' under Section 22.
Held: The Supreme Court held that the income was chargeable under the head 'Income from House Property' and not as business income, even though letting out of the property was the assessee's main business. The character of the income, as derived from the ownership of property, determined the head; the motive or the object clause of the company was immaterial.
Ratio / Practitioner take-away: Established the orthodox rule that rental income from owned property is taxable under Section 22 — irrespective of whether letting is the principal business — because the heads are mutually exclusive and Section 22 is the specific provision for the income flowing from ownership of building. This rule survived intact for over five decades until Chennai Properties (2015) carved out an exception.
3. Karanpura Development Co. Ltd. v. CIT — (1962) 44 ITR 362 (SC)
Facts: The assessee company acquired coal-mining leases from the colliery owners and, in turn, sub-leased portions to working colliery operators, collecting salami and royalties.
Issue: Whether the income from sub-leases was chargeable as business income under the PGBP head or as income from other sources / property.
Held: The Supreme Court held that the income was business income. The assessee was not enjoying the leasehold for its own use; rather, it was engaged in the systematic activity of acquiring leases and sub-letting them on commercial terms — that activity constituted a business, and the receipts were the profits of that business.
Ratio / Practitioner take-away: Counterpoint to East India Housing. Where the assessee is not the owner of the property but exploits limited rights commercially (leasehold sub-let), the income is PGBP, not house property. Useful authority where the assessee holds property under leasehold or licence and exploits it for profit-making activity.
4. Sultan Brothers (P) Ltd. v. CIT — (1964) 51 ITR 353 (SC)
Facts: The assessee constructed a building, fitted it with furniture, fixtures and air-conditioning, and let it out fully equipped to a hotel operator under a single, indivisible lease for a composite rent.
Issue: Whether the income was assessable under Section 22 (house property), Section 28 (PGBP) or Section 56 (other sources) — specifically whether the composite letting attracted then-Section 12(4) (now Section 56(2)(iii)).
Held: The Supreme Court (Sarkar J.) laid down a three-fold inquiry: (i) was there a letting of the building? (ii) was there a letting of the plant, machinery or furniture? (iii) were the two lettings inseparable? Where the lettings were inseparable and the assessee's intention was to enjoy them together, the income fell under 'other sources' by virtue of the specific provision. Whether a particular letting constitutes 'business' depends on the circumstances of each case.
Ratio / Practitioner take-away: The 'three-tier test' continues to govern composite-letting cases. Where furnished accommodation, plant or commercial assets are let together with the building, the practitioner must apply this test before classifying under House Property or Other Sources.
5. S.G. Mercantile Corporation (P) Ltd. v. CIT — (1972) 83 ITR 700 (SC)
Facts: The assessee, a company, took a market on lease from the Calcutta Corporation, developed it and sub-let stalls to occupants. The Department sought to tax the income under the head 'House Property'.
Issue: Whether the income from sub-letting was assessable as business income under Section 28 or as income from house property under Section 22, given that the assessee was not the owner of the property.
Held: The Supreme Court held that since the assessee was not the owner of the property within the meaning of Section 22 — it merely held a leasehold — Section 22 was inapplicable. The systematic activity of sub-letting amounted to a business; the income was assessable under Section 28.
Ratio / Practitioner take-away: Confirms that ownership (or deemed ownership under Section 27) is a sine qua non for taxation under Section 22. A leaseholder who commercially exploits leasehold premises is taxed under PGBP. Practitioners must verify ownership status before invoking Section 22.
6. Universal Plast Ltd. v. CIT — (1999) 237 ITR 454 (SC)
Facts: The assessee, which had been carrying on manufacturing, temporarily discontinued production owing to commercial difficulties and leased out its factory premises along with the plant and machinery. The receipts were sought to be taxed as business income; the Department contended that they were income from other sources.
Issue: Whether the rental income from a temporarily-leased manufacturing unit retained its business character or stood converted into income from other sources.
Held: The Supreme Court enumerated five propositions and held that the question is one of intention: did the assessee intend to part with the asset permanently or temporarily? Where the intention is to resume the business after a hiatus, the rent retains its business character. On the facts, the income was business income.
Ratio / Practitioner take-away: Provides the 'intention test' for temporary leasing of business assets — vital authority where a business is suspended and its assets let out. Practitioners must document intention (board resolutions, lease tenure, resumption clauses) to defend a business-income characterisation.
7. Shambhu Investment (P) Ltd. v. CIT — (2003) 263 ITR 143 (SC)
Facts: The assessee owned a property, furnished it, provided services such as security, common-area maintenance and utilities, and let it out to occupants on monthly tenancy. The receipts included rent and service charges.
Issue: Whether the receipts from such furnished, serviced letting were assessable as business income or as income from house property.
Held: The Supreme Court affirmed the High Court's view that the primary intention of the assessee was to derive income from the property as the owner, and the additional services were merely incidental. The income was therefore assessable under the head 'Income from House Property'.
Ratio / Practitioner take-away: Established the 'primary intention' test for serviced lettings: where the dominant object is exploitation of the property qua property, mere provision of incidental services does not convert HP income into business income. Cited extensively in disputes over service apartments, commercial complexes with maintenance charges, and similar arrangements.
8. Chennai Properties and Investments Ltd. v. CIT — (2015) 373 ITR 673 (SC)
Facts: The assessee company was incorporated with the principal object — clearly stated in its Memorandum of Association — of acquiring properties in Chennai and letting them out. Its entire income consisted of rentals from such commercial properties.
Issue: Whether the rental income was taxable under Section 22 (House Property) or Section 28 (PGBP), in light of the longstanding rule in East India Housing.
Held: The Supreme Court reviewed the entire line of authority and held that where the main object of the company is to acquire properties and earn income by letting them out, such rental income is business income chargeable under the PGBP head. The Court distinguished East India Housing on facts and revived the principle that the character of the activity, not merely the source, governs classification when the activity itself is the business.
Ratio / Practitioner take-away: A watershed decision that reopened the East India Housing rule for closely-held leasing companies. Where MoA expressly contemplates leasing as the business and the activity is conducted systematically, rental income is PGBP — with the consequential advantage of business-loss set-off and depreciation. Routinely invoked by realty-leasing companies.
9. Rayala Corporation (P) Ltd. v. ACIT — (2016) 386 ITR 500 (SC)
Facts: The assessee company had earlier been engaged in manufacturing typewriters; it had subsequently discontinued manufacturing and was solely engaged in leasing out its commercial properties. The Department sought to assess the rental income as house-property income.
Issue: Whether, after the assessee had discontinued its manufacturing operations and was exclusively in the business of leasing, the rental income could still be classified as business income.
Held: Following Chennai Properties, the Supreme Court held that since the only business of the assessee was leasing the properties and earning rents, the income was business income, not house-property income. The Court reaffirmed that the business character of the activity, once established, determines the head.
Ratio / Practitioner take-away: Reinforces Chennai Properties. Even a former manufacturing company can transition to a leasing business and have its rentals taxed under PGBP, provided the leasing activity is the substantive and sole business. Useful for restructured companies that have pivoted to real-estate leasing.
10. Raj Dadarkar & Associates v. ACIT — (2017) 394 ITR 592 (SC)
Facts: The assessee was a firm holding properties (shops in a market) which were let out to occupants. The MoA / partnership deed referred to leasing as one of its activities. The Department invoked Section 22; the assessee relied on Chennai Properties.
Issue: Whether the mere presence of a leasing object in the constitution document was sufficient to render the rental income as business income under Chennai Properties, or whether something more was required.
Held: The Supreme Court held that the mere existence of an object clause permitting leasing is insufficient. The Court must examine whether the assessee, in substance and through its conduct, carried on the leasing activity as a business — i.e., whether the activity bore the indicia of organised, systematic, profit-motivated exploitation. On the facts, the assessee had failed to demonstrate this, and the income was correctly taxable under House Property.
Ratio / Practitioner take-away: Critical limiter on Chennai Properties — practitioners cannot blindly rely on object-clause language. To bring rentals under PGBP one must establish, by documentary evidence, that leasing is conducted as an organised business: staffing, infrastructure, systematic acquisition and disposal, scale, etc. Frequently cited by AOs to deny Chennai Properties relief.
11. Sambhu Investment (private)/ followed in CIT v. Anil Kumar Lath — Various HC decisions following Sultan Brothers principle
Facts: In several reported decisions, including before various High Courts, assessees let out godowns, warehouses or industrial sheds together with limited services. Departmental contention varied between House Property, PGBP and Other Sources.
Issue: How to classify storage-cum-warehouse-cum-service arrangements where neither the building element nor the service element clearly dominates.
Held: Where the building is the substantive subject-matter of the letting and services are ancillary, the income is HP; where services predominate and the building is incidental (cold storage, container freight stations), the income is business or other sources. The Sultan Brothers three-fold test is applied at first instance.
Ratio / Practitioner take-away: Group of authorities clarifying the borderline between HP and PGBP/Other Sources in modern warehousing and logistics arrangements. Important for CFS, cold-storage, data-centre and co-working operators in classifying receipts.
12. CIT v. P.M. Mohammed Meerakhan — (1969) 73 ITR 735 (SC)
Facts: The assessee, an individual, acquired an estate, exploited it commercially over several years by selling parcels, and the Department sought to tax the gains as business income; the assessee claimed capital gains.
Issue: Whether the receipts constituted business income (PGBP) or capital gains, applying the doctrine of 'venture in the nature of trade'.
Held: The Supreme Court held that on the facts the activity bore the indicia of an 'adventure in the nature of trade' — the holding period, the systematic sub-division and sale, the absence of personal use — and the receipts were business income.
Ratio / Practitioner take-away: Demonstrates that the heads of income are not static labels but are determined by the substantive character of the assessee's activity. Critical authority on the PGBP-versus-Capital-Gains classification for real-estate transactions, share dealings, and similar receipts.
E. CONNECTED PROVISIONS AND CROSS-REFERENCES
Section 14 must be read with Section 4 (charge of income-tax on total income), Section 5 (scope of total income), Section 14A (disallowance of expenditure for exempt income — discussed in the companion digest), Sections 15-17 (Salaries), Sections 22-27 (House Property), Sections 28-44DB (PGBP), Sections 45-55A (Capital Gains), Sections 56-59 (Other Sources), and Sections 70-80 (set-off and carry-forward of losses, which operate on the head-wise computation produced under Section 14).
F. NOTE ON CITATIONS AND VERIFICATION
All citations above are drawn from reported decisions and are widely cited authorities on Section 14. Practitioners are advised to verify the pin-cite and headnote currency before reproducing in court briefs or written submissions, particularly for HC decisions that may have been carried to the Supreme Court in SLP. The summary statements of facts, issue, holding and ratio reflect the established understanding of these authorities; for verbatim extracts the practitioner should consult the original law-report text.