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Commissioner of Income-tax, Bombay Vs. National Storage Private Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 45 of 1960
Judge
Reported inAIR1993Bom151; 1962(64)BLJR740; [1963]48ITR577(Bom); 1963MhLJ143
ActsIncome Tax Act, 1961 - Sections 9 and 10
AppellantCommissioner of Income-tax, Bombay
RespondentNational Storage Private Ltd.
Appellant AdvocateG.N. Joshi, Adv.
Respondent AdvocateN.A. Palkhivala, Adv.
Excerpt:
indian income-tax act (xi of 1922), sections 10, 9 - income derived from letting of property accompanied with facilities and services rendered--whether such income, income from business under section 10 or income from property under section 9.;a company was formed with the object of carrying on the business of storing and preserving films and other articles of cinema industry, and generally to carry on all sorts of business of safe deposit vaults in all its aspects. the company purchased a plot of land and built thereon a certain number of units containing vaults, which were constructed and equipped in accordance with the cinematograph film rules, 1948. thereafter the company entered into agreements, which were called licences, with persons who wanted to store their films in the vaults,.....desai, j.1. this is a reference under section 66(1) of the indian income-tax act (hereafter referred to as the act), and the questions which are raised thereon arise out of the orders of assessment of the national storage private limited, bombay (respondent herein), for the assessment years 1953-54, 1954-55, 1955-56 and 1956-57. the assessee company was promoted by the film distributors of bombay and was incorporated on the 23rd of october, 1948. the activity of the company, which was set out in clause (1) of the objects clause of the memorandum of association, 'was to carry on the business of storing and preserving films, chemicals, cinema accessories and any articles of merchandise in cinema accessories and any articles of merchandise in cinema industry in suitable vaults specially.....
Judgment:

Desai, J.

1. This is a reference under section 66(1) of the Indian Income-tax Act (hereafter referred to as the Act), and the questions which are raised thereon arise out of the orders of assessment of the National Storage Private Limited, Bombay (respondent herein), for the assessment years 1953-54, 1954-55, 1955-56 and 1956-57. The assessee company was promoted by the film distributors of Bombay and was incorporated on the 23rd of October, 1948. The activity of the company, which was set out in clause (1) of the objects clause of the memorandum of association, 'was to carry on the business of storing and preserving films, chemicals, cinema accessories and any articles of merchandise in cinema accessories and any articles of merchandise in cinema industry in suitable vaults specially constructed for the purpose and equipped with all the necessary arrangements.' Clause 2 enabled the assessee company 'to carry on the business of storage of articles in the cinema industry and for that purpose to build or construct such other vault or vaults as may be deemed necessary by the company.' Clause (3) set out the objects of the company as 'generally to carry on all sorts of business of safe deposit vaults in all its aspects.' Clause (5) authorised the company 'to acquire by purchase or lease a suitable plot of land and to construct thereon safe deposit vaults and other necessary buildings as may be thought fit by the company.' What led to the incorporation of this company was the promulgation of the Cinematograph Film Rules, 1948, by the Government of India, under which films were required to be stored in specially constructed premises strictly in conformity with the specifications laid down in the said rules and situated to be approved by the Chief Inspector of Explosives, Government of India. Under these rules, a place at Mahim was approved by the Chief Inspector of Explosives, Government of India, as a suitable place for the construction of the film godowns. the company after its incorporation purchased a plot a Mahim, the place which was approved of by the Chief Inspector of Explosives, and constructed 13 units on the said plot of land in conformity with the specifications laid down in the Cinematograph Film Rules of 1948. Twelve of these 13 units were constructed of members of the Indian Motion Pictures Distributors Association, who had taken part in the floating of the company and the 13 the unit was made available for the use of foreign film distributors in Bombay, who were not members of the Indian Motion Pictures Distributors in Bombay, who were not members of consisted of four vaults and each vault had a ground-floor for re-winding of films and an upper floor for storage of films. After the construction of these units, the vaults were permitted by the company to be used by the film distributors on terms and conditions of the agreements arrived at between them and the company. Some of these agreements which were entered into with the members of the Indian Motion Pictures distributors Association, who had subscribed a large amount towards the share capital of the company, were classified as 'A' licences and the charges for these 'A' licences were Rs. 40 per month. The other agreements, which were entered into with members of the Indian Motion Pictures Producers Association, who had only supplied a small share of capital, were classified as 'B' licence-holders and were charged at Rs. 140 per month. The licences granted to the foreign film distributors, for whom one unit of four vaults was reserved, were charged at Rs. 300 per month for each vault at the beginning but later on those charges were reduced Rs. 100 per month. Under these agreements the right to use the vaults was given initially for a period of five years. The vault-holder was given a key of the vault but the key of the entrance, which permitted access to the vaults, remained in the exclusive possession of the company. The company also rendered certain services to the vault-holders. It had installed a fire alarm and had obtained the fire service from the municipality for which it was paying a certain annual amount to the municipality. It had opened two railway booking offices in the premises free of charge for the convenience of the vault-holders for dispatch and receipt of film parcels. It was also running a canteen in the premises and had installed a telephone. It also appears that it had maintained a regular staff for running the aforesaid services in the form of a secretary, a peon and two watchmen and a sweeper. Besides, the entire staff of the Indian Motion Pictures Distributors Association was paid Rs. 800 by the company for the part-time services rendered by them. During the first three years after its incorporation, i.e., during the assessment years 1950-51, 1951-52 and 1952-53, the department assessed the company under section 10 of the Income-tax Act. For the subsequent four assessment years, which is the period in question in the present reference the Income-tax officer took the view that the income which the company obtained was appropriately to be assessed under section 9 and not under section 10 of the Act. He, accordingly, made the assessment for these years on that basis. In the appeal, which the assessee company filed before the Appellate Assistant Commissioner, the view taken by the Income-tax Officer was confirmed. When the matter came before the Income-tax Appellate Tribunal, there was a difference of opinion between the two Members of the Tribunal. According to the Judicial Member, the company had leased out its premises to the vault-holders and the income which it obtained was the income from the house property, which appropriately fell under section 9 of the Act, and, according to him, therefore, the department was right in taxing the income under section 9 of the Act. In the view of the Presidents, the agreements of the vault-holders with the company were not leases but merely licences and that the company in granting these licences to the vault-holders was carrying on business in the premises of a type similar to that carried on by banks in safe deposit vaults. According to him, therefore, the income, which the company obtained, was the income from its business and was, therefore, taxable under section 10 of the Act. In view of this difference between the two members of the Tribunal, the following question arising on the difference was referred to the third Member :

'Whether, on the facts and circumstances of the case, the vaults were used for the purposes of the business and income arising therefrom is assessable under section 10 or section 9.'

2. The third Member agreed with the view taken by the President. According to him, the agreements entered into by the company with the vault-holders amounted to licences and not leases and having regard to the terms of the agreement, the objects for which the company was incorporated and the conduct of the company including the various services rendered by it to the vault-holders, it was clear that the company was carrying on business in the premises and the income which it obtained was its income from business assessable under section 10 of the Act. In accordance with the view taken by the President and the third Member, to whom the question was referred, the Tribunal allowed the assessee's appeal, set aside the orders of assessment passed by the department and directed that the income be computed under section 10 of the Act. On an application by the department under section 66(1), the Tribunal has drawn up a statement of the case and referred the following two questions to this court :

'1. Whether, on the facts and circumstances of the case, the vaults were used for the purposes of the business and income arising therefrom is assessable under section 10

2. If the answer to question No. 1 is in the negative, whether the income is assessable under section 9 or section 12 ?'

3. The dispute, which arises on the present reference, is whether, on the facts and circumstances of the case, the income of the company is taxable under the head 'income from business' under section 10 or under the head 'income from property' falling under section of the Act. The contention of the assessee company is that it falls under the former, while the department contends that it falls under the latter. Counsel for the revenue has contended that the income falls under section 9 because the sources of the income is ownership of the property. According to him, the company has invested money in the construction of certain special type of buildings and in granting the licences to the vault-holders, it has exploited its property and earned income therefrom. There is no business activity of the company other than the activity of any property owner letting out his property and earning income therefrom. According to him, therefore, the income which the company gets from its property is income which falls under section 9 of the Act.

4. It is contended on behalf of the assessee company on the other hand that the income in the present case is not derived either wholly or even substantially from the ownership of the property. The income is not derived from the mere letting of a tenement but the income is derived from a complex of letting the substantial part of which is other than the bare tenement. It is argued that the income is obtained for providing facilities for the storage of the films and for the services rendered in that connection, the providing of the vault for storage of the films being merely a small part of the transaction. The further argument is that the arrangement in the present case is in the course of and as a part of the business of the company and the enterprise which it has entered upon is of providing special facilities for the storage of films in accordance with the rules and specifications of the Indian Cinematograph Film Rules, 1948, and thus carry on the business of storage of films, etc. The activity of the company, therefore, in granting licence for the use of the vaults to the vault-holders on the facts and circumstances of the case is a business activity and the income derived by the company is its income from business. The alternative argument of the assessee company is that even if the income would have otherwise fallen under section 9, its case is covered by the exception to the said section since the premises are occupied by the assessee for its own business.

5. The counsel for the revenue in support of his submission that the income in the present case falls under section 9 of the Act has argued that the classification of the heads of income under section 9 of the Income-tax Act is exclusive and exhaustive and the income which falls under each of these specific heads must be computed in the manner as provided in sections 7 to 12 and no other. Thus, according to him, if the income falls under the head 'income from property', it must be brought to tax under section 9 and could not be taxed either under section 10 or section 12 of the Act. It does not matter, he contends, whether the property is held in the course of trade or the business of the assessee consists of dealing in property. The income so long as it is income from property, its source is the ownership of the property and not the business and must, therefore, be taxed under section 9 of the Act. In the present case, he argues, the income is form property; the company might have been started with the object of deconstructing property of the kind which it had constructed and given on licences to the vault-holders and it may be that that is the business of the company. However, since the income, which the company is getting, is from the letting of the property or giving it of or use and occupation on licence basis, its income is income from property taxable under section 9 of the Act. The primary nature of the source of the income, according to the learned counsel, is the ownership and that nature is not in any way altered or changed because of certain additional services rendered by the property owner to the persons to whom it is let or given for use and occupation. According to him the services rendered by the company in the present case to the licence-holders are incidental and of a minor character and are not such as would render the transaction not one of letting or property but carrying on a business activity apart from the letting of property. In support of these submission he had invited our attention to the following cases :

(1) United Commercial Bank Ltd. v. Commissioner of Income-tax.

(2) Commercial Properties Ltd., In re.

(3) Ballygunge Bank Ltd. v. Commissioner of Income-tax.

(4) Salisbury House Estate Ltd. v. Fry.

(5) East India Housing & Land Development Trust Co. Ltd. v. Commissioner of Income-tax.

6. United Commercial Bank Ltd. v. Commissioner of Income-tax was a case not under section 9 but under section 8 of the Indian Income-tax Act. the question considered in that case was whether the income from interest on securities which were held by the assessee as part of its trading assets in the course of its business fell under section 8 or under section 10 of the Indian Income-tax Act. It was held in that case that it fell under section 10. Mr. Joshi has relied on this case for the purpose of his argument that the heads under section 6 of the Act are specific heads, which are exclusive and exhaustive and if the income fell under any of these specific heads, which are exclusive and exhaustive and if the income fell under any of these specific heads, it had to be taxed under that heads alone in the manner provided under the Act and not under any other head. If the interest was obtained on securities, it made no difference whether the securities were used as trading assets in the course of trade or not. the income still had to be taxed under section 8 because there was a specific head to which the income belonged. Mr. Joshi has argued that similarly in the case of income from property, whether the income from property was obtained in the course of business or not, did not make any difference and it had to be taxed under section 9 and no other head. It is true that if the income in the present case be said to fall under the head 'income from property', it will be taxable under section 9 unless it comes within the exception provided in the said section. The question, however, which has to be determined is whether in the first place the income, which the company has obtained in the present case, is income from property and, secondly, whether in obtaining the income from property, the property has not been in the use and occupation of the company for the purposes of its business.

7. Commercial Properties Ltd., In re , cited by Mr. Joshi was a case under section 9 of the Act. It was held in that case that a company owning house property and carrying on only the business of letting out such houses is liable to income-tax under section 9 of the Indian Income-tax Act in the same way as a private individual owning such property. The company in the said case was a registered company of which the sole object was to acquire land, build houses and let premises to tenants in Calcutta or elsewhere in India. The assets of the company consisted of three properties and its sole business was the management and collection of rents from the said properties. It was contended in that case that, since the company was formed with the object of carrying on business, the income which it received from the properties was income from business under section 10 that contention, however, was negatived and it was pointed out that the company was carrying on no other business except such activity as was carried on by every landlord or owner of that type of property in exploiting the same. It was held that the income came directly and specifically under the word 'property' and the mere fact that the house owner was a company did not change the incidence of the tax and make it income not from property. This was a case of mere letting out of house property without anything more and what was held in this case was that even if such letting was done by a registered company, which had been formed with the object of carrying on such business, the nature of the income would still be income from property and not income from business. In the case before us what the assessee company has done is not merely letting out of a tenement, but it has in the first place constructed a special type of tenement and fitted it with several devices so as to conform with the several specification contained in the Cinematograph Film Rules and it has further provided the licence-holders with several other facilities and maintained a staff and incurred expenses for maintaining the special and mechanised devices and other facilities suitable to the trade of storage of films.

8. In the next case, Ballygunge Bank Ltd. v. Commissioner of Income-tax, cited by Mr. Joshi, it was held, following the decision in Commercial Properties Ltd., In re , that 'income derived from the ownership of buildings is chargeable to tax under section 9 of the Indian Income-tax Act irrespective of whether an individual or a company is the owner and also irrespective of whether one of a company's objects, or its sole object, is to acquire and let out buildings at rents; ownership itself is the criterion of assessment under that section.' The company in that case was a limited company, which had, as one of its objects, to acquire land, build houses and let them to tenants. It had obtained the lease of a plot of land for a period of 40 years and had constructed buildings thereon, which it had let out to tenants. This case, like the previous case, was one where the income was received from the ownership of the property and the activities of the company were nothing difference than the activities of a private individual owning property and letting it out to tenants. These two cases cited by Mr. Joshi would only lead to the conclusion that, where the income is derived from the letting out of the bare tenements, the source of income is the ownership of the property and the income appropriately falls under section 9 of the Act.

9. It makes no difference whether the letting is by a private individual or by a company and it also makes no difference even if the company has been formed with the object of indulging in the activity of building houses and letting them out to tenants.

10. The next case cited by Mr. Joshi is the decision of the House of Lords in Salisbury House Estate Ltd. v. Fry (H. M. Inspector of Taxes). In that case the assessee company was a company, the main objects of which were acquisition, development, management, leasing and letting of land and property. It took over some lands with a block of buildings upon it in the City of London, known as Salisbury House. Salisbury House was at the time when it was taken over by the company in the course of erection or had been recently completed and the object for which the company was formed was to hold the same and let it out as offices and turn it to account in any way which might be possible or expedient. Salisbury House had a very large floor space and contained some 800 rooms. These rooms were let out by the company to some 200 tenants singly or in suites, which may or may not be self-contained. The company provided and operated the lifts in the building, which was of nine floors and also provided uniformed staff of 25 persons for that purpose and to act as porters and watch and protect the building. The company also engaged cleaners and a house-keeper. It provided radiators for heating purposes and also supplied lights in the passages of the building. The question, which had to be considered in that case, was whether the rents which the company received from the tenants were covered by Schedule A which related to tax on income from property or fell under Schedule D which related to the income from business. It was held that the rents received by the company fell under Schedule A as income from property and not under Schedule D as income from business. Viscount Dunedin took the view that income-tax was only one tax, a tax on the income of the person whom it was sought to assess, and that the deferred schedules were the modes in which the statute directed the tax to be levied. If the income of the assessee consisted in part of real property, it fell under Schedule A and had to be taxed under that Schedule and no other. In the case in question, he was of the opinion that the income arose from real property and, therefore, had to be taxed under Schedule A only. Lord Warrington in his speech observed :

'The first question to be determined is whether in its capacity as landowner deriving rents from its land the company is carrying on a trade within the meaning of Schedule D and the rules thereunder, and if this question is answered in the negative the further questions raised and argued in this House do not arise.'

11. After examining the facts of the case, the learned and noble Lord observed :

'There is nothing in the facts stated in the case which would properly lead to the conclusion that in dealing with the property the company is acting otherwise than an ordinary and owner would act in turning to profitable account the land of which he is the owner. It would in my opinion be impossible to hold that in such a case the land-owner is carrying on a trade. Such a person would, I think, clearly be assessable under Schedule A only, and his taxable income would be measured by the conventional annual value and not by the amounts of the rents he actually received.'

12. He pointed out that the circumstances that a taxpayer was a limited company did not distinguish its operations from those of an individual. Nor could they be distinguished simply because its memorandum of association enabled it to build houses and let them out on rent. The company was just as capable as an individual of being a landowner and as such deriving rents without thereby becoming a trader. In his view it was the nature of the operations and not its own capacity which must determine whether it was carrying on a trade or not.

13. Lord Atkin based his conclusion on the ground that annual income derived from ownership of lands, tenements and hereditaments could only be assessed under Schedule A and in accordance with the rules of that Schedule. In his opinion it made no difference that the income so derived formed part of the annual profits of a trading concern.

14. Lord Macmillan took the view that landowning, however profitable, was not a trade within the meaning of the income tax code. Property in land as a source of income was dealt with, and could only be dealt with, under Schedule A and the rules of that Schedule prescribe how the income from landed property was to be ascertained and measured. He, however, observed :

'...... income from property which is taxable under, and only under, Schedule A is income derived from the exercise of property rights properly so called.'

15. In his opinion the income of the company was derived from the location of the land or in other words in the normal manner in which property in land yielded revenue and it was, therefore, not possible to hold that it was its income from trade. A land-owner cannot be represented as carrying on a trade of owning land because he makes an income by letting it. The relatively insignificant services for which in company made charges to its tenants were not in his opinion sufficient to convert the company from a landowner into a trader.

16. Mr. Joshi has very strongly relied on this case for his submission that it is not only where there is a bare letting of tenements but also in cases where further services such as cleaning, heating and lighting or the facilities of lifts and canteens are supplied, that the income derived is still the income from property and not income from business. It may, however, be noted that, although there were some services rendered by the company to its tenants, these services were regarded as minor or incidental services not different from the services which an individual landlord provides to the tenants of his house property and it was held the supply of these additional services did not constitute the activity as a trading activity and the source of the income still remained mainly the ownership of the property and the income therefrom was assessable under Schedule A.

17. East India Housing and Land Development Trust Ltd. v. Commissioner of Income-tax is the next case referred to by Mr. Joshi. This was also a case of a limited company, which was incorporated with the objects of developing landed properties and promoting and developing markets. It had purchased a plot of land in the town of Calcutta and set up a market thereon. For the purpose of setting up this market, the company had obtained a licence from the Calcutta Municipality to maintain sanitary and other services and for that purposes it had also maintained staff and had incurred expenditure. The market, which the company had set up, consisted of shops and stalls. It had let out the shops for longer terms and the stalls for temporary durations and had earned income from the said letting. The question that arose was whether the income realised by the company from the tenants of the shops and stalls was liable to be taxed under section 10 of the Income-tax Act as income from business or as income from property under section 9 of the Act. It was held that the income was received from property and fell under section 9 and that the character of the income was not altered merely because some stalls were occupied by the same occupants and the remaining stalls were occupied by a shifting class of occupants or from the fact that the company was required to obtain a licence from the Calcutta Municipality to maintain sanitary and other facilities and for that purpose it had to maintain a staff and to incur expenditure. It was held that the primary source of income from the stalls was the occupation of the stalls and it was a matter of little moment that the occupation which was the source of the income was temporary. In this case also the tenants of the shops and stalls had the advantage of the sanitary and other services which had been provided by the company. These services, however, were regarded a incidental to the letting out of the property and not sufficient to convert the nature of operations of the company into those of trader as distinguished from the operations of a landowner.

18. The two later cases referred to by Mr. Joshi, Salisbury House Estate Ltd. v. Fry (H. M. Inspector of Taxes) and East India Housing and Land Development Trust Ltd. v. Commissioner of Income-tax would lead to the proposition that not only when the letting is of the bare tenement bare also where the letting is along with certain other services and facilities, that the income will be regarded as income derived from the ownership of property and hence income from property if the additional services or facilities rendered to the tenants are of a minor character or such as may be regarded as ordinarily provided by a private landlord to his tenants.

19. Mr. Palkhivala, on the other hand, has contended that there are cases which show that where the letting is not of bare tenements but is of a complex nature and consists of providing specialised devices and facilities and also affording specialised services, the income received is still regarded as income from a business operation or enterprise and not income from property. He has in that connection relied on the House of Lords case in Governors of the Rotunda Hospital, Dublin v. Coman (Surveyor of Taxes). The facts of the case were : The Governors of a maternity hospital, established for charitable purposes by Royal Charter in 1756, were the owners of a building which comprised rooms adapted for public entertainments and which was connected with the hospital buildings proper by an internal passage. These rooms were let out by the hospital for public entertainments, concerts, etc., for periods varying from one night to six months land the income received from such letting was applied to the general maintenance of the hospital. The terms on which the letting was made included the provision of facilities like seating, heating and attendance but an additional charge was levied for gas and electricity supplied. The question arose whether the profits derived from the letting of the rooms were assessable to income-tax under Schedule D as income from business or whether it fell outside the said Schedule being income from property. It was held that the profits derived from the letting of the rooms were assessable under Schedule D as profits of a trade or business. It was contended on behalf of the revenue that the Governors of the Rotunda Hospital were retaining control of the premises, selected the persons to whom the use was granted and regulated the conduct and behaviour of the persons allowed to sort thereto and, for the purpose of enabling or facilitating the making of contract for such user, they had properly fitted up the rooms with fixtures, fittings and other things and had provided attendance and other services. Such utilisation of property, it was claimed, went far beyond the scope of Schedule A. This contention of the revenue was accepted by the House of Lords and the Lord Chancellor in his speech observed :

'When the facts set out in the case stated and the document annexed to it are considered as a whole, it becomes plain that the respondents, with the laudable object of raising an income for the support of their charitable activities, have engaged in what can only be described as a business or a concern in the nature of business, and thereby have earned annual profits....'

20. Viscount Finlay pointed out that the profits were derived not merely from the letting of the tenements but from its being let properly equipped for entertainments with seats, lighting, heating and attendance. the subject which was hired out was a complex one and the mere tenement as it stood without the furniture, fixtures, etc., would have been almost useless for entertainment. The business of the Governors in respect of those entertainments was to have the hall properly fitted and prepared for being hired out for such uses. The profits, therefore, fell under Schedule D and not under Schedule A.

21. Mr. Palkhivala's submission is that the case before us is a case, which does not fall in the category of the case dealt with in Salisbury House Estate Ltd. v. Fry (H. M. Inspector of Taxes). The income derived in the present case is not from mere letting out of the tenement but from the complex operations, which were in the nature of trade or business embarked upon by the assessee. Mr. Palkhivala has argued that the mere circumstance that the property has been let out or given for use and occupation by the assessee is not sufficient to make the income received by the assessee in all cases the income from property. He has submitted as observed by Lord Macmillan in Salisbury House Estate Ltd. v. Fry (H. M. Inspector of Taxes) that the income from property which is taxable under, or only under, Schedule A, is income derived from the exercise of property rights properly socalled. If the income derived is not from the exercise of property rights properly so called, but from a complex letting or hiring as in Governors of the Rotunda Hospital, Dublin v. Coman the income derived does not fall under section 9 as income from property but would appropriately fall under section 10 of the Income-tax Act as income from business. for his submission that in every case where there is a letting out the income does not necessarily come under the head' income from property'. Mr. Palkhivala has invited our attention to two more cases. The first of these if Jamshedpur Engineering & Machine Co. v. Commissioner of Income-tax. In that case the assessee company, which was carrying on business of manufacturing and selling agricultural implements, had constructed residential quarters for its employees and let out the quarters to its employees, as incidental to its main business. The company incurred expenditure for repairs and maintenance of the residential quarters. The question arose as to whether the income received by the company by way of rents from the employees feel under section 9 of the Income-tax Act as income from, property. It was held that the letting out of residential quarters was subservient to and incidental to the main business and section 9 of the Act did not apply. The same is the view taken in Rohtas Industries Ltd. v. Commissioner of Income-tax. The assessee company in that case carried on the business of manufacture and sale of cement, sugar, paper pulp and certain chemical products. It owned certain buildings and residential quarters around its factory most of which it let out to its employees and some to outsiders. It was held that the letting out was subservient to an incidental to the main business of the assessee and the exception to section 9(1) of the Indian Income-tax Act applied. The rent received by the assessee for the letting out of the quarters to its employees was assessable not under section 9 but under section 10 of the Act.

22. From the several cases, which have been cited on either side, the following conclusions appear to follow :

1. Income-tax is a single tax levied on the total income classified and chargeable under the various heads and not an aggregate of the distinct taxes levied separately on each head of income.

2. That the heads of income in section 6 of the Act are specific heads, which are exclusive and exhaustive.

3. The income which falls under any of these specific heads has got to be computed under that head only in the manner specified in the following sections 7 to 12.

4. If the income falls under the head 'income from property', which is chargeable under section 9, it has to be taxed under section 9 only and cannot be taken to section 10 on the ground that the business of the assessee was to exploit property and earn income or because the income was obtained by a trading concern in the course of its business.

5. House-owning, however profitable, cannot be a business or trade under the Income-tax Act. Where income is derived from house property by the exercise of property rights properly so called, the income falls under the head 'income from property' chargeable under section 9. It is the nature of the operations and not the capacity of the owner that must determine whether the income is from property or from trade. Where the operations involved in the activity of earning income from house property are not different from those of an ordinary house-owner turning to profitable account the property of which he is the owner, the income derived is income from property chargeable under section 9 irrespective of whether the operations are carried on by a company one of whose objects or even the sole object is to indulge in the activity of learning income from house property. Thus, where house property is given on lease or licence basis for earning income therefrom, the true character of the income derived is income from property falling under section 9. The said character is not changed and the income does not become income from trade or business if the hiring is inclusive of certain additional services such as heating, cleaning, lighting or sanitation, which are relatively insignificant and only incidental to the use and occupation of the tenements.

6. In cases where the income received is not from the bare letting of the tenement or from the letting accompanied by incidental services or facilities, but the subject hired out is a complex one and the income obtained is not so much because of the bare letting of the tenement but because of the facilities and services rendered, the operations involved in such letting of the property may be of the nature of business or trading operations and the income derived may be of the nature of business or trading operations and the income derived may be income not from exercise of property rights properly so called so as to fall under section 9 but income from operations of a trading nature falling under section 10 of the Act; and

7. In cases where the letting is only incidental and subservient to the main business of the assessee, the income derived from the letting will not be the income from property falling under section 9 and the exception to section 9 may also come into operation in such cases.

23. It is in the light of these principles that the question before us in the present case will have to be examined and decided.

24. Now, in the present, case, the company has been formed with the object of carrying on the business of storing and preserving films and other articles of cinema industry, and generally to carry on all sorts of business of safe deposit vaults in all its aspects. Under the Cinematograph Film Rules, 1948, a person desiring to store films has to obtain a licence and under the terms of the licence he has to store films exceeding 1,000 lbs. in a vault built according to certain specifications and he has also to observe certain other precautions and conditions in the matter of storage of films. The vaults, besides, have to be constructed at an approved place. The vault under the said rules has been defined as 'any premises constructed and equipped in accordance with the requirements of these rules for the storage of films in quantity exceeding 1,000 lbs.' The specification for the vault relate to its dimensions, walls, floors, roof, exits and ventilations. The company purchased a plot of land at Mahim and built 13 units containing vaults, which were constructed and equipped in accordance with the said rules. After having constructed the vaults, it entered into agreements with persons, who wanted to store their films in the vaults. Under these agreements, which are called licences, use of the vaults was permitted to the vault-holders on their paying a certain monthly charge. These licences were given for a period of five years, but the said period was subject to termination and extension as provided in the other terms of the agreement. The payment to be made in respect of the vault was termed as compensation for the vault. The use of the vault was permitted only for storing of films and for no other purpose, and the corresponding ground-floor attached to the vault was to be used for operations connected with repairing, cleaning, waxing and re-winding of the films only. The licensee was to permit the officers and agents of the company, Government, municipality, police or other public servants authorised to enter the premises with or without workmen for the purpose of inspecting and viewing the state and condition thereof. The licensee was not to transfer, assign or sub-let his right to the user of vault expect with the written permission of the company. At the end of period, the licensee was to yield up to the company the licensed premises. The company under the terms of the licence had a right by giving two days notice to the licensee to allocate alternative space for storing his cinema films. The licence also provided :

'Nothing herein contained shall be construed to create any right (other than the revocable permission granted by the company) in favour of the licensee of licensed vault nor as conferring any right to quiet enjoyment or other right except so far as the company has power to grant the same and the company may of its mere motion and absolutely retain possession of the licensed vault with all additions fittings and fixtures thereto.'

25. It is found on the facts that the company was rendering other services to the vault-holders. It had installed a fire-alarm and was incurring expenditure for the maintenance of the fire-alarm by paying fire-service charges for the municipality. It had opened in the premises two railway booking offices free of charge for despatch and receipt of film parcels. The company had also maintained a regular staff consisting of a secretary, a peon and a watchman and a sweeper and it was also paying for the entire staff of the Indian Motion Pictures Distribution Association an amount of Rs. 800 per month for services rendered to the licence-holders. The licence-holder was given the key of the vault, but the key to entrance which permitted access to the vaults was kept in the exclusive possession of the company.

26. Now, the units constructed by the company were having regard to their location and construction only suitable for the specific purpose of storage of films. The construction in order to be suitable for this purpose had not only to be built according on the specification but had to be also further fitted with other devices such as automatic fire-proof doors, which will close immediately on the outbreak of fire in the vault, etc. In order to facilitate the business of storage of films the company had provided other facilities and conveniences such as booking offices opened by it, and the canteen, etc. In order further to see that the storage of films by the licence-holders in the vaults belonging to the company was properly carried on according to the rules and regulations, the company had maintained a staff. It was also paying for services rendered for maintaining the vaults in proper condition and see that all the several devices and mechanised construction which had been installed were properly maintained. The charges of Rs. 40 per month from certain licence-holders, Rs. 140 per month and Rs. 300 or Rs. 100 from others were charges obtained by the company not merely for the bare use of vaults but for the use of the vaults as well as for the several services and conveniences afforded to the vault-holders. To use the words employed by the Viscount Finlay in the Rotunda Hospital case, 'the subject which was hired out was a complex one' : and the mere tenement as it stood without the special devices and services was almost useless for which it was required. The charges, which the company was receiving, therefore, were not the income from the exercise of property rights properly so called but was the income derived from the enterprise which it was carrying on of providing facilities for the storage of films to the licensees. This activity of the company, in our opinion, was in the nature of a business activity and the providing of the vaults to the persons who wanted to store their films was a part of the business enterprise or operation, which was carried on by the company. Where house property is turned to profitable account by letting or hiring the tenements with or without such other relatively insignificant or minor services, which were ordinarily incidental to the letting or hiring, the income from the house property would be the income chargeable under section 9. This would be clear when we consider the nature of deductions, which were permitted from the gross income under the gross income under that section. The income, which is obtained by the company in the present case, required considerable expenditure to be incurred by the company, which is ordinarily not incurred by a landlord who turns his house property to profitable account and which is also not taken into account in the deductions permissible under section 9. In our opinion, therefore, the income, which the company obtained from the licence-holders in the present case, could not be regarded as income from property falling under section 9 of the Indian Income-tax Act. The activity of the company in earning that income was a business activity and the source of the income which the company obtained from the licence-holders, was not the ownership of the house property but its business.

27. Mr. Palkhivala has urged in the alternative that, on the facts of the present case, the company could be said to have been in occupation of the said property for the purpose of its business and, therefore, the exception to section 9 will also apply in the present case. He has pointed out that the licence in the present case merely permitted the use of the vault to the vault-holder for the purpose of safely depositing his films and by granting such licences the company was carrying on the business of safe storage of films in the premises which it had constructed and equipped and maintained for the purpose. Although the key of the vault was given to the vault-holder, the key to the entrance, which permitted access to the vaults, was kept in the exclusive possession of the company. There was, therefore, no possession of the premises at any time given by the company to the licence-holders : all that they were given was the key to the vault, which gave access to the vault and to make use of the same. According to Mr. Palkhivala the company itself was carrying on the business of safe a storage of films in the premises by affording facilities to persons who wanted to store the films, to make use of the vaults, which it had specially constructed, equipped and maintained for that purpose and the business of the company, therefore, was undistinguishable from that of the banks which provide safe deposit vaults. In our opinion, there is considerable force in this submission of Mr. Palkhivala also and the house property including the vaults, which were used by the vault-holders under their licences, could be said to have been in the possession of the company in the course of its business. On the facts of the present case, it is possible to hold that the company was in occupation of the premises for the purpose of its business which consisted of safe storage of films by permitting use of the vaults and affording facilities for the safe storage of films and the income, which the company derived therefrom, was income received by the company from and in the course of its business. In our opinion, therefore, the income in the present case was income, which properly fell under section 10 and was not income from property falling under section 9 of the Act.

28. Our answer, therefore, to the first question is in the affirmative.

29. In view of our answer to the first question, the second question does not survive. The assessee will get its cost from the department.

30. First question answered in the affirmative.


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