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D.C. Shah and ors. Vs. Commissioner of Income-tax, Karnataka - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKarnataka High Court
Decided On
Case NumberIncome-tax Referred Cases Nos. 38 to 41 and 126 of 1977
Judge
Reported in[1979]118ITR419(KAR); [1979]118ITR419(Karn)
ActsIncome Tax Act, 1961 - Sections 2(24), 14, 22, 23, 24, 25, 26, 27, 56, 56(2), 57, 123 and 256(2)
AppellantD.C. Shah and ors.
RespondentCommissioner of Income-tax, Karnataka
Appellant AdvocateR.J. Kolah, Adv.
Respondent AdvocateS.R. Rajasekharamurthy, Adv.
Excerpt:
- income tax act,1961[c.a.no.43/1961] -- sections 21 (1) & 31(1): [k.l. manjunath & a.s. bopanna, jj] change of sound system in a theater whether to be treated as capital expenditure or a revenue expenditure? held, it has to be seen that whether the change of sound system has increased the revenue or not. admittedly the old sound system was in existence for several years and due to use of the very same sound system for several years, the old system was worn out. if the assessee has provided certain amenities to its customers by replacing the old system with a better sound system, it cannot be said that the assessee has increased its income. instead of repairing the old stereo system, the assessee has installed the dolby stereo system. this has not benefited the assessee in any way.....venkataramaiah, j.1. the assessees in these cases are co-owners of a building constructed on plot 'c',shivsagar estates, bombay. the assessment years are 1968-69 to 1972-73. during the assessment years 1968-69 to 1971-72, the said building belonged to 16 co-owners. during the period between april 1, 1971, and march 28, 1972 the said building was owned by 18 co-owners; on march 29, 1972, it was owned by 19 co-owners and on the last two days of that year, i,e., 30th and 31st march, 1972, it was owned by 19 co-owners, but one co-owner who owned the property on march 29, 1972, mrs. a. d. shah, was substituted by another co-owner, a. d. shah private limited, on the 30th and 31st march 1972. it is not necessary for the purpose of these cases to refer in detail to the manner in which the.....
Judgment:

Venkataramaiah, J.

1. The assessees in these cases are co-owners of a building constructed on Plot 'C',Shivsagar Estates, Bombay. The assessment years are 1968-69 to 1972-73. During the assessment years 1968-69 to 1971-72, the said building belonged to 16 co-owners. During the period between April 1, 1971, and March 28, 1972 the said building was owned by 18 co-owners; on March 29, 1972, it was owned by 19 co-owners and on the last two days of that year, i,e., 30th and 31st March, 1972, it was owned by 19 co-owners, but one co-owner who owned the property on March 29, 1972, Mrs. A. D. Shah, was substituted by another co-owner, A. D. Shah Private Limited, on the 30th and 31st March 1972. It is not necessary for the purpose of these cases to refer in detail to the manner in which the co-owners acquired title to the building in question in the course of the order. The particulars thereof are, however, set out in detail in the statements of cases submitted to this court. The co-owners who had acquired title to construct a building on the plot in question entrusted the construction work to M/s. Kiron Construction Company and also authorised them (M/s. Kiron Construction Company) to negotiate the terms of lease with the lessee, the State Bank of India, which required the said building for its own occupation and use with the right to sub-let if necessary. One of the partners of M/s. Kiron Construction Company was Mahendrabhai Shah who was also connected with another firm, M/s. Jivanlal & Co. On February 23, 1966, the chief officer (premises), State Bank of India, wrote a letter to M/s. Jivanlal & Co. (attention Sri Mahendrabhai Shah) offering the terms under which it was willing to take the building on lease. The relevant terms which were set out in the said letter were the following :

'(i) The lease will be for a period of three years in the first instance with options in favour of the bank for renewals for three further terms of two-year each. While exercising our option we shall not be bound to renew the lease of the whole building but shall be entitled to renew the same in respect of the basement or ground floor of the said building alone or any one or more of the upper floors.

(ii) Rent will be payable at the rate of Rs. 1.30 per square foot (from inner wall to wall, excluding lift, wells, landing, staircases) for non-air-conditioned accommodation. You will air-condition the entire building as early as possible and from the date air-conditioning is made available, an additional service charge of 20 paise per square foot will be payable by the bank. The cost of electricity consumed for air-conditioning will be borne by the bank....

(viii) You will undertake at your own cost the maintenance of lifts and the air-conditioning plant, etc., and bear all charges for such maintenance. You will engage lift-men and sweepers who will be your employees and on your roll, but the administrative control of the bank (sic) and the bank will reimburse you for the actual salaries paid to these employees.'

2. In reply to the said letter, a reply was sent by M/s. Jivanlal & Co. on March 4, 1966, to the State Bank of India setting out the counter proposals in connection with the lease of the building in question. In para. 3 of that letter, it was stated as follows :

'3. As regards paras (iv) and (v) of your letter, we have to state that in order to facilitate our placing order for air-conditioning unit right now, you have agreed to increase the amount of advance of Rs. 4 lakhs out of which two lakhs will be paid by increasing the amount by Rs. 1 lakhs in first and second instalments each, and the remaining Rs. 2 lakhs (rupees two lakhs only) you have agreed to pay on our making the air-conditioning unit available to you.'

In reply thereto on March 10, 1966, the State Bank of India wrote a letter. One of the proposals in that letter was as follows :

'It was explained to you that the quantum of the advance in respect of the service charge for air-conditioning will require to be related to the actual period for which the air-conditioning would be made available during the initial period of the lease. It will not be possible to determine this until the air-conditioning is made available and accordingly this advance can only be granted on or after the date air-conditioning is provided. We regret, therefore, our inability to grant this advance prior thereto but the sooner the air-conditioning is provided the earlier will the advance be made. The terms previously conveyed by us in this respect will accordingly stand.'

3. Thereafter a formal lease deed was executed on June 1, 1966, between the co-owners, the State Bank of India, and M/s. Kiron Construction Company under which the building in question which was still under construction was leased out in favour of the State Bank of India. The possession of the building was, however, handed over to the lessee in the month of February, 1967. It is seen that although there was a reference to the provision of air-condition facility in the letters exchanged between the State Bank of India and the agents of the co-owners before the lease deed was executed, in the lease deed there was no reference to the obligation on the part of the co-owners to provide the air-conditioning facility and any rent payable in that regard by the lessee. The lease deed, however, provided that it was open to the lessee 'to make or construct any additions, fittings or fixtures in or to the demised premises including room air-conditioners and other plant, equipment, pipes, cable, partitions, cabins, screens, shelves, racks, sub-blinds and water, gas, electric and sanitary installations, fittings, lights and fans and to remove the same but the lessee shall at its cost restore the demised premises to its original condition and make good any damage which may be caused to the demised premises by such removal before handing over possession of the demised premises to the lessors provide clause IV(4) of the lease deed. The lessee was also entitled to sub-let or assign or part with the possession of the demised premised or any portion thereof without the consent of the lessors. By about August, 1967, the lessors provided air-conditioning facility to the entire building. In return the State Bank of India undertook to pay the lessors 20 paise per square foot of the building for which air-conditioning facility was provided and also to pay the charges of electricity and water consumed for the purpose of providing the air-conditioning facility. The air-conditioning plant had to be maintained by the co-owners.

4. During the assessment years 1968-69 to 1971-72, the co-owners who were the assessees filed their returns before the ITO. They claimed that the rent received by them in respect of the building in question should be assessed in accordance with s. 26 of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') in the hands of the respective co-owners separately and the amount realised for providing air-conditioning facility should be assessed in accordance with s. 56 of the Act as income realised from other sources. They also claimed that even the amount realised for providing the air-conditioning facility should be assessed in the hands of the individual shares according to their respective shares as they has a distinct share in the air-conditioning plant. During the course of the assessment proceedings, the ITO wrote a letter to the State Bank of India which reads :

'Regarding the building on plot of SSE, Worli, taken on lease by the Bank from M/s. Kiron Construction Co., kindly furnish us with the following further information :-

1. The exact area occupied by the computer.

2. Whether a separate air-conditioning plant has been provided by the computer, if yes, was it possible for the bank to use the remaining building without air-conditioning.

3. What is the rate at which air-conditioning facility is made available by the landlord, D.C. Shah & others. How has this rate been worked out.

4. What are the structural alterations carried out. Kindly indicate the extent in terms of cost if data is available.

5. When the lease negotiations were carried out, whether they were confined to the building on plot 'C' or for any suitable premised out of the property then being developed by K. C. Co. In order to enable you to give this information, I am enclosing herewith summons under section 123 of the I.T. Act, 1961. You may send this information to me with requisite documentary evidence so as to reach me on the 25th March, 1972, and this would be treated as sufficient compliance with the terms of the summons.'

In reply thereto the State Bank of India wrote as follows :

'With reference to your letter of 3rd March, 1972, enclosing summons under section 123 of the I.T. Act, 1961, we give below seriatim the information required by you :

1. The area occupied by the computer on the 3rd floor is approximately 1,080 sq.ft.

2. An A/C plant has been provided for the computer. The building also houses unit record machines on the 1st and 2nd Floors. A/C is necessary for the machines. The rest of the building, viz., an area of 40,000 sq.ft. could have been used without A/C.

The rate fixed for A/C was 0.20 per sq.ft. (electric and water consumption to be borne by the bank) when the building was taken on lease in the year 1967. It has been subsequently increased at 0.50 per sq.ft. Besides the bank bears (a) electric and water consumption which are Rs. 24,000 per year. The arrangement was agreed upon after taking into consideration the figures for the investment in the plant submitted by the landlords.

3. The structural alterations relate to the opening of an entrance on the ground floor and creation of a ground floor for an entry into safe deposit vault. The entire cost for these have been borne by the bank.

4. At the time the lease negotiations were being started the bank had not indicated any special preference for the building on 'plot C'. All that we were concerned with was the area and were negotiating with the association developing the estate for suitable premises. However, as the 'C' building was then nearing completion, it was offered and was selected.

We trust this information furnished is adequate for your requirement.'

5. After hearing the assessee, the ITO passed an order of assessment treating the income received by way of rent of the building and the income received for providing the air-conditioning facility as income falling within the scope of s. 56(2)(iii) of the Act realised by the co-owners as constituting a body of individuals after rejecting their case that the rent received in respect of the building had to be assessed under s. 26 of the Act. Aggrieved by the order of the ITO, the assessee filed appeals before the AAC. The AAC allowed the appeals partly. He held that the income realised by way of rent in respect of the building was liable to be assessed under s. 26 of the Act and the co-owners of the building had to be assessed separately on the basis of their individual share of income received by way of rent of the building. In so far as the income received for providing air-conditioning facility was concerned, he held that there was a lease of the air-conditioning plant in favour of the lessee but that lease was, however, separable from the lease of the building. Accordingly, he assessed the income realised under the lease of the air-conditioning plant under s. 56 of the Act after treating it as income accruing from a common venture in the hands of a body of individuals or association of persons. Against the order of the AAC passed in the appeals, the ITO filed appeals before the Tribunal. The Tribunal allowed the appeals, set aside the order of the AAC and restored the orders of assessment passed by the ITO for the assessment years 1968-69 to 1971-72.

6. During the year 1972-73, also the co-owners were assessed by the ITO as a body of individuals in respect of the income realised by way of rent from the building and the income received by them for providing the air-conditioning facility. The appeals filed by the them assessees against the order of assessment was partly allowed by the AAC as it was done by him in cases relating to assessment years 1968-69 to 1971-72, Against the order of the AAC, both the ITO and the assessees filed appeals before the Tribunal, Bangalore Bench. The Tribunal allowed the appeal filed by the department and passed an order similar to the one passed by it in respect of the assessment years 1968-69 to 1971-72 and dismissed the appeals filed by the assessees. Aggrieved by the decision of the Tribunal, the assessees filed an application requesting it to refer to this court the following four questions of law :

'(i) Whether, on a true construction of the deed of lease in favour of the State Bank of India and the correspondence exchanged between the State Bank of India and assessee or on its behalf and referred to in the Tribunal's order and on the facts and circumstances of the case, there was letting on hire of the air-conditioning plant and/or machinery by the assessee to the State Bank of India

(ii) If the answer to the question above is in the affirmative, whether the letting on hire of the building was inseparable from the letting on hire of the air-conditioning plant and/or machinery

(iii) Whether, on a true construction of the deed of lease in favour of the State Bank of India and the correspondence exchanged between the State Bank of India and the assessee or on its behalf referred to in the Tribunal's order and also on the facts and circumstances of the case, the income from the building constructed on plot 'C' of premises known as Shivasagar Estate situated at Worli in Bombay is assessable as income from property under sections 22 to 27 of the Income-tax Act or as income from other sources under section 56(2)(iii) of the Act subject to deductions under section 57 of the Act

(iv) Whether, on the facts and circumstances of the case, the Income-tax Officer after including the share of each co-owner in the income from letting out the property (i.e., building on plot 'C' of Shivasagar Estate) under section 26 of the Act in the total income of each co-owner is entitled to again treat and include the rent of the said property received from the State Bank of India as and in the total income of all the co-owners as an association or body of persons ?'

The Tribunal, however, referred only one question to this court under s. 256(1) of the Act which reads as follows :

'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the letting on hire of the building and of the air-conditioning plant were inseparable and, therefore, the income therefrom had to be assessed in the hands of the association of persons under section 56(2)(iii) ?'

It observed :

'In our opinion, this question is comprehensive enough to cover questions Nos. 1, 2, and 3 of which reference has been sought. So far as question No. 4 is concerned, we would observe that the fact that the inclusion of the share of each partner in the income from the letting out of the building under section 26 in the total income of each partner had already been done by the Income-tax Officer and, therefore, he was not entitled again to treat and include the rent of the said property received from the State Bank of India in the total income of all the co-owners as association of persons was never urged before the Tribunal nor was this fact brought to the notice of the Tribunal at the time of the hearing. This question, therefore, does not arise out of the order of the Tribunal, and, we, therefore, decline to refer the same.'

7. The references made under s. 256(1) of the Act in respect of the assessment years 1968-69 to 1971-72 are I. T. R. C. Nos. 38 to 41 of 1977. A similar reference has been made in respect of the assessment relating to the assessment year 1972-73, in I. T. R. C. No. 126 of 1977.

8. The assessees who were not satisfied with the reference made by the Tribunal, filed Civil Petition Nos. 95 and 189 to 192 of 1978, under s. 256(2) of the Act. The petitioners therein, among others, prayed that the statement of the case be sent back to the Tribunal directing it to raise and refer the questions of law set out in their application under s. 256(1) of the Act in addition to or in substitution of the question referred by the Tribunal. A Division Bench of this court by its order dated September 26, 1978, passed a common order disposing of those petitions. The relevant part of the said common order reads as follows :

'These five cases arise out of assessment years 1968-69 to 1972-73.

9. In these petitions, Sri R. J. Kola, learned counsel for the assessee, urged that question No. (iv) contained in statement of the case submitted by the Income-tax Appellate Tribunal, Bangalore Bench (hereinafter referred to as the 'Tribunal'), should have been referred to by the Tribunal to this court and that the Tribunal was not justified in refusing to refer that question.

10. Elaborating his contention, Sri Kola urged that question No. (iii) contained in the aforesaid statement of the case and which had been referred to this court by the Tribunal with certain modifications, does not bring out the contention of the assessees that as the Income-tax Officer had once exercised his option to assess the share of the individual members of the association of persons in the income of the property in question, in the hands of those individuals, it was no longer open to him to go back upon the option exercised by him and to assess the income from that property as the income of the association of persons.

11. On the other hand, the learned standing counsel for the revenue, contended that the assessment made by the Income-tax Officer treating the shares of the individual members of the association in the income from the property as the income of the respective individual members, was only by way of protective assessments which would not come in the way of regular assessments in which the entire income from the said property might be treated as the income of the association of persons.

12. In our opinion, question No. (iii) which has already been referred by the Tribunal to this court, is comprehensive enough to permit the assessees to raise the aforesaid contention, namely, that the Income-tax Officer having once exercised his option to assess the shares of individual members of the association in the income from the said property, it was not open to him to go back upon such option and to assess the entire income from that property as the income of the association of persons.

13. With this clarification, we consider that it is unnecessary to direct the Tribunal to refer the aforesaid question No. (iv), since that question is included in question No. (iii) which has already been referred to this court.

14. Sri Kola next urged that it is necessary to call upon the Tribunal to submit a supplementary statement of case in I. T. R. Cs. Nos. 38 to 41 and 126 of 1977. But the learned standing counsel submitted that all the necessary records are already available in I. T. R. Cs. Nos. 49 to 52 of 1978.

15. At this stage, it is sufficient to direct that both sets of references should be posted for hearing together. While hearing these references, the question whether it is necessary to call for a supplementary statement of the case, will be considered then. At this stage, it is not necessary to direct the supplementary statement to be submitted by the Tribunal.'

16. In view of the question referred to us by the Tribunal in each of the above cases and the order passed by the Division Bench in the civil petitions referred to above filed under s. 256(2) of the Act, we are of the view that the following points arise for consideration in these cases :

'(i) Whether the assessees had leased out the air-conditioning plant also to the lessee, the State Bank of India

(ii) If the answer to the above question is in the affirmative, whether the lease of the building and the lease of the air-conditioning plant are inseparable

(iii) Whether, on the facts and in the circumstances of these cases, it was open to the Tribunal to interfere with the order passed by the Appellate Assistant Commissioner in all these cases ?'

17. From the facts narrated above, it is clear that although there was some reference in the correspondence which preceded the lease of the building to the provision of air-conditioning facility by the assessees, the lease deed did not make any reference to it at all. After the air-conditioning plant was installed, there was no separate deed executed between the parties providing for a lease of the air-conditioning plant. The air-conditioning plant as can be seen from the correspondence between the parties and the reply of the State Bank of India sent to the ITO, was under the control of the assessees and they were under an obligation to maintain it. The State Bank of India had to pay at the rate of 20 paise per square foot for the air-conditioning facility provided and also the charges of electricity and water consumed by the air-conditioning plant. The rate was increased subsequently to 50 paise per square foot. One part of the building on the third floor where a computer had been kept had been provided with an air-conditioning plant by the lessees themselves. It is also clear that the lease would have remained in force even in the absence of the provision of air-conditioning facility.

Section 26 of the Act reads :

'Where property consisting of buildings or buildings and lands appurtenant thereto is owned by two or more persons and their respective shares are definite and ascertainable, such persons shall not in respect of such property be assessed as an association of persons, but the share of each such person in the income from the property as computed in accordance with sections 22 to 25 shall be included in his total income.'

Section 56 of the Act reads as follows :

'56. (1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head 'Income from other sources', if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E.

(2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes shall be chargeable to income-tax under the head 'Income from other sources', namely :-

(i) dividends;

(ia) income referred to in sub-clause (viii) of clause (24) of section 2;

(ib) income referred to in sub-clause (ix) of clause (24) of section 2;

(ii) income from machinery, plant or furniture belonging to the assessee and let on hire, if the income is not chargeable to income-tax under the head 'Profits and gains of business or profession';

(iii) where an assessee lets on hire machinery, plant or furniture belonging to him and also buildings, and the letting of the buildings is inseparable from the letting of the said machinery, plant or furniture, the income from such letting, if it is not chargeable to income-tax under the head 'Profits and gains of business or profession'.'

18. It is not disputed that the building in question is owned by several co-owners and their respective shares are definite and ascertainable. The first point urged by Sri R. J. Kola, learned counsel for the assessee, was that even granting for purposes of argument that the air-conditioning plant was also the subject matter of the lease, the assessment should have been made only under s. 26 of the Act as an air-conditioning plant should be treated as part of the building itself and not as machinery which was independent of the building leased. There is a good deal of force in the above submission. Now-a-days when buildings are constructed at huge cost in big cities, ordinarily we find fans, lifts, air-conditioners, kitchen gadgets and bath-room gadgets being installed therein. When a modern building with the foregoing mechanical or electrical installations is leased out, it is difficult to say that there is a lease of the machinery, plant or furniture and also of the building. Ordinarily, it is understood as a lease of the building with all such modern facilities. This is also the view of the Kerala High Court in Dr. P. A. Varghese v. CIT : [1971]80ITR180(Ker) . In a building with several flats leased out in favour of different tenants and having the facility of a lift, it is difficult to say that there is a lease of the lift in favour of each of the individual tenants. The provision of the lift in such a case is only in the nature of a facility which can be made use of by the tenants concerned by paying, if necessary, some extra charges for that purpose. Similarly, it is possible that in a modern building there can be a central heating plant or a central air-conditioning plant provided for the benefit of the tenants occupying different flats in that building. In such a case, it cannot be said that there has been a lease of machinery and also a lease of building in favour of the tenants. It appears to us that s. 56(2)(iii) of the Act would not be attracted to leases of the above nature. But since the contention urged on behalf of the assessees before the authorities under the Act and the Tribunal has been that the lease of the building and the provision of air-conditioning facility are two separate transactions and it is not their case that the air-conditioning plant formed part of the building, it is not necessary for purposes of these cases to consider the above submission made on behalf of the assessees any further.

19. It was next contended by Sri Kola that there was no lease of the air-conditioning plant at all in favour of the State Bank of India and hence the question of applying s. 56(2)(iii) of the Act did not arise. This submission appears to be well-founded. As mentioned earlier, even though there was some reference to the provision of air-conditioning facility in the correspondence which preceded the lease deed, there is no reference to it in the lease deed. The replies sent by the State Bank of India to the questionnaire shows that the State Bank of India was not maintaining the air-conditioning plant, that they were only paying for the provision of air-conditioning facility on the basis of the floor-area for which the said amenity was provided and that the air-conditioning plant was under the control of the co-owners of the building. A lease involves a transfer of possession of the property in question which can be made use of by the lessee in any way he likes provided he takes reasonable care of the property leased. Although there is an observation in the course of the order of the Tribunal that there was a transfer of possession of the air-conditioning plant, we find that that observation has been made without any basis. The air-conditioning plant has no doubt been installed in the building in question, but its maintenance is entirely under the control of the co-owners. It cannot be said in these circumstances that there has been a transfer of possession of the machinery in question. If it was a case of lease, then the lessee would have agreed to pay a fixed rent. On the other hand, according to the understanding between the parties, the lessee had to pay some additional charges for the provision of air-conditioning facility depending upon the floor-area for which that facility was provided. This again is destructive of the contention of the department that there was a lease of the air-conditioning plant along with the building in favour of the lessee. The Tribunal misdirected itself in holding that there was a lease of the machinery, i.e., air-conditioning plant in the instant cases. When once we reach the conclusion that there has been no lease of the air-conditioning plant, then s. 56(2)(iii) of the Act becomes inapplicable to these cases because the said provision is applicable only when the assessee lets on hire machinery, plant or furniture belonging to the assessee and also building and the letting of the building is inseparable from the letting of the machinery, plant or furniture. It follows that the rent realised by the co-owners in respect of the building has to be dealt with under s. 26 of the Act and the income realised on account of the provision of the additional amenity, namely, air-conditioning facility, will have to be dealt with as income not falling under s. 56(2)(iii) of the Act.

20. The Tribunal in the course of its order however relied upon the decision of the Supreme Court in Sultan Brothers Pvt. Ltd. v. CIT : [1964]51ITR353(SC) , in order to reach the conclusion that there has been a lease of both machinery and the building and the two leases were inseparable. On going through the decision of the Supreme Court, we are of the view that the said case is distinguishable from the cases on hand. In that case, what had been leased out was a building fully equipped and furnished for running a hotel and for certain other ancillary purposes. The lease provided for a monthly rent of Rs. 5,950 for the building and a hire of Rs. 5,000 for the furniture. We do not have, as observed earlier, a lease of the machinery at all in these cases. Moreover, the lease of the building in the cases before us would continue to be in force even though the provision of air-conditioning facility is withdrawn because there is no clause in the lease deed stating that the lease would come to an end on the with-drawl of that amenity. We feel that the principle enunciated by the Supreme Court in Karnani Properties Ltd. v. CIT : [1971]82ITR547(SC) would govern these cases. In that case, the assesses-company owned a house property known as 'Karnani Mansions' which consisted of numerous residential flats and over a dozen shop premises. All of them had been let out to different tenants. The tenants in respect of each of the houses and shops had to make a monthly payment which included charges for electric current for use of lifts, for the supply of hot and cold water, for the arrangement for scavanging, for providing watch and ward facilities as well as other amenities. The assesses-company claimed before the ITO that the entire receipts received from the tenants on account of charges for the several amenities referred to above should be treated as income from business inasmuch as the company had been formed for carrying on the business of letting out of houses and shop premises. The ITO, while rejecting the assessee's contention, split the receipts into two parts, one part of the receipt into two parts, one part of the receipt he treated as the rent received by the assessee and the remaining part he treated as income from other sources taxable under s. 12 of the Indian I. T. Act, 1922. The AAC affirmed the order of the ITO. The assessee took up the matter in appeal before the Tribunal. The Tribunal accepted the contention of the assessee that the amount in question was assessable under s. 10 of the 1922 Act. Thereafter, the following question was referred to the High Court of Calcutta :

'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the services rendered to the tenants by supplying electrical energy, hot and cold water and maintenance of lifts and other amenities, constituted a business activity of the assessee and as such the income arising therefrom was assessable under section 10 of the Indian Income-tax Act, 1922 ?'

21. The High Court did not accept the contention of the department which was urged before it, probably for the first time, that the income in question was assessable under s. 12 of the 1922 Act. On the other hand, it came to the conclusion that the same was assessable under s. 9 of that Act as income from property. Against the order of the High Court, the assessee filed an appeal before the Supreme Court. The Supreme Court held that the services rendered by the assessee to its tenants were the result of its activities carried on continuously in an organised manner. Accordingly, the Supreme Court allowed the appeal and answered the question in the affirmative and in favour of the assessee. In reaching that conclusion the Supreme Court relied upon the decision of the House of Lords in Salisbury House Estate Ltd. v. Fry [1930] 15 TC 266 and in particular to the following observations made by Lord Macmillan (p. 329) :

'It is necessary, however, to make it quite clear that the income from property which is taxable under, and only under, Schedule A is income derived from the exercise of property rights properly so called.

Property is regarded as yielding income from the exercise by the proprietor of the right either of himself enjoying the possession or of parting with the possession by letting his property to tenants. The owner of property may make profit out of it in other ways and by doing so he may render himself liable to taxation under Schedule D. The case of Governors of the Rotunda Hospital v. Coman [1921] 1 AC 1 is an excellent example. There, as Lord Chancellor Lord Birkenhead pointed out at page 8, the arrangements between the owners of the premises and the persons who paid for their use for the purpose of entertainments were not such as to constitute the relation of landlord and tenant, and the owners remained in possession and occupation of their property.

The receipts derived from hiring out their premises along with various movable fittings, and affording services in the way of heating, lighting and attendance, were receipts of an enterprise quite distinct from the ordinary receipts which a landlord derives from letting his property.

Consequently the owners of the premises were rightly held to be engaged in the carrying on of a trade or business in their premises, 'the trade or business' in Lord Shaw's language at page 37 (ibid at p. 593) 'of providing, or providing for, public entertainments'. There is nothing to prevent a landlord who has been assessed under Schedule A in respect of his income as a property owner being also assessed under Schedule D in respect of a trade, business or other enterprise carried on by him on his premises.'

22. Having regard to the above decision of the Supreme Court and the observations made in the case of Salisbury House Estate Ltd. v. Fry [1930] 15 TC 266 extracted above, we are of the view that in these cases it has to be held that the receipts derived from the lease of the building should be treated as distinct and separate from the receipts derived on account of the provision of air-conditioning facility made by the co-owners of the building. We are, however, of opinion that, on the facts and in the circumstances of these cases, the receipts derived on account of the provision of the air-conditioning facility should be treated as income from a source other than property.

23. In the result, we hold that, on the facts and in the circumstances of the cases, there is no lease of the air-conditioning plant by the assessees in favour of the State Bank of India. Consequently, s. 56(2)(iii) of the Act is not applicable to these cases. The rent realised in respect of the lease of the building should be assessed in accordance with s. 26 of the Act and the income realised on account of the provision of air-conditioning facility should be dealt with as income from other sources. The question referred to us in each of the above cases is answered accordingly, in the negative and against the department.

24. Having regard to the circumstances of these cases, we direct the parties to bear their own costs.


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