1. The Income-tax Appellate Tribunal (Delhi Bench) has referred to this Court for its opinion the following questions under Section 66(1) of the Income-tax Act:
'(1) Whether the rent realised by the assesses from its members was income from property liable to be assessee a under Section 9 of the Indian Income-tax Act?
(2) Whether the principle of mutuality entitling an assessee to exemption from Income-tax on his receipt would apply only to receipts assessable under Section 10 under the head 'profits and gains of business, profession or vocation' or would apply also to receipts assessable under the head 'income from property' under Section 9 of the Indian Income-tax Act?'
it appears from the statement of the case submitted by the Tribunal that the assessee is a limited company running a club exclusively for the use of its members. Among the amenities provided by it to its members is the use of residential quarters owned by it, by members on payment of rent. All members have to pay subscription and such of them as occupy the quarters have to pay the rent in addition.. In the previous year relevant to the assessment year 1955-56 the assessee received Rs. 10,062/- from the rent of the quarters. The income-tax authorities had been treating the income derived by the assessee from the hiring out or the quarters to its members as income from property assessable to income-tax under Section 9 of the Act in the past and in the assessment year 1955-56 also the Income-tax Officer treating Rs. 10,062/- as income from property assessed it, after making certain deductions, to income-tax under section 9. This time the assessee filed an appeal from the assessment order contending that the income was not assessable on account of the principle of mutuality. It was contended that the members were the contributors (by paying the rent for the quarters occupied by them) and that the members were the participants (by receiving the rent) and that because there was an identity between the participants and the contributors there was no question of assessing tax. The argument was that no tax can be assessed on what one realizes trom one's own self. The Appellate Assistant Commissioner dismissed the appeal, rejecting the assessee's claim that on account of the principle of mutuality it was not liable to pay any tax on the income from the rent.
The assessee went up in further appeal to the tribunal, which by a short judgment set aside the assessment order. The assessee was assessed on the income as income from property under Section 9 and not on income from business under Section 10. The Tribunal did not set aside the orders of the Income-tax Officer and the Appellate Assistant Commissioner that the income came under the head of income from property and did not hold that it was really income from business assessable under Section 10; still it held that the principle of mutuality applied because in its opinion, there was an identity between the contributors and the participants. It observed that a person cannot be said to traae with himself, that the rent received by the assessee from the members was for the benefit of the members and that the quarters were not let out to the members with a view, to make any commercial profit and held that the income was not taxable and allowed the appeal. Then at the instance of the Commissioner of Income-tax it referred the above mentioned questions for this Court's opinion.
2. We start first with the important fact that the income that has been assessed in the hands of the assessee' is income from property and not income from business. It is settled that the various heads of income mentioned in Section 6 of the Act are mutually exclusive (see United Commercial Bank Ltd. v. Commr. of Income-tax : 32ITR688(SC) and that if an income comes under one head it cannot come under any other head. If the income in dispute is income from property it cannot be income also from business. It cannot be doubted that the income in this case is income from property. The assessee owns the quarters which it hires to its members and derives the income in the form of rent from them. Every person who owns a house or a building is liable to pay income-tax on the annual letting value of it whether he occupies it himself or lets it out to a tenant or lets it remain unoccupied. His liability to pay income-tax arises from the mere fact of his owning the property having an annual letting value and not trom his actually deriving any income from it. Even if ha does not derive any income from it, as for example when he occupies it himself or lets it remain vacant, he is liable to pay tax. Even when he derives income, as for example when he lets it out on rent, he is liable to pay tax not on the actual amount of the rent but on the annual letting value. The annual letting value of a house may in many cases be the same as the actual rent realised from it but it can also be different. The assessee owns the quarters and is liable to pay income-tax under Section 9 on their annual letting value. The question what is their annual letting value has not been raised before us or before the Tribunal, it is not disputed that the income on which the assessee was assessed by the Income-tax Officer and the Appellate Assistant Commissioner represents the annual letting value of the quarters.
3. Section 9 does not exempt any income from a nousa except income from a house occupied for carrying on a Business or profession. The assessee is not carrying on any business or profession in the quarters; therefore, the income from them is not exempted by anything contained in Section 9. There is no provision, and there is no law, which exempts from assessment income from house property on the sole ground that the contributor of the income and the recipient are one and the same person. On the other hand the tact that under the law an owner is liable to pay income-tax on the annual letting value even if he himself occupies the house shows that the principle of mutuality does not apply in a case governed by Section 9. Naturally when the basis tor assessing tax on income from property is the mere ownership of the property and not the actual realisation of income, the question whether the payer and the recipient are one and the same person cannot arise. It is only when what is assessed is income from business that the principle of mutuality may be applicable, where the basis for assessment is the earning of income, the question may arise whether the recipient of the income and the payer are not one and the same person.
4. In United Service Club, Simla v. Emperor, AIR 1921 Lah 208 it was held that a club is liable to pay income-tax on the annual letting value of house property owned and occupied by its members. The income in the instant case, is not different. In Commissioner of Income-tax v. Royal Western India Turf Club : 24ITR551(SC) it was observed that the principle of mutuality is not applicant even in respect of income from business, if there is no complete identity between the contributors to the fund and the recipients from the fund. In the present case, assuming it to be one of income from business, it cannot be said that there is complete identity between the contributors and the recipients. The recipients are all members of the club in equal degree whereas the contributors are only some of them and that too in varying degrees. All members do not take the quarters on rent and even those who do pay different amounts of rent. Therefore, even if the income were treated as income from business the principle of mutuality would not be applicable.
5. Our answer to question No. 1 is in the attirmative.
6. There is a slight mistake in the questions referred to us; question No. 2 arises if question No. 1 is answered in the affirmative and not when it is answered in the negative. Since we have answered question No. 1 in the affirmative, question No. 2 arises and our answer is that the principle of mutuality may be applicable to receipts assessable under Section 10 under the head 'profits and gains or business, profession or vocation' but is not applicable to receipts assessable under the head 'income from property under Section 9 of the Indian income-tax Act.
7. We direct that a copy of this judgment shall be sentto the Tribunal under the seal of the Court and the signature of the Registrar as required by Section 66(5) of the Income-tax Act. We further direct that the Commissioner of Income-tax will get his costs of the reference which we assess at Rs. 200/-.