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Shashi Kant Gupta Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Delhi
Decided On
Judge
Reported in(1985)14ITD270(Delhi)
AppellantShashi Kant Gupta
Respondentincome-tax Officer
Excerpt:
1. these appeals are by the assessee pertaining to the assessment years 1975-76 to 1977-78.2. the assessee is one of the co-owners of the property at no. b-5, jangpura extension, new delhi. in the assessment years 1973-74 and 1974-75, the tribunal delhi bench 'b' while deciding it appeal nos.1377 and 1378 (delhi) of 1979 held that income from letting on hire of the building in question and of the air-conditioning plant were inseparable and as such the whole income was assessable as income from house property. in the years under consideration a similar matter came for decision before the tribunal. the bench felt that the decision taken by the earlier bench requires reconsideration and as such the hon'ble president on the request of the bench constituted a special bench for deciding the.....
Judgment:
1. These appeals are by the assessee pertaining to the assessment years 1975-76 to 1977-78.

2. The assessee is one of the co-owners of the property at No. B-5, Jangpura Extension, New Delhi. In the assessment years 1973-74 and 1974-75, the Tribunal Delhi Bench 'B' while deciding IT Appeal Nos.

1377 and 1378 (Delhi) of 1979 held that income from letting on hire of the building in question and of the air-conditioning plant were inseparable and as such the whole income was assessable as income from house property. In the years under consideration a similar matter came for decision before the Tribunal. The Bench felt that the decision taken by the earlier Bench requires reconsideration and as such the Hon'ble President on the request of the Bench constituted a Special Bench for deciding the following question : Whether, on the facts and in the circumstances of the case, the income from lease of the property has to be assessed as income from property under Section 22 and the income from provision of air-conditioning services would be assessable under the head 'Income from other sources' (under Section 56 of the Income-tax Act, 1961) 3. The assessee along with other co-owners acquired leasehold rights over a plot of 1500 sq. yds. and entered into an agreement with the Siemens India Ltd, on 22-6-1970. According to the said agreement, the assessee agreed to construct a building for office premises for the use of the lessees on the said land with all the amenities described in the agreement and demised the same along with such amenities on the terms and conditions agreed to. One of the stipulation in agreement was that it shall provide window type air-conditioners and the lessee shall pay the rent for the building at specified rate. It was further provided that in addition to the rent payable the lessee shall pay air-conditioning charges for the air-conditioned carpet area of the building at the rate of 50 paise per sq. ft. on the carpet area.

4. In accordance with this agreement, the assessee constructed a three-storeyed building installed with a central air-conditioning plant of 46 tons capacity and provided 12 window type air-conditioners. The building was known as 'Siemens House' and the total carpet area covered by the central air-conditioning plant and the window type air-conditioners was 14,340 sq. ft. Thereafter, an agreement between the lessor and the lessee was entered into on 5-9-1973. According to the said agreement for the first five years of the lease, the rent payable in respect of demised premises shall be Rs. 11,944 per month.

For the next five years of the lease, the rent payable shall be Rs. 13,369 per month. The deed further provided that the lease shall be deemed to have commenced from 16-4-1972, the date on which the lessee was put in possession of the demised premises by the lessors and the lease shall be for a term of 10 years from the aforesaid date.

According to the lease deed the lessee shall, however, be entitled to get the lease extended for a further term of five years after the expiry of the term of the 10 years granted in terms of the lease deed.

The agreement further provided that the lessors shall regularly maintain and keep in repairs including all water pipes, sanitary fittings, drains, sewers and gutters, electrical equipment and fittings. The lease deed made it clear that the lessors will always be jointly and severally liable and responsible in all respects under the several covenants and conditions agreed to by them.

5. On 6th September, another agreement was entered into between the lessors and the lessees. In this agreement reference was made to the lease agreement dated 5-9-1973. Under this agreement, it was clearly provided that the hire charges of the air-conditioning plant will be 80 paise per sq. ft. per month and the total monthly hire charges will be Rs. 11,472. Under this agreement, the owners undertook to render, operate and maintain the said central air-conditioning plant, fixtures and fittings during the entire term of the said lease deed dated 5-9-1973 or any extension thereafter. The said agreement also states that the owners shall always be jointly and severally liable and responsible in all respect under the several covenants and conditions agreed to by them in this agreement. On the basis of such agreement the assessee claimed in the assessment years 1975-76 to 1977-78 that the income from property and the air-conditioning charges should be assessed as income from other sources.

6. The ITO was not satisfied with the said contention. According to him, the air-conditioners were fixed to the building and as such the entire income should be assessed as income from 'house property'. The learned A AC agreed with the said finding.

7. Before the Tribunal, the contention of the learned counsel for the appellant was that the finding of the learned AAC is not correct. The learned AAC mainly relied on the decision of the Tribunal given in the assessment years 1973-74 and 1974-75. The Tribunal while deciding the case mainly relied on the ratio of decision in the case of Dr. P. A.Varghese v. CIT [1971] 80 ITR 180 (Ker.). The facts of that case are distinguishable from the facts of the present case. In that case the Hon'ble High Court on the basis of the decision of the Tribunal held there was no letting of the machinery, plant or furniture but only a letting of a building with certain amenities. On those facts, it was held that the provisions of Section 56(2)(ii) of the Income-tax Act, 1961 ('the Act') were not attracted. The Hon'ble High Court further held that income from the letting out was chargeable as 'income from house property'. According to the learned counsel if all the agreements and material on record are appreciated it would be clear that letting out of the building and hiring of the air-conditioning plant could only come under Section 56 (2)(ii), because there was composite letting of the building and the air-conditioners and the intention of the partners was that the two shall be enjoyed together. The counsel further contended that from the material on record it is not established that the letting of the building was separable from the letting of the air-conditioner ; reliance was mainly placed on the ratio of decisions in the cases of Sultan Bros. (P.) Ltd. v. CIT [1964] 51 ITR 353 (SC), CIT v. Kanak Investments (P.) Ltd. [1974] 95 ITR 419 (Cal.), Chitpore Golabari Co. (P.) Ltd. v. CIT [1974] 82 ITR 753 (Cal.), CIT v. Taj Mahal Hotel [1971] 82 ITR 44 (SC) and Karnani Properties Ltd. v. CIT [1971] 82 ITR 547 (SC).

8. The learned departmental representative contended that in these years the income from building was assessed as income from property.

That finding was accepted by the assessee. The building being centrally air-conditioned and the air-conditioning plant being fixed with the building, the income from hiring of air-conditioning shall also be assessable as income from house property. The departmental representative contended that there was only one composite letting of the building and as such the income should be assessed in both the cases as income from house property. Reliance was mainly placed on the ratio of decision in the case of Dr. P.A. Varghese (supra). He further contended that in the immediately preceding year the Tribunal had already held that income from building and hire charges for providing on air-conditioning facility charges should be assessed as income from property and as such for this year also, it may be held accordingly.

9. We have considered the rival submissions and perused the entire material on record. Before discussing contentions of the parties, we would like to refer to certain sections of the Act. Section 4 of the Act contains the charging provision ; and the charge is on the total income of the previous year. Total income is defined as the total amount of the income referred to in Section 5 of the Act, computed in the manner laid down in the Act. Section 14 of the Act classifies all income under several heads for the purpose of computation of the total income. That section reads as under: Heads of income Save as otherwise provided by this Act, all income shall, for the purposes of charge of income-tax and computation of total income, be classified under the following heads of income : Section 22 of the Act states what is the income chargeable under the head 'Income from house property'. Sections 24 and 25 of the Act deal with the deductions allowed in computing the income chargeable under the head 'Income from house property'. Section 26 of the Act provides that 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 AOP, but the share of each such person in the income from the property as computed in accordance with Sections 22 to 25 of the Act shall be included in his total income. The term 'house property' is not defined in the Act.

Section 56 states what is the income chargeable under the head 'Income from other sources'. It reads : (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 income shall be chargeable to income-tax under the head 'Income from other sources', namely : (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'.

It is clear from Sub-section (1) of Section 56 that an income would be chargeable under the head 'Income from other sources' only if it does not fall under any of the other heads specified in Section 14. So, if an income falls under Section 22, it cannot fall under Section 56.

Section 57 of the Act specifies the deductions allowed in computing the income chargeable under the head 'Income from other sources' ; and according to that provision, most of the deductions allowed in respect of buildings, plant, machinery and furniture used for the purposes of business are allowed in the case of income of the nature referred to in Clauses (ii) and (iii) of Sub-section (2) of Section 56. Clause (Hi) of Sub-section (2) of Section 56 applies only to combination of two lettings, which are inseparable, a letting of machinery, plant or furniture and also a letting of buildings. It seeks of 'the letting of the buildings' and also of the 'letting of the said machinery, plant or furniture' ; and the said provision is only attracted if the above two things are inseparable, or, in other words, if they form part and parcel of the same transaction.

10. A similar issue came for decision before their Lordships of the Supreme Court in the case of Sultan Bros. (P.) Ltd. (supra). In that case the assessee constructed a building, fitted it up with furniture and fixtures for being run as a hotel. He then let out the building fully equipped and furnished for running a hotel and after certain ancillary, the lease provided for a monthly rent of Rs. 5,950 for the building and a hire of Rs. 5,000 for the furniture and fixtures. The assessee claimed that whole income received under the lease fell under Sub-section (4) of Section 12 of the Indian Income-tax Act, 1922 and that it should be assessed as income under the head 'Income from other sources'. The income-tax authorities disallowed the claim holding that the rent received from the building was assessable under the head 'Income from house property' and that the rent received on account of furniture and fixtures alone was assessable under the head 'Income from other sources'. The Supreme Court accepted the assessee's claim holding that when the building, plant, machinery or furniture are inseparable the Act contemplates the rent from the building as a residuary head of income. Dealing with the question whether it was such a letting the Court held as under : What, then, is inseparable letting It was suggested on behalf of the respondent Commissioner that the sub-section contemplates a case where the machinery, plant or furniture are by their nature inseparable from a building so that if the machinery, plant or furniture are let, the building has also necessarily to be let along with it. There are two objections to this argument. In the first place, if this was the intention, the section might well have provided that where machinery, plant or furniture are inseparable from a building and both are let, etc. The language however is not that the two must be inseparably connected when let but that the letting of one is to be inseparable from the letting of the other.

The next objection is that there can be no case in which one cannot be separated from the other. In every case that we can conceive of, it may be possible to dismantle the machinery or plant or fixtures from where it was implanted or fixed and set it up in a new building. As regards furniture, of course, they simply rest on the floor of the building in which it lies and the two indeed are always separable. We are unable, therefore, to accept the contention that inseparable in the sub-section means that the plant, machinery or furniture are affixed to a building.

It seems to us that the inseparability referred to in Sub-section (4) is an inseparability arising from the intention of the parties.

That intention may be ascertained by framing the following questions : Was it the intention in making the lease-and it matters not whether there is one lease or two, that is, separate leases in respect of the furniture and the building- that the two should be enjoyed together Was it the intention to make the letting of the two practically one letting Would one have been let alone and a lease of it accepted without the other If the answers to the first two questions are in the affirmative, and the last in the negative then, in our view, it has to be held that it was intended that the lettings would be inseparable. This view also provides a justification for taking the case of the income from the lease of a building out of Section 9 and putting it under Section 12 as a residuary head of income. In then become a new kind of income, not covered by Section 9 that is income not from the ownership of the building alone but an income which though arising from a building would not have arisen if the plant, machinery and furniture had not also been let along with it. (p. 363) 11. We may point out that it is not the case of the revenue that air-conditioning plant is not a plant or machinery but for the sake of clarity we may point out that air-conditioning plant does come within the definition of the word plant or machinery. In the decision in the case of Taj Mahal Hotel (supra), their Lordships interpreted the meaning of the word 'plant'. Their Lordships accepted that this word was interpreted in the case of Yarmouth v. France [1887] 19 QB 647.

According to that meaning 'plant' includes whatever apparatus or instruments are used by a businessman in carrying on his business.

Their Lordships of the Supreme Court observed as under : The heating installation of a building may be passive in the sense that it involves no moving machinery, but few would deny it the name of 'plant'. The same thing could, no doubt, be said of many air-conditioning and water softening installations. (p. 48) 12. In the decision in the case of Chitpore Golabari Co. (P.) Ltd. (supra), their Lordships of the Calcutta High Court held that the word 'plant' is a word of wide import. The word 'machinery', when used in ordinary language, prima facie means some mechanical contrivances which by themselves or in combination with one or more other mechanical contrivances by the combined movement and inter-dependent operation of their respective parts, generate power or evoke, modify, apply or direct natural forces with the object in each case of effecting a definite and specific result. In the said decision the Court clearly held that air-conditioning plants, tubewells, and refrigerators would be 'plant or machinery' within the meaning of the terms in Section 12.

Having regard to the definition of the word 'plant and machinery' and decision on this, on the facts of the present case, it is held that air-conditioning plant is a plant or machinery within the meaning of Section 56(2)(iii).

13. In view of the aforesaid facts, it has to be seen whether the letting in the present case of the building fixtures, air-conditioners were separable or inseparable. It is true that the rent for the building and the hire charges for the air-conditioning were separately referred in the lease deed but that does not in our view make the two lettings separable. In spite of sums payable for enjoyment of two things being fixed separately, dominating intention of the partners was that the two shall be enjoyed together. We may now refer to the relevant clauses of the agreement to see whether the parties intended that the fixtures, air-conditioning and the building shall all be enjoyed together. Clause 1 of the agreement dated 22-6-1970 clearly provides that lessors shall give on lease exclusively to the lessees and the lessees shall take on lease from the lessors, the said land being plot No. B-5, Jangpura, situated at Mathura Road, New Delhi, within the city-land and registration sub-district of Delhi admeasuring 1500 sq. yds. and more particularly described in the schedule hereunder written and delineated on the plan hereto annexed and thereon surrounded by a red-coloured boundary line together with the said building to be constructed thereon according to the specifications and in the manner and with the amenities hereafter recited. According to clause 6 of the said agreement, the building shall be constructed by the lessors for the use of the lessees and shall be constructed in accordance with the building plans and designs submitted or approved by the lessees from time to time and it shall be the liability and responsibility of the lessors to have the said plans and designs approved and sanctioned by the Delhi Municipal Corporation or other authorities and to do all such acts, deeds, matters and things in connection with the same or in connection with the constructions of the said building or any part thereof at the lessor's own cost. The lessors hereby * further expressly agree with the lessees that the construction work of the said building and other structures thereon shall commence on 1-8-1970 and the same shall be completed within a period of one year from that date. The lessors shall complete the construction of the said entire building and other structures thereon together with the central air-conditioning plant and all its amenities and facilities fit for use and occupation by the lessees on or after August 1971. Clause 10 of the agreement provides that the lessors shall make the said premises centrally air-conditioned entirely at their own cost and expenses. The lessors shall provide initially in the said premises their own window type air-conditioning units for cabins. It shall be the liability and responsibility of the lessors to regularly maintain and keep in good condition and repair the central air-conditioning plant and the window air-conditioners of the said building and other structures and the lessees shall in no way be liable or responsible in connection with the same or any part thereof. Paragraph No. 17 of the agreement states that in addition to the rent payable by the lessees to the lessors in respect of the carpet area of the basement and each floor of the said building as provided in the agreement, the lessees shall pay to the lessors air-conditioning charges for the air-conditioned carpet area of the said building at the rate of 50 paise per sq. ft. of the carpet area. Clause 1 of the lease deed dated 5-9-1973 clearly states that the lessors do hereby demise unto the lessees all that the said plot of land, more particularly described in the schedule thereto together with the building and other structures standing thereon and all courtyards, compounds, lawns, fences, hedges, passages, pathways, drains, rights, liberties and easements appurtenant thereto in consideration of the rent here-under reserved. According to Clause 2 of the deed for the first five years of the lease the rent payable in respect of the premises was Rs. 11,944 per month. For the next five years of the lease, the rent-payable in respect of the premises shall be Rs. 13,369.

Paragraph No. 11 of the lease deed clearly provides that the lessors shall regularly maintain and keep in repairs the premises including all water pipes, sanitary fittings, drains, sewers and gutters and electrical equipment and fittings, in upon under or about or loading from and to the said building and observe and conform to all such rules of the Municipal Corporation of Delhi. Clause 19 of the deed clearly provides that the lessors were jointly and severally liable and responsible in all respect under the several covenants and conditions agreed to by them in this lease deed. The agreement of hire dated 6-9-1973 clearly provides that the owners have by a lease agreement dated 5-9-1973 demised unto the hirers the land and building together with appurtenances, etc., at B-5, Jangpura, Mathura Road, New Delhi. It further provides as under : And whereas the owners have, at the request of the hirers provided, in their building bearing plot No. B-5, Jangpura, Mathura Road, New Delhi, one central air-conditioning plant having a capacity of 43 tons together with other fixtures and fittings for, the purpose of supplying cool and hot air in the said building to the hirer and have also provided 12 Nos. window type air-conditioners for the purpose of supplying cool air in the cabins and rooms in the said building.

And whereas the owners have also agreed to maintain and keep in proper working condition the said air-conditioning plant, fixtures and fittings and 12 Nos. window type air-conditioners and to replace any machinery or any part thereof which may need replacement or repairs.

The owners hereby undertake to run, operate and maintain a central air-conditioning plant of 46 tons capacity, fixtures and fittings so as to distribute as per the requirement of the hirer cool or hot air over an area 11, 508 sq. ft. and 12 Nos. window type airconditioners to distribute cool (not hot air) over an area of 2832 sq. ft. in the building known as Siemens House, at B-5, Jangpura, Mathura Road, New Delhi, during the entire terms of the said lease dated 5-9-1973, or any extension thereof.

The owners have agreed with the hirer that they will continue to supply cool/hot air through the operation of the central airconditioning plant and machinery and the accessories and fixtures and fittings to the hirer as long as the hirer continues to occupy the said premises at B-5, Jangpura, Mathura Road, New Delhi.

14. According to paragraph No. 12 of the agreement, the owners shall always be jointly and severally liable and responsible in all respect under the several covenants and conditions agreed to by them in this agreement.

15. If we consider the aforesaid clauses of the agreements dated 22-6-1970, 5-9-1973 and 6-9-1973, which are part and parcel of the same transaction, it would be clear that it was the intention of the parties that the fixtures and central air-conditioning plant and the building should be enjoyed all together and not one separately from the other.

As regards the renewal of the lease of the building, it requires the lessor to provide at all times during the continuance of the lease and the renewal thereof, the furniture including air-conditioning plant mentioned in the lease agreement. Thus, it is also clear that it was incumbent on the lessors to supply and maintain the air-conditioning facilities during the renewed term of the lease of the building. The agreement further provides that the major repairs to or replacement of the furniture or air-conditioning plant shall be made by the lessors.

Such repairs or replacement may of course be necessitated in a case where the furniture or air-conditioning plant were damaged.

16. Looking to the aforesaid facts and the ratio of decisions of the cases referred to above, we are of the view that in the present case, the letting of the building and the air-conditioning plant were inseparable. It was intended by the parties that enjoyment of the building and the air-conditioning plant shall be all together and parties also intended that the letting of the building and air-conditioning plant would be inseparable. Under the circumstances, the income from the building and the air-conditioning plant was clearly assessable under the provisions of Section 56(2)(iii).

17. The contention of the revenue that the assessee has accepted the finding of the learned AAC that income from building should be assessable under Section 22/26 as such the income from air-conditioning plant should also be assessable under the said provision, can hardly be accepted. Whether the income from building is assessable under Section 22/26 or under Section 56(2)(iii) is not before us for decision. Under the circumstances, any finding given by the income-tax authorities on that point will not come in our way in deciding the controversy in respect of the income arising from air-conditioning plant.

18. The other contention of the revenue that since the Tribunal in the assessment years 1973-74 and 1974-75 has already held that income from building and air-conditioning plant should be assessed under the head 'Income from house property' and as such the same finding may be given in these years is also not acceptable to us. After considering all the facts and the relevant decision on the subject, we are of the view that we are unable to agree with the view of the Tribunal taken by it in the assessment years 1973-74 and 1974-75.

19. The decisions relied on by the counsel for the assessee are on the lines of the decision in the case of Sultan Bros. (P.) Ltd. (supra). So all these decisions support the contentions of the assessee.

20. The decision relied on by the revenue in Dr. P.A. Varghese's case (supra) is not applicable on the facts of the present case. In that case the question was whether income obtained by the assessee as rent from the Export Promotion Council for letting out to it a portion of the building constructed by him was chargeable as income from house property or as income from other sources under Section 56(2)(iii). The Hon'ble High Court took the view that it would be income from house property. The agreement entered into between the lessor and the lessee in that case does not make out a letting of any machinery, plant or furniture. The rent was fixed for the building with all the amenities mentioned in the agreement. It must have been fixed having due regard to the provisions of these amenities. There was only one letting in that case and that was of the building. On those facts, it was held that income from building was assessable under Section 22.

21, In the present case, the main controversy is whether the income from air-conditioning plant is assessable under Section 22 or under Section 56(2)(a7). We have already held, as discussed above, that the income received from air-conditioning facility is clearly assessable under Section 56(2)(iii). For the sake of .argument, if it is, held that there was no lease of .the air-conditioning plant, in that case also the income from air-conditioning facility have to be assessed as income from other sources. In support of this proposition, we are fortified by the decision in the case of B.C. Shah v, CIT [1979] 118 ITR 419 (Kar.). In that case a formal lease deed was .executed between the State Bank and the co-owners of the building. The bank took the possession in 1967. Although there was a reference to the provision of air-conditioning facility in the letters exchanged between the bank and the* agents of the co-owners before the lease deed was executed, in the lease deed itself there was no mention of the obligation on the part of the co-owners to provide air-conditioning facilities and any rent payable in that regard by the assessee. By August 1967, air-conditioning facility was provided. The lessees paid for the air-conditioning facility at the rate of 20 paise per sq. ft. and labler the rate was raised to 50 paise for sq. ft. The lessees paid the charges of electricity and water consumed for the purpose of providing the air-conditioning facility. The air-conditioning facility had to be maintained by the co-owners. Rejecting the claim of the assessees that the rent from the building should be assessed as income from property under Section 26 and that income realised from the air-conditioning facility should be assessed as income from other sources under Section 56, the ITO held that entire income should be assessed as income from other sources under Section 56(2)(iii). The Tribunal also took the same view. On a reference, the Court held that in the instant case even though there was some reference to the provision of air-conditioning facility in the correspondence which preceded the lease deed, there was no reference to it in the lease deed. The lessee was not maintaining the air-conditioning plant. They were only paying for the provision of air-conditioning facility on the basis of the floor area for which the amenity was provided. The air-conditioning plant was under the control of the co-owners of the building. According to the understanding between the parties, the lessee had to pay some additional charges for the provision of air-conditioning facility depending on the floor area for which that facility was provided. This also showed that there was no lease of the air-conditioning plant along with the building in favour of the lessee. Since there was no lease of the air-conditioning plant, Section 56(2)(iii) was not applicable. The rent realised in respect of the lease of the building was assessable in accordance with Section 26 and the income realised on account of the provision of the air-conditioning facility was assessable as income from other sources.

22. Looking to the aforesaid facts, evidence on record coupled with the [circumstances of the case, we are of the view that the letting of the


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