L.N. Chhagani, J.
1. This is a reference by the income-tax Appellate Tribunal (Delhi Bench 'C') under Section 256(i) of the Income-tax Act, 1961 (hereinafter referred to as the Act) stating the following question for our answer:
Whether on the facts and in the circumstances of the case and on correct interpretation of the lease deed dated 13-9-1954, the assessee has been rightly assessed under the head 'income from property' in respect of the income received by it from the Syria Market?
The material facts may be shortly stated as follows: The assessee is a Hindu United Family represented by its Manager Trilokchand and the assessement relates to the years 1961-62 and 1962-63 in the previous years being the years ending Deepawali Samvat year 2017 and 2018 respectively. The assessee derives income from share in registered firm Prabhat Takies, Ajmer, and also from immovable properties including the property known as 'Syria Market'.' The position with regard to Syria Market is as follows:
2. The Government of former Ajmer State had some scheme for rehabilitation of the displaced persons from West Pakistan. In connect on with that scheme, the assessee offered to take an open land from the Government on lease for 30 years and to construct 75 shops on that plot and proposed certain terms and conditions on 1-5-1948. The terms and conditions were approved by the Chief Commissioner on 9-6-1948 and the assessee started construction of shops. A regular lease deed was executed on 13-9-1954. The deed was not on record but was placed on record on behalf of the assessee with the consent of the counsel for the Department. The relevant terms of the deed may be indicated at this stage:
1. The Assessee was to hold the land for a period of 30 years with effect from 1-6-1949;
2. The assessee was liable to payment of annual rent of Rs. 13.8.0 per shop.
3. The lessee was to let out each shop for a rent not exceeding Rs. 17/- per month.
4. The lessor was entitled to terminate the tenancy at any time during the currency of the terms thereof by giving three months notice in writing to lessee and the lessee was entitled to receive depreciated value of the constructions put by him as may be determined by the Government.
5. It was also provided that after the expiry of the period of 30 years, all the shops will vest in the Government
6. The lessee shall lease out the shops in the first instance to displaced persons only.
7. Yet, another condition of the lease was that in case of default of payment of rent the lessor was entitled to enter into and upon the said plot of land and to resume and to pull down the structure and sell the material thereof and after retaining the amount of rent due, if any, and the cost of such demolition and sale and a further sum of Rs. 50/- to pay the balance of the money realised by the said sale, if any, to the lessee.
3. It is a common ground that the assessee constructed 42 shops under the agreement at a total cost of Rs. 82,899/-. The lease was terminated by the Govt. in the year 1961 for contravention of the lease deed & the shops constructed by the assessee were taken over by the Govt. The question of payment of their depreciated value is still said to be under consideration.
4 In the proceeding years, the assessee declared the income from these shops under the head ''Income from property' & they were taxed as such In the assessment years 1961-62 and 1962-63 the income from these properties has been shown as Rs. 5,825/- and Rs. 5,946/- respectively and the appellant claimed that the income should be treated as falling under the head 'Income from other sources'. The Income Tax Officer, however, over ruled the contention of the assessee and treated the income from the shops as 'income from property' by his order dt. 19-10-1964.The assessee's appeal was dismissed by the Appellate Assistant Commissioner on 3 11-1965 and a further appeal by the Appellate Tribunal (Delhi Bench 'C') on 4-1-1967. At the instance of the assessee, however, the Appellate Tribunal made the present reference.
5. We have heard Mr. Bisa for the assessee and Mr. Bhandari for the Department. The assessee in canvassing the answer in its favour, relied upon:
: AIR1930All288 In the matter of Basant Rat Takhat Singh of Agra;
: AIR1930Cal1 Gooptu Estate Ltd. In re.
: 51ITR353(SC) Sultan Brothers Private Ltd. v. Commissioner of Income Tax, Bombay City II.
: 66ITR596(SC) Commissioner of Income Tax, Bombay City II v. National Storage Pvt. Bombay
: 74ITR7(SC) New Savan Sugar & Gur Refining Co Ltd. v. Commissioner of Income tax, Calcutta.
The counsel for the Department has relied upon:
: 14ITR409(Cal) Ballygunge Bank Ltd. Calcutta v. Commissioner of Income-Tax, Bengal
: 44ITR606(Cal) Sri Ganesh Properties Ltd. v. Commissioner of Income-Tax, West Bengal
1943 2 ITR 209 Commr. of Income Tax v. Madras Cricket Club.
Before noticing the cases we may refer to the statutory provisions.
6. The statutory provisions, both under the old Act, as also under the new Act describe income from property as the annual value of the property consisting of any building or lands appurtenant there of which the assessee is the owner. Under both the Acts. vide Section 9 of the old Act & Section 24 Sub-section (7) of the New Act, the assessee is entitled to deduction of the ground rent. This deduction can only be available to the assessee who is not the owner of the ' land and is only entitled to erect super-structure. On a plain and literal consideration of the provisions it is abundantly clear that in order to attract the relevant provisions relating to income from property the assessee need only be the owner of the super-structure. His ownership need not extend to the land on which the super-structure is erected. A lessee of an open land can thus be an owner of the superstructure. A question when a lessee should be treated as an owner of the super structure cannot, however, be decided on abstract consideration but on a closer examination of the conditions and terms of the lease, specially relating to:
(i) the nature and authority of the lessee to raise super structure at his cost;
(ii) the nature and extent of the use of the structure by the lessee during the lease period;
(iii)(a) provisions relating to the right of the lessee to remove the super structure on the termination of the lease by the expiry of the lease period or otherwise, or
(b) for compensation to the leasee for the money spent on super structure in case the super structure is to vest in the lessor on the expiry of the lease or on its termination otherwise.
7. Further, in deducing the question we should be guided by the observations of the Supreme Court indicating a proper approach to the question. In Nalinikant Ambalal Medy v. S.A.L. Narayan Row v. Commissioner of Income-tax, Bombay City 1, Bombay : 61ITR428(SC) the Supreme Court laid the law as follows:
The several heads of income mentioned in Section 6 are mutually exclusive, a particular income can come only under one of them. Whether an income falls under one head or another, has to be decided according to the common practical notions and on what kind of income it is, because the Act does not provide any guidance in the matter. This question cannot be decided on the basis of the time of receipt of the income by the assessee or by reference to the assessee's treatment of such Income.
These observations have been approved in subsequent cases of the Supreme Court.
8. We now turn to the cases cited by the parties. In the matter of Basant Raf Takhat Singh : AIR1930All288 the assessee held a lease from the Government for one year. One of the conditions of the lease was that no permanent structure shall be erected on the land-leased and that the structure that is erected should be removable within twelve hours. The assessee let out sites with or without any shelter and constructed by themselves over them, to different persons and realised ground rent from the sub lessees. The income of the assessee from the sub-lease was less than the rent payable to the cantonment authorities and the Income tax Department permitted a deduction from the income of other house property of the deficit in the contract. The assessee, however, claimed that the contract obtained from the cantonment authorities was a business and further as they borrowed certain moneys in earlier years for other kinds of business, and, as they were playing interest on money so borrowed in previous years, they should be credited under Sections 10(2)(3), Income Tax Act, with the interest they had to pay. The one of the questions referred by the Commissioner was as:
(a) Where, as in the present case, the assessee has taken land on lease and has erected on a part thereof houses and shoes which are let out on rent and has let out the rest to squatters on rent, should the income derived from such rents be assessed under Sections 9 and 12 or under Section 10. Income-tax Act, 1922?
The High Court did not consider the language of the question happy on the facts stated by the Commissioner and thought that the buildings erected were of a temporary nature and that this could not be substantial under terms of the lease and gave their decision as follows:
For the purposes of our answer, we have to take it, therefore, that several pieces of land belonging to the cantonment authorities were taken on lease, for one year only with the idea that parcels of it should be let out to sub-lessees for a period not more than one year, & rent should be received from these sub-leasees for the benefit of the lessee. The question then is whether this contract which the lessees obtained from the Cantonment authorities is 'property' or it is 'business'. In our opinion, it is neither 'propetty' nor is it 'business'. The Income from this source must come under Clause 1(6), Section 6, Income-tax Act and it must be assessed as directed in Section 12, Income-tax Act.
The decision entirely proceeds on the footing that there were no super structures constituting buildings.
9. In Gooptu Estate Ltd. in re : AIR1930Cal1 the lease was of certain properties. The assessee's income from the lease property was assessed under Section 12 under 'other sources'. The assessee claimed that the income should be included under the head 'business'. In disposing of the reference the High Court repelled the assessee's contention but made the following observations in connection with the applicability of section 9:
As the assessees in this case have only a limited interest, namely, the interest of a lessee for fifty years, the Income-tax authorities may well be right in regarding Section 9 as in-applicable to the case.
The two distinguishing features of the case are:
(i) That it was a lease of the property and not of the open land.
(ii) That the controversy as to the applicability of Section 9 or Section 12 did not arise for precise determination.
10. In Sultan Brothers Private Ltd v. Commissioner of Income Tax, Bombay City : AIR1930Cal1 , the assessee constructed building on a certain plot of land, fitted it up with furniture and fixtures and let it out on lease fully equipped and furniseed for the purpose of running a hotel. It was a case of composite letting of building fitted with furniture and fixtures. The controversy was whether the Income from letting should be treated as income from 'business' or from 'house property' or from 'other sources'. The Supreme Court held:
1. that the letting of the building did not amount to the carrying out of a business.
2. That as the assessee and the lessee intended that the building and the fixtures and furnitures were to be used for one purpose, namely, for the purpose of running a hotel all together, and not one separately from the other, notwithstanding that the sums payable for their enjoyment were fixed separately, the lease satisfied all the conditions for the applicability of Section 12(4) and rent from the building had to be computed under Section 12 after providing for the allowances mentioned in Sub-section (4) thereof, and Section 9 did not apply.
It is a case of an owner letting the property with furniture and fixture constituting a composite letting and is not to the point in the present controversy.
11. Commissioner of Income-tax; Bombay City Bombay v. National Storage Pvt. Ltd. Bombay : 66ITR596(SC) has also no bearing to the present controversy. In that case the assessee company was formed with an object of carryng on business of storing films. It purchased certain lands and constructed safe deposit vaults in conformity with the specifications laid down in the Cinematograph Film Rules, 1948, for hiring out. The key to each vault was retained by the vault-holder, but the key to the entrance which permitted access to the vaults was kept in the exclusive possession of the assessee. The assessee also rendered other services to the vault-holder. The agreements with the vault-holders were licences and not leases. On these facts it was held that the assessee was in occupation of all the premises for the purpose of its own concern, the concern being the hiring out of specially built vaults and providing special services to the licensees. It was consequently held that the assessee was carrying on adventure in the nature of trade and income arising therefrom was assessable under section 10 of the Act.
12. Mis. New Savan Sugar & Gur Refining Co. Ltd. v. Commissioner of Income tax, Calcutta : AIR1930Cal1 is also a case of a composite letting and has no bearing.
13. In addition to these cases, the counsel for the assessee in his attempt to show that there was divergence of judicial opinion, invited our attention to following passage at page 921 of Iyengar on Income Tax, Fifth Edition, 1963, Volume 2.
The contrary was decided in two cases, Basantrai TakhatSingh v. C.I.T. B. & O. 4I T.C 324, Basantrai V.C. I.T., B., & Co. 5 I.T.C . 441, where the distinction was taken that the buildings put up on the lease hold property were merely of a temporary nature, there being a covenant in the lease not to put up a permanent structure. It was held under those circumstances that the assessment ought to be under Section 12. Other Sources'. But when the latter matter went up to the Privy Council on appeal in 1933 I.T.C. 197, P.C. their Lordships expressly reserved their opinion as to whether the assessment was made under the proper section, the assessee having not taken the point before the High Court and the question hence having become final.
He argued that in two cases a contrary view was taken. The one case referred is Messrs. Basant Rai Takhat Singh v. The Commissioner of Income-Tax, United Provinces ITC (Vol. 4) which is the same case as has been reported in : AIR1930All211 and noticed in detail above.
14. The other case 5 income Tax Cases page 441 was not made available to us by any of the parties. This case was taken to the Privy Council in appeal and the decision of the Privy Council is reported in Cnmmissionet of Income Tax, U.P. v. Basant Rai Takhat Singh 4 ITR 197, It appears from a perusal of the Privy Council decision that the Commissioner himself had proceeded under Section 12 in assessing the income. There was no director controversy with regard to the applicability of Sections 9 and 12 before the High Court, the controversy being whether a particular deduction was permissible by the terms of Section 12 The Privy Council, however, made observations expressly reserving their opinion as to the applicability of Section 12 and made the following observations:
Now in the circumstances of this case and having regard to the course which the case has taken and the attitude of the respondents, their Lordships feel themselves constrained to consider the matter upon the footing that Section 12 is the proper section under which the assessment should be made,& accordingly they propose to deal with the matter upon that footing but in so doing their Lordships must not be taken to be accepting the view that in fact Section J 2 is the proper section, or that Section 9 is not applicable to this case.
15. A similar passage from the book 'Iyengar on Income Tax' at page 1164, foot note 'X' was referred to. In that foot note the cases Inre-Gooptu Estates Ltd. : AIR1930Cal1 and C.I.T. U.P. v. Basant Rai Takhhat Singh 4 ITR 197 were also referred to The case reported to in re-Gooptu Estates Ltd. is the same as reported in : AIR1930Cal1 , already noticed and the other case has also been dealt with earlier.
16. We now proceed to examine the cases relied upon by the Department. In Commissioner of Income Tax, Madras v. The Madras Cricket Club 1943 2 ITR 209 it was held that 'An assessee who takes on long lease a parcel of land from the Government and erects building there on and is entitled under the term of the said lease to remove the building within a stipulated period on the termination of the said lease is assessable in respect of the annual value of the buildings under section of 9 of the Indian Income Tax Act, 1922.
17. In Ballygune Bank Ltd., Calcutta v. Commissioner of Income Tax, Bengal : 14ITR409(Cal) the assessee, a limited company, which had as one of their objects to acquire land, build houses and let them to tenants, obtained a lease of a plot of land for a period of 40 years. The lease deed provided inter-alia that the assessees should build houses on the land within a specified time by using the best materials, that the lessors or their representatives would be entitled to supervise the building construction, and that after the expiration on of 40 years the houses would belong to the lessors. Under the lease the assessees should pay the entire Municipal tax in respect of the land. Upon acquisition of the land by the Government or by a public authority the lessors were entitled to all compensation in respect of the land but compensation in respect of the buildings was to be divided between the lessors and the assessees. 'It was held that' the assessees were the owners of the buildings until the period of the lease expired and they were therefore assessable under Section 9 of the Indian Income tax Act in respect of the rents derived from the building.
18. The same view was taken in Sri Ganesh Properties Ltd. v. Commissioner of Income Tax, West Bengal : 44ITR606(Cal) and it was further held that 'a person may be assessed as the owner of the property under section 9 of the Act even though he has no right to alienate the property or his full right of ownership is in some other way subject to contractual or other limitations.
19. The above review of the cases lends support to the view that that a lessee can be owner of the super-structure erected by him. As to the question as to when a lessee should be treated as a owner, these cases having been decided on their own facts and the circumstances, can serve only as broad guide lines and should not be construed to lay down any inflexible rule which can be applied in all cases without reference to the facts. The question of ownership of the super-structure will have to be decided on a comprehensive examination of all the conditions of the lease.
20. Examining the present cases in the light of the above principles, we must observe that:
1. the lessee incurred substantial amount in erecting the super structures;
2. that he was entitled to appropriate the rent from the super-structures and that the super-structures were to vest in the Government only after the expiry of the lease;
3. that the lessee was entitled to be compensated by the payment of the depreciated value of the super-structure in case of a prior termination of lease on three months notice as provided in the lease.
The facts clearly show that the lessee is to be treated as a owner of the super-structure. The counsel, however, emphasized the following restrictions imposed upon the lessee by the terms of the lease in his attempt to show that the lessee cannot be treated as a owner of the super structure:
1. That the lessee was bound by the lease deed to let the shops to the displaced persons in the first instance.
2. that the lessee could not charge more than Rs. 17/- per shop and
3. that in case of default of payment of rent, the lessor was entitled to take possession of the plot and to pull down the super structure.
The condition relating to the letting of the plot, in the first instance, to displaced persons, cannot detract from the ownership of the lessee of the super-structure. The lessor granted lease of the open plot primarily for rehabilitation of the displaced persons and thought it proper to impose the condition. All the same, having regard to the ownership right of the lessee, the lessor recognised the right of the lessee, to choose any of the displaced persons and to lease it to others at a later stage. Having regard to the fact that there are enactments in force for the control and rugulation ol rents, the term 'fixing a maximum rent' is understandable and cannot affect the ownership of the lessee over the super-structure.
21. In connection with (the last condition), it will be proper to point out that it is penal condition to be enforced only in case of a default and, therefore, cannot have much bearing on the question of ownership. This apart, the conditions merely enables the lessor to pull down the structure to obtain the leased property in the condition it was let out. Even so, it recognised the right of the lessee to receive the surplus amount remaining after making deductions envisaged in the lease.
22. The assessee's counsel no doubt hinted that the assessee in obtaining a contract from the Government was engaged in an adevnture in the nature of a trade and, therefore, his income arising from the contract should be treated as income from business. This controvery was not raised before the Income Tax Officer or the Appellate Assistant Commissioner or the Appellate Tribunal, not were proper materials brought on record. The controversy can not be entertained at this stage.
23. Having considered the facts and the circumstances of the case, we are in agreement with the view taken by the Appellate Tribunal and answer the question in the affirmative and hold that the assessee has been rightly assessed under the head 'income from property' in respect of the income received by it from the Syria Market.
24. The reference is answered accordingly. There will be no order as to costs.