TMI Blog1962 (7) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... ments. Clause 2 enabled the assessee company to carry on the business of storage of articles in the cinema industry and for that purpose to build or construct such other vault or vaults as may be deemed necessary by the company. Clause (3) set out the objects of the company as generally to carry on all sorts of business of safe deposit vaults in all its aspects. Clause (5) authorised the company to acquire by purchase or lease a suitable plot of land and to construct thereon safe deposit vaults and other necessary buildings as may be thought fit by the company. What led to the incorporation of this company was the promulgation of the Cinematograph Film Rules, 1948, by the Government of India, under which films were required to be stored in specially constructed premises strictly in conformity with the specifications laid down in the said rules and situated to be approved by the Chief Inspector of Explosives, Government of India. Under these rules, a place at Mahim was approved by the Chief Inspector of Explosives, Government of India, as a suitable place for the construction of the film godowns. The company after its incorporation purchased a plot a Mahim, the place which wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... running the aforesaid services in the form of a secretary, a peon and two watchmen and a sweeper. Besides, the entire staff of the Indian Motion Pictures Distributors Association was paid ₹ 800 by the company for the part-time services rendered by them. During the first three years after its incorporation, i.e., during the assessment years 1950-51, 1951-52 and 1952-53, the department assessed the company under section 10 of the Income-tax Act. For the subsequent four assessment years, which is the period in question in the present reference the Income-tax officer took the view that the income which the company obtained was appropriately to be assessed under section 9 and not under section 10 of the Act. He, accordingly, made the assessment for these years on that basis. In the appeal, which the assessee company filed before the Appellate Assistant Commissioner, the view taken by the Income-tax Officer was confirmed. When the matter came before the Income-tax Appellate Tribunal, there was a difference of opinion between the two Members of the Tribunal. According to the Judicial Member, the company had leased out its premises to the vault-holders and the income which it obta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umstances of the case, the income of the company is taxable under the head income from business under section 10 or under the head income from property falling under section 9 of the Act. The contention of the assessee company is that it falls under the former, while the department contends that it falls under the latter. Counsel for the revenue has contended that the income falls under section 9 because the sources of the income is ownership of the property. According to him, the company has invested money in the construction of certain special type of buildings and in granting the licences to the vault-holders, it has exploited its property and earned income therefrom. There is no business activity of the company other than the activity of any property owner letting out his property and earning income therefrom. According to him, therefore, the income which the company gets from its property is income which falls under section 9 of the Act. It is contended on behalf of the assessee company on the other hand that the income in the present case is not derived either wholly or even substantially from the ownership of the property. The income is not derived from the mere letti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat is the business of the company. However, since the income, which the company is getting, is from the letting of the property or giving it of or use and occupation on licence basis, its income is income from property taxable under section 9 of the Act. The primary nature of the source of the income, according to the learned counsel, is the ownership and that nature is not in any way altered or changed because of certain additional services rendered by the property owner to the persons to whom it is let or given for use and occupation. According to him the services rendered by the company in the present case to the licence-holders are incidental and of a minor character and are not such as would render the transaction not one of letting or property but carrying on a business activity apart from the letting of property. In support of these submission he has invited our attention to the following cases: (1) United Commercial Bank Ltd. v. Commissioner of Income-tax [1957] 32 I.T.R. 688; [1958] S.C.R. 79. (2) Commercial Properties Ltd., In re [1928] I.L.R. 55 Cal. 1057; A.I.R. 1928 Cal. 456. (3) Ballygunge Bank Ltd. v. Commissioner of Income-tax [1946] 14 I.T.R. 409. (4) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ian Income- tax Act in the same way as a private individual owning such property. The company in the said case was a registered company of which the sole object was to acquire land, build houses and let premises to tenants in Calcutta or elsewhere in India. The assets of the company consisted of three properties and its sole business was the management and collection of rents from the said properties. It was contended in that case that, since the company was formed with the object of carrying on business, the income which it received from the properties was income from business under section 10 that contention, however, was negatived and it was pointed out that the company was carrying on no other business except such activity as was carried on by every landlord or owner of that type of property in exploiting the same. It was held that the income came directly and specifically under the word property and the mere fact that the house owner was a company did not change the incidence of the tax and make it income not from property. This was a case of mere letting out of house property without anything more and what was held in this case was that even if such letting was done by a re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Mr. Joshi is the decision of the House of Lords in Salisbury House Estate Ltd. v. Fry (H.M. Inspector of Taxes) [1930] 15 Tax Cas. 266. In that case the assessee company was a company, the main objects of which were acquisition, development, management, leasing and letting of land and property. It took over some lands with a block of buildings upon it in the City of London, known as Salisbury House. Salisbury House was at the time when it was taken over by the company in the course of erection or had been recently completed and the object for which the company was formed was to hold the same and let it out as offices and turn it to account in any way which might be possible or expedient. Salisbury House had a very large floor space and contained some 800 rooms. These rooms were let out by the company to some 200 tenants singly or in suites, which may or may not be self-contained. The company provided and operated the lifts in the building, which was of nine floors and also provided uniformed staff of 25 persons for that purpose and to act as porters and watch and protect the building. The company also engaged cleaners and a house-keeper. It provided radiators for heating purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng a trader. In his view it was the nature of the operations and not its own capacity which must determine whether it was carrying on a trade or not. Lord Atkin based his conclusion on the ground that annual income derived from ownership of lands, tenements and hereditaments could only be assessed under Schedule A and in accordance with the rules of that Schedule. In his opinion it made no difference that the income so derived formed part of the annual profits of a trading concern. Lord Macmillan took the view that landowning, however profitable, was not a trade within the meaning of the income tax code. Property in land as a source of income was dealt with, and could only be dealt with, under Schedule A and the rules of that Schedule prescribe how the income from landed property was to be ascertained and measured. He, however, observed: ................income from property which is taxable under, and only under, Schedule A is income derived from the exercise of property rights properly so called. In his opinion the income of the company was derived from the location of the land or in other words in the normal manner in which property in land yielded revenue and it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that the character of the income was not altered merely because some stalls were occupied by the same occupants and the remaining stalls were occupied by a shifting class of occupants or from the fact that the company was required to obtain a licence from the Calcutta Municipality to maintain sanitary and other facilities and for that purpose it had to maintain a staff and to incur expenditure. It was held that the primary source of income from the stalls was the occupation of the stalls and it was a matter of little moment that the occupation which was the source of the income was temporary. In this case also the tenants of the shops and stalls had the advantage of the sanitary and other services which had been provided by the company. These services, however, were regarded as incidental to the letting out of the property and not sufficient to convert the nature of operations of the company into those of trader as distinguished from the operations of a landowner. The two later cases referred to by Mr. Joshi, Salisbury House Estate Ltd. v. Fry (H.M. Inspector of Taxes) [1930] 15 Tax Cas. 266 and East India Housing and Land Development Trust Ltd. v. Commissioner of Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of contract for such user, they had properly fitted up the rooms with fixtures, fittings and other things and had provided attendance and other services. Such utilisation of property, it was claimed, went far beyond the scope of Schedule A. This contention of the revenue was accepted by the House of Lords and the Lord Chancellor in his speech observed: When the facts set out in the case stated and the document annexed to it are considered as a whole, it becomes plain that the respondents, with the laudable object of raising an income for the support of their charitable activities, have engaged in what can only be described as a business or a concern in the nature of business, and thereby have earned annual profits.... Viscount Finlay pointed out that the profits were derived not merely from the letting of the tenements but from its being let properly equipped for entertainments with seats, lighting, heating and attendance. the subject which was hired out was a complex one and the mere tenement as it stood without the furniture, fixtures, etc., would have been almost useless for entertainment. The business of the Governors in respect of those entertainments was to have t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 9 of the Act did not apply. The same is the view taken in Rohtas Industries Ltd. v. Commissioner of Income-tax [1961] 41 I.T.R. 524. The assessee company in that case carried on the business of manufacture and sale of cement, sugar, paper pulp and certain chemical products. It owned certain buildings and residential quarters around its factory most of which it let out to its employees and some to outsiders. It was held that the letting out was subservient to an incidental to the main business of the assessee and the exception to section 9(1) of the Indian Income-tax Act applied. The rent received by the assessee for the letting out of the quarters to its employees was assessable not under section 9 but under section 10 of the Act. From the several cases, which have been cited on either side, the following conclusions appear to follow: 1. Income-tax is a single tax levied on the total income classified and chargeable under the various heads and not an aggregate of the distinct taxes levied separately on each head of income. 2. That the heads of income in section 6 of the Act are specific heads, which are exclusive and exhaustive. 3. The income which falls under any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 9 but income from operations of a trading nature falling under section 10 of the Act; and 7. In cases where the letting is only incidental and subservient to the main business of the assessee, the income derived from the letting will not be the income from property falling under section 9 and the exception to section 9 may also come into operation in such cases. It is in the light of these principles that the question before us in the present case will have to be examined and decided. Now, in the present, case, the company has been formed with the object of carrying on the business of storing and preserving films and other articles of cinema industry, and generally to carry on all sorts of business of safe deposit vaults in all its aspects. Under the Cinematograph Film Rules, 1948, a person desiring to store films has to obtain a licence and under the terms of the licence he has to store films exceeding 1,000 lbs. in a vault built according to certain specifications and he has also to observe certain other precautions and conditions in the matter of storage of films. The vaults, besides, have to be constructed at an approved place. The vault under the said rules h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It had installed a fire-alarm and was incurring expenditure for the maintenance of the fire-alarm by paying fire-service charges for the municipality. It had opened in the premises two railway booking offices free of charge for despatch and receipt of film parcels. The company had also maintained a regular staff consisting of a secretary, a peon and a watchman and a sweeper and it was also paying for the entire staff of the Indian Motion Pictures Distribution Association an amount of ₹ 800 per month for services rendered to the licence-holders. The licence-holder was given the key of the vault, but the key to entrance which permitted access to the vaults was kept in the exclusive possession of the company. Now, the units constructed by the company were having regard to their location and construction only suitable for the specific purpose of storage of films. The construction in order to be suitable for this purpose had not only to be built according on the specification but had to be also further fitted with other devices such as automatic fire- proof doors, which will close immediately on the outbreak of fire in the vault, etc. In order to facilitate the business of stor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble under section 9. In our opinion, therefore, the income, which the company obtained from the licence-holders in the present case, could not be regarded as income from property falling under section 9 of the Indian Income-tax Act. The activity of the company in earning that income was a business activity and the source of the income which the company obtained from the licenceholders, was not the ownership of the house property but its business. Mr. Palkhivala has urged in the alternative that, on the facts of the present case, the company could be said to have been in occupation of the said property for the purpose of its business and, therefore, the exception to section 9 will also apply in the present case. He has pointed out that the licence in the present case merely permitted the use of the vault to the vault-holder for the purpose of safely depositing his films and by granting such licences the company was carrying on the business of safe storage of films in the premises which it had constructed and equipped and maintained for the purpose. Although the key of the vault was given to the vault-holder, the key to the entrance, which permitted access to the vaults, was kept ..... X X X X Extracts X X X X X X X X Extracts X X X X
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