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TMI Blog1972 (1) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... se dispose of land, houses, mines, minerals, mining and other real and personal property and to deal with the same commercially. 7. To develop the resources of the same property by building, reclaiming, clearing, draining, and otherwise improving, farming and planting on any terms or system that may be considered advisable. " With effect from February 5, 1955, the appellant-company took on lease a market place known as Taltalla Bazar in the City of Calcutta from Shrimati Sujata Tagore and her sons on a monthly rent of Rs. 3,000 for a term of 50 years, with option to the lessee to renew the lease for the further period of 40 years. The deed of lease in this connection was executed on September 5, 1956. Clauses 4, 5 and 13 of the lease deed were as under : " 4. The lessee shall have the option to erect, rebuild, remodel and reconstruct and repair the existing structures upon the demised premises from time to time during the term of these presents at its own cost in a substantial and workmanlike manner with good material of the several kinds in accordance with the plans elevations sanctions and specifications according to the choice of the lessee (and whenever necessary to get s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that property was its business authorised by the memorandum of association. The appellant had shown losses in its return for all the three years and the above claim was made on its behalf, obviously, for the purpose of carrying forward such losses. The Income-tax Officer rejected the appellant's claim and made assessments under section 12 of the Act. The Appellate Assistant Commissioner in appeal by a consolidated order held that the appellant had been rightly assessed under section 12 of the Act. On further appeal to the Income-tax Appellate Tribunal, the Tribunal referred to clauses 6 and 7 of paragraph 3 of the memorandum of association and came to the conclusion that the activities of the appellant-company in taking the lease and sub-letting the demised premises were undertaken with the object of doing business. The Tribunal observed that normally where the assessee was not the owner of the building but earned rent by sub-letting the same, such income could only be charged under section 12 as income from other sources. The difficulty, however, arose in cases where letting out of leasehold property was the business of the assessee. In such cases, according to the Tribunal, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the judgment of the High Court cannot be sustained. Section 6 of the Act enumerates the various heads of income, profits and gains chargeable to income-tax. Those heads are (i) Salaries ; (ii) Interest on securities ; (iii) Income from property ; (iv), Profits and gains of business, profession or vocation ; (v) Income from other sources ; and (vi) Capital gains. Section 9 of the Act deals with income from property. According to that section, the tax shall be payable by an assessee under the head " Income from Property " in respect of the bona fide annual value of property consisting of any buildings or lands appurtenant thereto of which he is the owner, other than such portions of such property as he may occupy for the purposes of any business, profession or vocation carried on by him the profits of which are assessable to tax, subject to certain allowances which are mentioned in that section but with which we are not concerned. It is noteworthy that the liability to tax under section 9 of the Act is of the owner of the buildings or lands appurtenant thereto. In case the assessee is the owner of the buildings or lands appurtenant thereto, he would be liable to pay tax under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ject of developing and setting up markets." There is no finding in the present case that the appellant-company is the owner of the property in question or any part thereof. As such, no reference was made to section 9 of the Act in the assessment proceedings. The learned counsel for both the parties agree, and in our opinion rightly, that the question of making the assessment against the appellant, in the circumstances, under section 9 of the Act does not arise. The stand of Mr. Chagla, on behalf of the appellant, is that the assessment against the appellant in respect of the income from the property in question should be made under section 10, while according to Mr. Manchanda, learned counsel for the respondent, the assessment should be under section 12 of the Act. Section 10 of the Act deals with income from business and the material portion with which we are concerned is given in sub-section (1) of that section. According to that subsection, the tax shall be payable by sin assessee under the head " profits and gains of business, profession or vocation " in respect of the profits and gains of any business, profession or vocation carried on by him. " Business ", according to se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of Lord Sterndale M. R. in the case of Commissioners of Inland Revenue v. Korean Syndicate Ltd. : " If you once get the individual and the company spending exactly on the same basis, then there would be no difference between them at all. But the fact that the limited company comes into existence in a different way is a matter to be considered. An individual comes into existence for many purposes, or perhaps sometimes for none, whereas a limited company comes into existence for some particular purpose and if it comes into existence for the particular purpose of carrying out a transaction by getting possession of concessions and turning them to account, then that is a matter to be considered when you come to decide whether doing that is carrying on a business or not." The above observations were quoted with approval by this court in the case of Karanpura Development Co. Ltd. v. Commissioner of Income-tax. The assessee-company in the last mentioned case was formed with the objects, inter alia, of acquiring and disposing of underground coal mining rights in certain coal-fields. The memorandum of association of the company enumerated other objects, such as coal raising, but the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its business, cannot be said to treat them as landowner but as trader." The above observations have a direct bearing. It is not necessary for the purpose of this case to say anything, beyond what has already been said while dealing with section 9 of the Act, about the view expressed in the above passage regarding the rental income of an owner being treated as business income in case it is received as part of trading activity, because we are concerned in the instant case with an assessee who is a lessee and not the owner of the property in question. The assessee, in the cited case of Karanpura Development Co. Ltd., too was lessee of the coal-fields. So far as such assessees are concerned, who as part of their essential trading activity take lease of property and sublet parts thereof with a view to make profits, the dictum laid down above, in our opinion, would hold good and the profits would have to be treated as business income. The appellant-company, as stated earlier, was incorporated on January 25, 1955. The object for which the company was formed, inter alia, was to take on lease or otherwise acquire and to hold, improve, lease or otherwise dispose of, land, houses and oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ides for the taxation of income derived from property in land, B for incomes derived from occupation of land, C for income derived from Government securities and E for income from employment in the public service. The House of Lords held in the above cited case that the rents were profits arising from the ownership of land in respect of which the assessment under Schedule A was exhaustive and that they, therefore, could not be included in the assessment under Schedule D, as trade receipts of the company. The asseesee-company, in the cited case, was the owner of the Salisbury House, and the decision of the House of Lords rested on the view that Schedule A was exhaustive in respect of profits arising from ownership of land. The above decision is not of much help to the respondent because the assessee in the present case is not the owner but only a lessee of the property in question, and section 9, which is analogous to Schedule A of the English Act, applies to income from property consisting of buildings or lands appurtenant thereto of which the assessee is the owner. The respondent can also have not much support from the decision of East India Housing and Land Development Trust v. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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