TMI Blog1964 (3) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... The main source of his income is from house properties, interest on securities, dividends, etc. He owns amongst others a market and a fort. For the assessment years 1957-58 and 1958-59, for which the accounting years are the years ending on June 30, 1956, and June 30, 1957, respectively, he returned the income as a Hindu undivided family consisting of himself, his wife and sons. But that status was not accepted by the Income-tax Officer and finally by the Tribunal and he was assessed to tax as an individual as ever. That is not, however, the point which must engage our attention, for it is not covered by any of the questions referred. The controversy in this reference is confined to the assessment as made in relation to two items of property. One is the market and the other is the fort. As regard the first item, the question is whether the income derived therefrom is to be assessed under section 9 as the department has done or under section 10 of the Indian Income-tax Act, as the income or profits of business, as the assessee claims. The reason for the controversy is that if section 10 is the appropriate provision, the assessee would be entitled to much larger allowances by way of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specified hours and on specified dates in conformity with the restrictions imposed by the municipality, had maintained separate staff such as superintendent, peons, watchers, and sanitary staff, etc., in connection with this market. For the assessment years 1957-58 and 1958-59, on the returns filed by the Raja, the Income-tax Officer taxed the income derived from the shops, stalls, etc., from the market property under section 9 as the income from the property, of which the assessee was the owner. Of course, the Income-tax Officer assessed the tax not on the actual letting value but on something in excess thereof which he (the Income-tax Officer) considered as bona fide letting value. On appeal, however, the actual letting value shown by the assessee was accepted as the bona fide annual letting value. But the Appellate Assistant Commissioner refused to tax the income under section 10 as profits or gains from the business. He was firmly of the opinion that it was taxable only as income from property under section 9. This view was confirmed by the Appellate Tribunal. Learned Counsel for the assessee, Mr. Subrahmanya Reddy, contends that the income from the market property in the abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that be the income derived by the assessee by way of exploitation as owner of the property by leasing the same and not doing a business himself. The contention seems to be that, since the assessee owns a licence for the market, has maintained staff and has done all that is necessary for carrying on the business in the market by the persons to whom the shops, stalls, etc., are leased out, it should be deemed that he has let out a commercial asset, namely, a fully equipped market place for carrying on the market business, and thus what he himself could do has been made to be done by him through his tenants. Whether a particular letting is a business or not has to be decided on the particular circumstance of each case. Each case has to be looked at from a business point of view to find out whether the letting was the doing of a business or exploitation of his property as the owner. As the market was set up not with the idea of doing business by the assessee himself nor has the assessee ever carried on such business by himself or through his servants in the market before the shops, stalls, etc., had been let out, his activity of leasing the property which he owns cannot be treated as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the normal activities of their business, let out to a person on a monthly rent. In these circumstances, it was held that the dyeing plant had not ceased to be an asset of the assessee and the sum representing the rent for five months received by the assessee was income from business. Their Lordships, while holding that view, observed thus : " We respectfully concur in the opinion of the learned Chief Justice that if the commercial asset is not capable of being used as such, then its being let out to others does not result in an income which is the income of the business, but we cannot accept the view that an asset which was acquired and used for the purpose of the business ceased to be a commercial asset of that business as soon as it was temporarily put out of use or let out to another person for use in his business or trade. The yield of income by a commercial asset is the profit of the business irrespective of the manner in which that asset is exploited by the owner of the business. He is entitled to exploit it to his best advantage and he may do so either by using it himself personally or by letting it out to somebody else." After referring to several other cases, thei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccupants. The other case is Sultan Brothers Private Ltd. v. Commissioner of Income-tax. There the assessee, a private company, constructed a building on a certain plot of land, fitted it with furniture and fixtures and let it out on lease fully equipped and furnished for the purpose of running a hotel. The lease provided a monthly rent of Rs. 5,950 for the building and a hire of Rs. 5,000 for the furniture and fixtures. It was held that as the assessee-company never carried on any business of a hotel in the premises let out and there was nothing to show that it intended to carry on a hotel business itself in the same building, the letting of the building did not amount to the carrying on of a business and the income under the lease could not, therefore, be assessed under section 10 of the Income-tax Act as income from the business. In the above state of law, it is obvious that merely because a market was set up and the assessee had to take out a licence under the District Municipalities Act for letting out the various portions of the market to intending traders, or had provided sanitary arrangements, etc., it cannot be said that the assessee had utilised the property for any busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e., Merely because the building is in the heart of the town, it cannot be presumed that there were no agricultural lands adjoining the same. As a matter of fact, the contention of the learned counsel for the assessee is that there are agricultural lands adjoining the fort, and that this was made clear in the statement filed by the assessee. It passes our comprehension how the Income-tax Officer or the department could have granted complete exemption on previous occasions and partial on the present occasion, if there were no agricultural lands at all in the immediate vicinity of the fort. The order of the Appellate Tribunal does not show that it had come to the conclusion as to the situation of lands on any evidence brought on record. No doubt it was stated in the order that the fort is situated far away from the main centre of agricultural operations. But having regard to the fact that the assessee has lands at several places, the mere fact that some of the lands or a large portion of the lands owned by the assessee are at a distance is of no consequence if there are certain other lands in the immediate vicinity and the assessee requires the building for the purpose stated in the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, inside the Vizianagaram Municipality, it is also situated on the road connecting Vizianagaram railway station and Visakhapatnam at a distance of about a furlong from the " Big Tank Farm lands ". The rest of the lands are situated on the other side of a cart road leading to Dharmapuri from the main road, but they also abut and form one compact block with the " Big Tank Farm lands ". They are also not very far from the " fort " building. 6. The second point on which the High Court has called for a statement is whether the building was used, during the relevant accounting years, for the purposes set out in the proviso to section 2(1)(c). So far as this is concerned, the facts are that two of the rooms of the building are being used for storing up the produce from the lands. Some rooms are occupied for office purposes. This office establishment is common for collection of rent from the market properties owned by the assessee as well as for attending to the agricultural estate. The other rooms in the building are intended for residential purposes. JUDGMENT (14-6-1966) The judgment of the court was delivered by KUMARAYYA J.--The Income-tax Appellate Tribunal, Hyderabad Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax Officer did not entertain doubt as to the nature of the income. But, on account of the changed circumstances, namely, of the abolition of the zamindaris and diminution of the extent of the agricultural land in the possession of the assessee, he held that only 50% of the income may be treated as agricultural income and granted exemption accordingly. It is obvious that, unless the building satisfies the condition set out in the proviso to section 2(1)(c), the income therefrom, notwithstanding the fulfilment of the condition in the substantive clause (c) of section 2(1), cannot be exempt. Further, in case that condition is satisfied, the exemption must be complete and not partial. This position in law is not disputed before us. The Income-tax Officer could not, therefore, legitimately bring to tax 50% of the letting value of the building when the building satisfied all the conditions of section 2(1)(c) including that of situation and purpose contemplated by the proviso. The Appellate Tribunal, as against the finding reached by the Income-tax Officer, came to the conclusion that the letting value of the building is not agricultural income. The reason given for this is that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he authority on this point including the compelling authority of the Supreme Court consisting of 7 judges in the case of Keshav Mills Co. Ltd. v. Commissioner of Income-tax, it must be held that the High Court could require the Tribunal to include only such material evidence as might already be on record but which was not included in the statement of the case made initially under section 66(1). So then we have to consider whether, even excluding the additional material that was subsequently brought on record, can it be said that the Appellate Tribunal on the material already on record came to the conclusion that it is an agricultural income. Two things must be kept in mind while pronouncing on this aspect. One is the order of the Income-tax Officer who being in full knowledge of all the circumstances of the case came to the conclusion that the letting value of the building, having regard to the situation and purpose for which it was being used, is an agricultural income. There is a reference to this in the annexure to the further statement. There is also reference to the fact that in 1947-48, when the appeal was preferred against the order of the Income-tax Officer, the Appellate A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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