TMI Blog1983 (9) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of this income from house property. The ITO held that the rent received for the godown could not be treated as income from house property an assessed it as income from other sources. The AAC, to whom the assessee appealed, hold that the godown rent had to be, computed as income from house property and that the annual value of the godown was Rs. 1,08,300. Against the order of the AAC, the assessee filed an appeal to the Tribunal and the ITO filed cross-objections. The Tribunal placed reliance upon the judgment of this court in CIT v. .National Mills Co. Ltd. [1958] 34 ITR 155 and held that the godown rent should be treated as income from business and remanded the matter to the ITO to compute it as such after giving fresh opportunity to the assessee of being heard. In the view that they took, it was not necessary to deal with the question relating to the annual value of the godown. The assessee has sought a reference and the question that we have to answer is this : " Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that for the purpose of charge of income-tax and computation of total income, the godown rent received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suitable vaults specially constructed for the purpose and equipped with all the necessary arrangements and, for that purpose, to build or construct such vaults upon lands to be purchased/ leased. The assessee purchased a plot and constructed vaults which were permitted to be used by film distributors on payment of a monthly charge. The assessee rendered certain services to the vault-holders such as fire service, provision of railway booking offices and a canteen and telephone. It maintained a regular staff for running these services. The ITO took the view that the income which the assessee obtained from these activities was income from house property and not income from business. Before the Tribunal there was a difference of opinion, the majority holding that the income so derived was income from business. A reference was made to this court and it was held that the majority view of the Tribunal was right. In so holding, this court considered various applicable decisions and drew seven conclusions therefrom. Conclusions 4 and 5 are material and read thus (p. 593): " 4. If the income falls under the head 'income from property', which is chargeable under section 9, it has to be tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 596, the Supreme Court affirmed the view taken by this court. The court held that this court was right in holding that the assessee was carrying on an adventure or concern in the nature of trade; it not only constructed vaults of special design and special doors and electric fittings, but it also rendered other services to the vault-holders; it had installed a fire alarm and had provided two railway booking offices; it also maintained regular staff. The court, quoting Viscount Finlay in Governors of the Rotunda Hospital, Dublin v. Coman [1920] 7 TC 517 (HL), observed that " the subject which is hired out is a complex one " and the return received by the assessee was not income derived from the exercise of property rights only but was derived from carrying on an adventure or concern in the nature of trade. Mr. Joshi placed reliance upon a judgment of the Calcutta High Court in CIT v. Ajmera Industries Pvt. Ltd. [1976] 103 ITR 245, wherein the court observed that it was well-settled that, if an assessee derives any income by exploitation of its commercial assets whether itself or through other agencies, such income should normally be considered to be the business income of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Supreme Court. In that case the company carried on the business of motor car agents and repairers on land held on lease. Due to the war, the company's business had dwindled to such an extent that no more than onethird of the land was required. In the circumstances, the remainder of the land was sublet. The tax authorities determined that the income from the land so disposed of was " income received from an investment " and the court upheld this conclusion. In this regard the Supreme Court said : " In this situation it was observed that in that case they were dealing with part of the property of the company which had become redundant and was sublet purely to produce income, a transaction quite apart from the ordinary business activities of the company ". The court also observed that the analogy drawn by the counsel appearing on behalf of the assessee between the case of land and dyeing plant was, for the purpose of taxing statutes, inappropriate. They have also approved the conclusions of Atkinson J. in IRC v. Res [1947] 1 All ER 798 (KB), that "A patent is quite different from freehold land. " In CIT v. National Mills Co. Ltd. [1958] 34 ITR 155 (Bom), whereon the Tribunal reli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ein, it is not income from business but is income from property. A distinction must be drawn between the letting out of land or house property on the one hand and of plant or machinery on the other. The latter are commercial assets and their exploitation, even by means of letting out, yields income from business. Income yielded by letting out the former is income from property. The income derived by the assessee by letting out the godown to the State was income derived from property and not income derived from business. The Tribunal was in error in applying to the assessee's godown the observations quoted above in the National Mills Co. Ltd.'s case [1958] 34 ITR 155 (Bom). We answer the question framed for our consideration in the negative, i.e., in favour of the assessee. Having regard to the fact that we take the view that the income must be computed under the head of income from property, the Tribunal shall consider whether the sum of Rs. 1,08,300, which was the rent actually received by the assessee, represents the annual value of the godown within the meaning of s. 23(1) of the I.T. Act, 1961.. The Revenue shall pay to the assessee the costs of the reference. - - TaxT ..... 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