TMI Blog1983 (1) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... its members. Out of 15 rooms in its annexe, 13 rooms were let out to members of the club on payment of Rs. 250 per month per room and during the previous year pertaining to the assessment year 1971-72, the total rent collected by the assessee from these rooms amounted Rs. 36,547. The remaining two rooms were occupied by the manager of the club free of rent. The claim of the assessee, in respect of the aforesaid collection, was that these were business receipts and that the income earned was exempt from tax on the principle of mutuality. The Tribunal took the view that the income of the club from the letting out of the rooms was assessable as " income from other sources ". It rejected the claim of the assessee that the income was exempt from tax on the principle of mutuality. The Tribunal, however, referred the aforesaid questions for the opinion of this court when approached both by the assessee as well as the Revenue. The contentions : Sri Markandeya Katju, for the Revenue, has contended that the income of the assessee was attributable to and assessable as " Income from house property " u/s. 22 of the Act and could not be treated to be income from other sources, for it was not c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an, assessee lets on hire machinery, plant or furniture belonging to him and also buildings, and the letting of the buildings is inseparable from the letting of the said machinery, plant or furniture, the income from such letting, if it is not chargeable to income-tax under the head 'Profits and gains of business or profession'." The scheme is clear. Any income which does not answer the description of an income under the heads contemplated by s. 14 is chargeable to tax under the head " Income from other sources ". That is clear from section 56(1). Sub-section (2) of section 56 specifies some sources of which income has to be taxed under the head " Income from other sources " and not otherwise. Clause (iii) is one such instance. Sub-section (2) of section 56 does not derogate from the generality of the provisions of subsection (1). The legal position and the precedents thereabout : Income, from house property postulates that what has essentially been let out is house property though some conveniences like fixtures, etc., may have incidentally been let out with it for proper enjoyment of the demised premises. If, however, the letting could not have taken place but for the fixture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its members as income from property assessable to income-tax u/s. 9 of the Act. For the year 1955-56 also, the ITO treated the income to be from property. The assessee filed an appeal contending that the income was not assessable on account of the principle of mutuality. The Tribunal held that the income derived by the assessee was income from property but took the view that the principle of mutuality applied because in its opinion there was an identity between the contributors and participants. This court took the view, on a reference made to it at the instance of the Commissioner, that where the basis for assessing tax on an income is that it is income from property, the question of the principle of mutuality being applicable did not arise. It then proceeded to observe, even though it was not really necessary to do so, that even assuming the income to be one from business, it could not be said that there was complete identity between the contributors and the recipients so as to attract the applicability of the principle of mutuality to it. It is obvious that the question whether it was income from property or one from " other sources " was not in issue at all nor was the question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a landlord who turns his house property to profitable account and which is also not taken into account in the deductions permissible 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." In Dr. P. A. Varghese v. CIT [1971] 80 ITR 180 (Ker) the question was whether income obtained by the assessee as rent from the Export Promotion Council for letting out to it a portion of a building constructed by him at Ernakulam was chargeable as " income from house property " or as " income from other sources " u/s. 56(2)(iii) of the Act. The Kerala High Court took the view that it would be income from house property. The agreement entered into by the assessee contemplated that he was to provide, apart from the premises let out, (i) partitions, (ii) necessary lavatories, closets, etc., (iii) air-conditioning for one room, (iv) one fluorescent tube fitting for the name board " Export House ", (v) separate electric meters, and (iv) uninterrupted water supply. It was argued on his behalf that these items constituted machiner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rniture and charges for various other services provided by the assessee-club to its members occupying the rooms. The Calcutta High Court held in Indian City Properties Ltd. v. CIT [1978] 111 ITR 19 that, on the facts found by the Income-tax Tribunal that rent as such was chargeable for the premises and also fans and other fittings, and there being no indication in the bills or in the deed of lease as to the rent payable in respect of the fans, the Tribunal rightly held that the income derived from letting out of the building was to be assessed u/s. 22 of the Act. Further, that the lift charges and air-conditioning charges which had been shown separately in the ITO's assessment order should be taxed as income from other sources u/s. 56 of the Act. This decision too does not help the Revenue much in the instant case, for it holds that in a case of letting of a building, providing to the tenants certain amenities like lift services and air-conditioning, there cannot be any question of letting of any machinery, plant or furniture which was necessary to attract the applicability of s. 56(2)(iii) of the Act. The decision lends support to our view that the applicability of s. 56 is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsed victuallers and refreshment purveyors and dealt with non-members as well in the ordinary course of business carried on with a view to earning profit as in any other commercial concern. It gave to its members the same or similar amenities as it gave to non-members, like the use of unreserved seat in a stand, the facility to watch the races and to bet on the horses in the races, use of the totalisator in that stand and the facility for refreshment. The facilities were given to members and non-members alike for a price and the dealing in both cases disclosed the same profit earning motive and were tainted alike with commerciality. It held that, in the circumstances, the four items of receipt from members which were in dispute were to be taken into account in computing the total income of the company. It noticed the decision in Watkins' case [1934] 18 TC 499 (KB) and emphasised the distinction that in that case the property was the property of the members as a whole and that there could not be any trade between the association and its member or any sale to a member. In CIT v. Merchant Navy Club [1974] 96 ITR 261 (AP), Presidency Club Ltd. v. CIT [1981] 127 ITR 264 (Mad) and CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
