TMI Blog1979 (1) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... stion in the course of this order. The particulars thereof are, however, set out in detail in the statements of cases submitted to this court. The co-owners who had acquired title to construct a building on the plot in question entrusted the construction work to M/s. Kiron Construction Company and also authorised them (M/s. Kiron Contruction Company) to negotiate the terms of lease with the lessee, the State Bank of India, which required the said building for its own occupation and use with the right to sub-let if necessary. One of the partners of M/s. Kiron Construction Company was Mahendrabhai Shah, who was also connected with another firm, M/s. Jivanlal Co. On February 23, 1966, the chief officer (premises), State Bank of India, wrote a letter to M/s. Jivanlal Co. (attention Sri Mahendrabhai Shah) offering the terms under which it was willing to take the building on lease. The relevant terms which were set out in the said letter were the following : " (i) The lease will be for a period of three years in the first instance with options in favour of the bank for renewals for three further terms of two-year each. While exercising our option we shall not be bound to renew the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ooner the air-conditioning is provided the earlier will the advance be made. The terms previously conveyed by us in this respect will accordingly stand. " Thereafter a formal lease deed was executed on June 1, 1966, between the co-owners, the State Bank of India, and M/s. Kiron Construction Company under which the building in question which was still under construction was leased out in favour of the State Bank of India. The possession of the building was, however, handed over to the lessee in the month of February, 1967. It is seen that although there was a reference to the provision of air-condition facility in the letters exchanged between the State Bank of India and the agents of the co-owners before the lease deed was executed, in the lease deed there was no reference to the obligation on the part of the co-owners to provide the air-conditioning facility and any rent payable in that regard by the lessee. The lease deed, however, provided that it was open to the lessee " to make or construct any additions, fittings or fixtures in or to the demised premises including room air-conditioners and other plant, equipment, pipes, cable, partitions, cabins, screens, shelves, racks, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his rate been worked out. 4. What are the structural alterations carried out. Kindly indicate the extent in terms of cost if data is available. 5. When the lease negotiations were carried out, whether they were confined to the building on plot ' C ' or for any suitable premises out of the property then being developed by K. C. Co. In order to enable you to give this information, I am enclosing herewith summons under section 123 of the I.T. Act, 1961. You may send this information to me with requisite documentary evidence so as to reach me on the 25th March, 1972, and this would be treated as sufficient compliance with the terms of the summons. " In reply thereto the State Bank of India wrote as follows : " With reference to your letter of 3rd March, 1972, enclosing summons under section 123 of the I.T. Act, 1961, we give below seriatim the informa- tion required by you : 1. The area occupied by the computer on the 3rd floor is approximately 1,080 sq. ft. 2. An A/C plant has been provided for the computer. The building also houses unit record machines on the 1st and 2nd floors. A/C is necessary for the machines. The rest of the building, viz., an area of 40,000 sq. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a body of individuals or association of persons. Against the order of the AAC passed in the appeals, the ITO filed appeals before the Tribunal. The Tribunal allowed the appeals, set aside the order of the AAC and restored the orders of assessment passed by the ITO for the assessment years 1968-69 to 1971-72. During the year 1972-73, also the co-owners were assessed by the ITO as a body of individuals in respect of the income realised by way of rent from the building and the income received by them for providing the air-conditioning facility. The appeals filed by the assessees against the order of assessment was partly allowed by the AAC as it was done by him in cases relating to assessment years 1968-69 to 1971-72. Against the order of the AAC, both the ITO and the assessees filed appeals before the Tribunal, Bangalore Bench. The Tribunal allowed the appeal filed by the department and passed an order similar to the one passed by it in respect of the assessment years 1968-69 to 1971-72 and dismissed the appeals filed by the assessees. Aggrieved by the decision of the Tribunal, the assessees filed an application requesting it to refer to this court the following four questions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partner in the income from the letting out of the building under section 26 in the total income of each partner had already been done by the Income-tax Officer and, therefore, he was not entitled again to treat and include the rent of the said property received from the State Bank of India in the total income of all the co-owners as association of persons was never urged before the Tribunal nor was this fact brought to the notice of the Tribunal at the time of the hearing. This question, therefore, does not arise out of the order of the Tribunal and, we, therefore, decline to refer the same. " The references made under s. 256(1) of the Act in respect of the assessment years 1968-69 to 1971-72 are I.T.R.C. Nos. 38 to 41 of 1977. A similar reference has been made in respect of the assessment relating to the assessment year 1972-73, in I.T.R.C. No. 126 of 1977. The assessees who were not satisfied with the reference made by the Tribunal, filed Civil Petition Nos. 95 and 189 to 192 of 1978, under s. 256(2) of the Act. The petitioners therein, among others, prayed that the statement of the case be sent back to the Tribunal directing it to raise and refer the questions of law set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... larification, we consider that it is unnecessary to direct the Tribunal to refer the aforesaid question No. (iv), since that question is included in question No. (iii) which has already been referred to this court. Sri Kola next urged that it is necessary to call upon the Tribunal to submit a supplementary statement of case in I.T.R. Cs. Nos. 38 to 41 and 126 of 1977. But the learned standing counsel submitted that all the necessary records are already available in I.T.R.Cs. Nos. 49 to 52 of 1978. At this stage, it is sufficient to direct that both sets of references should be posted for hearing together. While hearing these references, the question whether it is necessary to call for a supplementary statement of the case, will be considered then. At this stage, it is not necessary to direct the supplementary statement to be submitted by the Tribunal." In view of the question referred to us by the Tribunal in each of the above cases and the order passed by the Division Bench in the civil petitions referred to above filed under s. 256(2) of the Act, we are of the view that the following points arise for consideration in these cases : " (i) Whether the assessees had lease ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in section 14, items A to E. (2) In particular, and without prejudice to the generality of the provisions of subsection (1), the following incomes shall be chargeable to income-tax under the head 'Income from other sources', namely :- (i) dividends ; (ia) income referred to in sub-clause (viii) of clause (24) of section 2 ; (ib) income referred to in sub-clause (ix) of clause (24) of section 2 ; (ii) income from machinery, plant or furniture belonging to the assessee and let on hire, if the income is not chargeable to income-tax under the head ' Profits and gains of business or profession ' ; (iii) where 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'." It is not disputed that the building in question is owned by several co-owners and their respective shares are definite and ascertainable. The first point urged by Sri R. J. Kola, learned counsel for the assessee, was that even grant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) of the Act did not arise. This submission appears to be well-founded. As mentioned earlier, even though there was some reference to the provision of air-conditioning facility in the correspondence which preceded the lease deed, there is no reference to it in the lease deed. The replies sent by the State Bank of India to the questionnaire shows that the State Bank of India was not maintaining the air-conditioning plant, that they were only paying for the provision of air-conditioning facility on the basis of the floor-area for which the said amenity was provided and that the air-conditioning plant was under the control of the co-owners of the building. A lease involves a transfer of possession of the property in question which can be made use of by the lessee in any way he likes provided he takes reasonable care of the property leased. Although there is an observation in the course of the order of the Tribunal that there was a transfer of possession of the air-conditioning plant, we find that that observation has been made without any basis. The air-conditioning plant has no doubt been installed in the building in question, but its maintenance is entirely under the control of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no clause in the lease deed stating that the lease would come to an end on the withdrawal of that amenity. We feel that the principle enunciated by the Supreme Court in Karnani Properties Ltd. v. CIT [1971] 82 ITR 547 would govern these cases. In that case, the assessee-company owned a house property known as " Karnani Mansions " which consisted of numerous residential flats and over a dozen shop premises. All of them had been let out to different tenants. The tenants in respect of each of the houses and shops had to make a monthly payment which included charges for electric current for use of lifts, for the supply of hot and cold water, for the arrangement for scavanging, for providing watch and ward facilities as well as other amenities. The assessee-company claimed before the ITO that the entire receipts received from the tenants on account of charges for the several amenities referred to above should be treated as income from business inasmuch as the company had been formed for carrying on the business of letting out of houses and shop premises. The ITO, while rejecting the assessee's contention, split the receipts into two parts, one part of the receipt into two parts, one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l v. Coman [1921] 1 AC 1 ; 7 TC 517, 576 is an excellent example. There, as Lord Chancellor Lord Birkenhead pointed out at page 8, the arrangements between the owners of the premises and the persons who paid for their use for the purpose of entertainments were not such as to constitute the relation of landlord and tenant, and the owners remained in possession and occupation of their property. The receipts derived from hiring out their premises along with various movable fittings, and affording services in the way of heating, lighting and attendance, were receipts of an enterprise quite distinct from the ordinary receipts which a landlord derives from letting his property. Consequently the owners of the premises were rightly held to be engaged in the carrying on of a trade or business in their premises, ' the trade or business ' in Lord Shaw's language at page 37 (ibid) ' of providing, or providing for, public entertainments '. There is nothing to prevent a landlord who has been assessed under Schedule A in respect of his income as a property owner being also assessed under Schedule D in respect of a trade, business or other enterprise carried on by him on his premises. " Havi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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