CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 10481051 of 1966. Appeals from the judgment and order dated July 2, 3, 1962 of the Bombay High Court in Income-tax Reference No. 45 of 1960. T. V. Viswanatha Iyer, A. N. Kirpal and R. N. Sachthey, for the appellant (in all the appeals). S. T. Desai, F. N. Kaka, S. K. Dholakia and 0. C. Mathur for the respondent (in all the appeals). The Judgment of the Court was delivered by Sikri, J. These appeals by certificate granted by the Bombay High Court under S. 66A(2) of the Indian Income-tax Act, 1925 -hereinafter referred to as the Act-are directed against its judgment in Income-tax Reference No. 45 of 1960 by which it answered the first question of law referred to it by the Income-tax Appellate Tribunal in favour of the National Storage Ltd., Bombay, hereinafter referred to as the assessee. The following questions were referred to the High Court by the Appellate Tribunal at the instance of the Commissioner of Income-tax, Bombay City-1, Bombay :
"1. Whether on the facts and circumstances of
the case, the vaults were used for the
purposes of the business and income arising
therefrom is assessable under Section 10 ?
2. If the answer to question I is in the
negative, whether the income is assessable
under Section 9 or Section 12 ?" The relevant facts and circumstances are as follows :-The assessee was promoted because the Government of India promulgated the Cinematograph Film Rules, 1948, hereinafter referred to as the Film Rules according to which the distributors were required to store films only in godowns constructed strictly in conformity with the specifications laid down in the Film Rules and in a place to be approved by the Chief Inspector of Explosives, Government of India. A place at Mahim was approved and the assessee, after purchasing a plot of land there constructed 13 units thereon, 12 units meant for the Members of the Indian Motion Picture Distributors’ Association, who had floated the Company, and one unit for Foreign Film Distributors in Bombay, who were not members of the Association. Each unit was divided into four vaults, having a ground floor for rewinding of films and an upper floor for storage of films. These units were constructed in conformity with the requirements of and the specifications laid down in the Film Rules. The walls and ceilings were of a particular width and automatic fire proof door was installed in one wall which would close immediately on the outbreak of fire in the vault. Other walls had no opening or window and one ventilation was provided in the ceiling. The units were built at a distance of 50 feet from one another. The assessee entered into agreements with the film distributors. There were two types of agreements, one was classified as ’A’ Licence and the other as ’B’ Licence. The agreements were more or less in identical terms with minor variations here and there. One agreement has been annexed to the statement of the case as annexure ’A’ and some of the relevant clauses are as under : Clause 2 provides that the licensee shall not use the vault for any other purpose except for storing cinema films and shall use the ground floor (examination room) only for the purpose of examination, repairs, cleaning, waxing and rewinding of the films. According to clause 9, the licensee could not transfer, assign, sublet, underlet or grant any licence in respect of or part with the possession of the vault or any part thereof without the written permission of the assessee. According to clause 12, the assessee was entitled to revoke, determine and put an end to the licence by giving the licensee at any time seventy days previous notice in writing. Further, the licensee was not entitled to terminate the licence for a period of five years except with the consent in writing of the assessee. According to clause 13, the assessee was entitled to terminate the licence by giving two days’ notice in writing to the licensee and allocate to the licensee alternative space in another vault of the said property. Clause 16 makes it clear that nothing contained in the agreement shall be construed to create any right other than the revocable permission granted by the assessee in favour of the licensee of the licensed vault nor as conferring any right to quiet enjoyment or other right except so far as the assessee has power to grant the same and the assessee may of its mere motion and absolutely retain possession of the licensed vault with all additions, fittings and fixtures thereto. Apart from these conditions, the key to each vault was retained by the vault-holder, but the key to the entrance which permitted access to the vaults was kept in the exclusive possession of the assessee. It is further stated in the statement of the case that the assessee also rendered other services to the vault-holders. A fire alarm was installed and an annual amount was paid to the municipality towards fire services. The assessee opened in the premises two Railway Booking Offices free, of charge for the convenience of the members for despatch and receipt of film parcels. A canteen was also run in the premises for the benefit of the vault-holders and a telephone had been provided for them. ’A’ licensees paid Rs. 40/- per month while ’B’ licensees paid Rs. 140/- per month. The Foreign Film Distributors were originally charged Rs. 300/- per month but later on the charges were reduced to Rs. 100/-. For the assessment years 1950-51, 1951-52 and 1952-53, assessments were made on the assessee under S. 10 of the Act, but for the assessment years 1953-54 and 1954-55, the Income-tax Officer took the view that the assessee should be assessed under s. 9 and not under s. 1O. His view was confirmed on appeal by the Appellate Assistant Commissioner, who also rejected the assessee’s alternative submission that the income if not taxed under S. 10 should be taxed under s. 12. On further appeal to the Tribunal, there was a difference of opinion between the Judicial Member, who was the. President, and the Accountant Member. There being a difference of opinion, the following question was referred to a third Member:-
"Whether on the facts and circumstances of the
case, the vaults were used for the purposes of
the business and income arising therefrom is
assessable under Section 10 or Section 9." The third Member, agreeing with the President, held that the assessee was carrying on business in these premises and -the business was of similar type as carried on by a bank in letting safe deposit vaults, and income was taxable under S. 10. As already stated, the Appellate Tribunal, at the instance of the Commissioner referred the two questions which we have already set out above. The High Court answered the first question in favour of the assessee. The High Court after reviewing several cases deduced seven propositions. The sixth and seventh propositions were these:
"6. In cases where the income received is not
from the bare letting of the tenement or from
the letting accompanied by incidental services
or facilities, but the subject hired out is a
complex one and the income obtained is not so
much because of the bare letting of the
tenement but because of the facilities and
services rendered, the operations involved in
such letting of the property may be of the
nature of business or trading operations and
the income derived may be income not from
exercise of property rights properly so-
called. so as to fall under Section 9 but
income from operations of a trading nature
falling under Section 10 of the Act.
7. In cases where the letting is only
incidental and subservient to the main
business of the assessee, the income derived
from the letting will not be the income from
property falling under Section 9 and the
exception to Section 9 may also come into
operation in such cases."
.lm0
Then the High Court after examining the facts
and circtumstances concluded :
"The income, which is obtained by the company
in the present case, required considerable
expenditure to be incurred by the company,
which is ordinarily not incurred by 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 failing
under Section 9 of the Indian Income-tax Act.
The activity of the company in earning that
income was a business activity and the source
of the income, which the company obtained from
the licence-holders, was not the ownership of
the house property but its business."
The Commissioner having obtained certificate
of fitness from the High Court, the appeal is
now before us.
The learned counsel for the appellant, Mr. T.
V. Viswanatha Iyer, has put the following
propositions before us :-
( 1) The assessee is the owner of property and
has to be, assessed as such under s. 9 of the
Act. Any incidental services rendered as
owner do not alter the character of the
relationship between the assessee and the
users of the vaults, and there is no
complexity as far as the services are
concerned;
(2) In any event, assuming for a moment that
certain services are rendered, they are
independent of and in addition to, the
ownership of the property;
(3) The assessee is not carrying on any
trade or business by was of letting or
otherwise;
(4) The assessee is not in occupation of
these vaults for the purpose of his business,
and if any room is occupied by its staff, that
occupation is different from the occupation by
the users;
(5) There is no plant or machinery which has
been let to, the users and the building has
been let as something inseparable from the
plant and machinery, if any, which exists; and
(6) Even if the assessee is carrying on
business insofar as it is an owner it has to
be taxed under s. 9; additional income has, to
be dealt with under S. 10.
Mr. S. T. Desai, the learned counsel for the
assessee formulated his proposition as follows
:-Distinction has to be drawn between income
derived by exercise of property rights
properly so called on the one hand, and on the
other hand income derived from licensees who
are allowed the use of any property, specially
constructed safe deposit vaults for securely
storing hazardous or inflammable films, or
similar goods, or safe deposit lockers for
securely keeping valuables and for which
purpose special amenities, are given; in the
latter class of cases the object is a complex
,one and not merely letting of property and
the activities amount to carrying on trade or
business, property being the subjectmatter of
business. He further says that propositions
sixth and seventh as formulated by the High
Court are sound.
The answer to the question depends upon the
interpretation ,of ss. 9 and 1 0 of the Act,
and the ascertainment of ’the activities of
the assessee. It is not disputed that the
scheme of the, Indian Income-tax Act, 1922, is
that the various heads of income, profits and
gains enumerated in section 6 are mutually
exclusive, each head being specific to cover
the item arising from a particular source.
Further "whether an income falls under one
head or another has to be decided according to
the common notions of practical men for the
Act does not provide any guidance in the
matter". [vide Sarkar J., in Nalinikant
Anbalal Mody v. Narayan Row(1)].
The relevant portion of S. 9 reads as follows
"9. (1) 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 the following allowances,
’Section 10(1) reads :
"10. (1) The tax shall be payable by an
assessee under the head ’Profits and gains of
business, profession or vocation’ in respect
of the profit or gains of any business,
profession or vocation carried on by him. The word "business" is defined in 2(4) to include "any trade. commerce, or manufacture or any adventure or concern in the nature of trade, commerce or manufacture." The question which really arises in the present case is whether the assessee is carrying on any business i.e., is it carrying on any adventure or concern in the nature of trade, commerce or manufacture ? If it is carrying on any adventure or concern in the nature of trade, then S. 9 specifically excludes the income derived ’from property from computation under S. 9, if the property is (1) 61 I.T.R. 428 at p. 432. occupied for the purpose of adventure or concern. Similar questions have arisen under the English Income-tax Act. Though the scheme of the English Income-tax Act is different, some of the cases throw light on the question as to "what is adventure or concern in the nature of trade." In the Governors of the Rotunda Hospital, Dublin v. Coman(1), the Governors of a maternity hospital established for charitable purposes were owners of a building- which comprised rooms adapted for public entertainments, and which was connected with the hospital buildings proper by an internal passage. The hospital derived a substantial income from letting the rooms for public entertainments, concerts, etc., for periods varying from one night to six months and applied the income to the general maintenance of the hospital. The rooms were let upon terms which included the provision of seating heating-, and attendance, but an additional charge was made for gas and electricity consumed. The House of Lords held that the profits derived from the letting of the rooms were assessable to Income Tax under Schedule D, either under Case 1, as the profits of a trade or business, or under Case VI of that Schedule. The learned counsel for the assessee strongly relies on this case. It seems to us that the reasoning of the Law Lords in their speeches does assist the assessee. The Lord Chancellor observed ,it p. 582
"Profits are undoubtedly received in the
present case which are applied to charitable
purposes, but they are profits derived not
merely from the letting of the tenement but
from its being let properly equipped for
entertainments, with seats, lighting, heating
and attendance. The subject which is hired
out is a complex one. The mere tenement as it
stands, without furniture, etc., would be
almost useless for entertainments. The
business of the Governors in respect of those
entertainments is to have the hall properly
fitted and prepared for being hired out for
such uses. The profits fall under Schedule D,
and to such profits the allowance in question
has no application, as they cannot be properly
described as rents or profits of lands,
tenements, hereditaments or heritages. They
are the proceeds of a concern in the nature of
a trade which is carried on by the Governors,
and consists in finding tenants and having the
rooms so equipped as to be suitable for
letting." In our view the High Court was right in holding that the assessee was carying on an adventure or concern in the nature of trade, The assessee not only constructed vaults of special design and special doors and electric fittings, but it also rendered 1) 17 T.C. 517. other services to the vault-holders. It installed fire alarm and was incurring expenditure for the maintenance of fire alarm by paying charges to the Municipality. Two Railway Booking Offices were opened in the premises for the despatch and receipt of film parcels. This, it appears to us, is a valuable service. It .also maintained a regular staff consisting of a Secretary, a peon. a watchman and a sweeper, and apart from that it paid for the ,entire staff of the Indian Motion Picture Distributors’ Association an amount of Rs. 800/- per month for services rendered to tile licensees. These vaults could only be used for the specific purpose ,of storing of films and other activities connected with the examination, repairs, cleaning, waxing and rewinding of the films. But the learned counsel for the Commissioner says that s. 9 ,applies because the assessee cannot be said to be in occupation ,of the premises for the purpose of any concern of its own. He says that the licensees were in possession of the vaults as lessees and not merely as licensees. But, in our opinion, the agreements are licences and not leases. The assessee kept the key of the entrance which permitted access to the vaults in its own exclusive possession. The assessee was thus in occupation of all the premises for the purpose of its own concern, the concern being the hiring out of specially built vaults and providing special services to the licensees. As observed by the Lord Chancellor in the Governors of the Rotunda Hospital, Dublin v. Coman(1), "’tile subject which is hired out is a complex one" and the return received ’by the assessee is not the income derived from the exercise ,of property rights only but is derived from carrying on adventure or concern in the nature of trade. There is no force in the sixth submission of the learned counsel for the appellant because the Indian Income-tax Act does not contemplate assessment of property under S. 9 in respect of the rental income and assessment under s. 10 in respect of the extra income derived from the carrying on of an adventure or concern in the nature of trade if the assessee is in occupation of the premises for the purposes of the business. The scheme of the En lish Act is different and special statutory provisions exist in the English Income-tax Act (see Rule 5, Schedule D, English Income tax Act, 1918). A number of other cases have been cited before us but it is not necessary to deal with them because the answer to the question whether an activity is an adventure or concern in the nature of trade or business must depend upon the facts of each case. Accordingly the appeals fail and are dismissed with costs. V.P.S. Appeals dismissed. (1) 7 T.C. 517.