COMMISSIONER OF INCOME TAX Vs. NATIONAL STORAGE PRIVATE LIMITED
LAWS(BOM)-1962-7-15
HIGH COURT OF BOMBAY
Decided on July 02,1962

COMMISSIONER OF INCOME-TAX, BOMBAY CITY I Appellant
VERSUS
NATIONAL STORAGE PRIVATE LTD. Respondents


Referred Judgements :-

GOVERNORS OF THE ROTUNDA HOSPITAL,DUBBIN V. COMAN [REFERRED TO]
SALISBURY HOUSE ESTATE LTD. V. FRY [REFERRED TO]
UNITED COMMERCIAL BANK LIMITED CALCUTTA VS. COMMISSIONER OF INCOME TAX WEST BENGAL [REFERRED TO]
EAST INDIA HOUSING AND LAND DEVELOPMENT TRUST LIMITED VS. COMMISSIONER OF INCOME TAX WEST BENGAL [REFERRED TO]
ROHTAS INDUSTRIES LTD. DALMIANAGAR V. COMMR. OF INCOME-TAX,B AND O [REFERRED TO]
IN RE: COMMERCIAL PROPERTIES LTD VS. DIRECT TAXATION [REFERRED TO]
BALLYGUNGE BANK LTD. V. COMMR. OF INCOME-TAX [REFERRED TO]



Cited Judgements :-

RAMPUR INDUSTRIES LIMITED VS. COMMISSIONER OF INCOME TAX [LAWS(ALL)-1970-8-2] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. CAWNPORE CLUB LIMITED [LAWS(ALL)-1983-1-12] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. AJMERA INDUSTRIES PRIVATE LTD [LAWS(CAL)-1974-5-12] [REFERRED TO]
RUSSELL PROPERTIES PVT LTD VS. A CHOWDHURY ADDL COMMISSIONER OF INCOME TAX [LAWS(CAL)-1976-5-5] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. RUSSELL PROPERTIES P LTD [LAWS(CAL)-1981-11-15] [REFERRED TO]
MEERAJ ESTATE AND DEVELOPERS VS. COMMMISSIONER OF INCOME TAX [LAWS(ALL)-2019-9-411] [REFERRED TO]


JUDGEMENT

Desai - (1.)THIS is a reference under Section 66(1) of the Indian Income-tax Act (hereinafter referred to as the Act), and the questions which are raised thereon arise out of the orders of assessment of the National Storage Private Limited, Bombay (respondent herein) for the assessment years 1953-54, 1954-55, 1955-56 and 1956-57. The assessee company was promoted by the Film Distributors of Bombay and was Incorporated on the 23rd of October 1948. The activity of the company, which was set out m clause (1) of the Object clause of the Memorandum of Association was to carry on the business of storing and preserving films, chemicals, cinema accessories and any articles of merchandise in Cinema Industry in suitable vaults specially constructed for the purpose and equipped with all the necessary arrangement. Clause 2 enabled the assessee company to carry on the business of storage of articles in the Cinema Industry and for that purpose to build or construct such other vault or vaults as may be deemed necessary by the company. Clause (3) set out the object of the company as generally to carry of all sorts of business of Safe Deposit Vaults in all us aspects. Clause (5) authorised the company to acquire by purchase or lease a suitable plot of land and to construct thereon safe deposit vaults and other necessary buildings as may be thought fit by the company. What led to the incorporation of this company was the promulgation of the Cinematograph Film Rules, 1948, by the Government of India under which films were required to be stored in specially constructed premises strictly in conformity with the specifications laid down in the said rules and situated at places to be approved by the Chief Inspector of Explosives. Government of India. Under these rules, a place at Mahim was approved by the Chief Inspector of Explosives, Government of India, as a suitable place for the construction of the film godowns. The company alter its incorporation purchased a plot at Mahim, the place which was approved of by the Chief Inspector of Explosives, and constructed 13 units on the said plot of land in conformity with the specifications laid down in the Cinematograph Film Rules of 1948. 12 of these 13 units were constructed for members of the Indian Motion Pictures Distributors Association, who had taken part in the floating of me company and the 13th unit was made available for the use of Foreign Film Distributors in Bombay, who were not members of the Indian Motion Pictures Distributors Association. Each unit consisted of four vaults and each vault had a ground-floor for re-winding of films and an upper floor for storage of films. After the construction of these Units, the vaults were permitted by the company to be used by the Film Distributors on terms and conditions of the Agreements arrived at between them and the company. Some of these agreements, which were entered into with the members of the Indian. Motion Pictures Distributors Association, who had subscribed a large amount towards the share capital of the company, were classifies as 'A' Licenses and the charges for these 'A' Licences, were Rs. 407- per month. The other agreements, winch were entered into with members of the Indian Motion Pictures Producers' Association, who had only supplied a small share of capital, were classified as 'B' Licence-holders and were charged at Rs. 140/- per month. The Licences granted to the Foreign Film Distributors, for whom one Unit of four vaults was reserved, were charged at Rs. 300/-per month for each vault at the beginning but later on those charges were reduced to Rs. 100/- per month. Under these Agreements the right to use the vaults was given initially for a period of five years. The vault-holder was given a key of the vault but the key of the entrance, which permitted access to the vaults remained in the exclusive possession of the company. The company also rendered certain services to the vault holders. It had installed a fire alarm and had obtained the fire service from the Municipality for which it was paying a certain annual amount to the Municipality. It had opened two railway booking Offices in the premises free of charge for the convenience of the vault holders for dispatch and receipt of film parcels. It was also running a canteen in the premises and had installed a telephone. It also appears that it had maintained a regular staff for running the aforesaid services in the form of a Secretary, a peon and two watchmen and a sweeper. Besides, the entire staff of the Indian Motion Pictures Distributors' Association was paid Rs. 800/- by the company for the part-time services rendered by them. During the first three years after its incorporation, i.e. during the assessment years 1950-51, 1951-52 and 1952-53, the Department assessed the company under Section 10 of the Income-tax Act. For the subSEQuent four assessment years, which is the period in question in the present reference the Income-tax Officer took the view that the income which the company obtained was appropriately to be assessed under Section 9 and not under Section 10 of the Act. He accordingly made the assessment fell under Schedule A as income from property and not under Schedule D as income from business. Viscount Dunedin took the view that the income-tax was only one tax, a tax on the income of the person whom it was sought to assess, and that the different Schedules were the modes in which the Statute directed the tax to be levied. If the income of the assessee consisted in part of real property, it fell under Schedule A and had to be taxed under that Schedule and no other. In the case in question, he was of the opinion that the income arose from real property and, therefore, had to be taxed under Schedule A only. Lord Warrington in his speech observed:
"The first question to be determined is whether in its capacity as landowner deriving rents from its land the Company is carrying on the trade within the meaning of Schedule D and the Rules thereunder, and if this question is answered in the negative the further questions raised and argued in this House do not arise." After examining the facts of the case, the learned and noble Lord observed:

"There is nothing in the facts stated in the Case which would properly lead to the conclusion that in dealing with the property the Company is acting otherwise than an ordinary landowner would act in turning to profitable account the land of which he is the owner. It would in my opinion be impossible to hold that in such a case the landowner is carrying on a trade. Such a person would, I think, clearly be assessable under Schedule A only, and his taxable income would be measured by the conventional annual value and not by the amounts of the rents he actually received."

He pointed out that the circumstance that a taxpayer was a limited company did not distinguish its operations from those of an individual. Nor could they be distinguished simply because its Memorandum of Association enabled it to build houses and let them out on rent. The company was just as capable as an individual of being a landowner and as such deriving rents without thereby becoming a trader. In his view it was the nature of the operations and not its own capacity which must determine whether it was carrying on a trade or not.

(2.)LORD Atkin based his conclusion on the ground that annual income derived from ownership of lands, tenements and hereditaments could only be assessed under Schedule A and in accordance with the Rules of that Schedule. In his opinion it made no difference that 1112 income so derived formed part of the annual profits of a trading concern.
Lord Macmillan took the view that landowning, however profitable, was not a trade within the meaning or the Income-tax Code. Property in land as a source of income was dealt with, and could only be dealt with, under Schedule A and the Rules of that Schedule prescribe how the income from landed property was to be ascertained and measured. He, however, observed:

"....income from property which is taxable under, and only under, Schedule A is income derived from the exercise of property rights properly so called."

In his opinion the income of the company was derived from the location of the land or in other words in the normal manner in which properly in land yielded revenue and it was, therefore, not possible to hold that it was its income from trade. A land-owner cannot be represented as carrying on a trade of owning land because he makes an Income by letting it. The relatively insignificant services for which the Company made charges to its tenants were not in his opinion sufficient to convert the Company from a landowner into a trader.

Mr.Joshi has very strongly relied on this case for his submission that it is not only where there is a bare letting of tenements but also in cases where further services such as cleaning, heating and lighting or the facilities of lifts and canteens are supplied, that the income derived is still the income from property and not income from business. It may, however, be noted that although there were some services rendered by the company to its tenants, these services were regarded as minor or incidental services not different from the services which an individual landlord provides to the tenants of his house property and it was held that the supply of these additional services did not constitute the activity as a trading activity and the source of the income still remained mainly the ownership of the property and the income therefrom was assessable under Schedule A.

(3.)1961-42 ITR 49 (SC) is the next case referred to by Mr. Joshi. This was also a case of a limited company, which was incorporated with the objects of developing landed properties and promoting and developing markets. It had purchased a plot of land in the town or Calcutta and set up a market thereon. For the purpose of setting up this market the company had obtained a licence from the Calcutta Municipality to maintain sanitary and other services and for that purpose it had also maintained staff and had incurred expenditure. The market, which the company had set up, consisted of shops and stalls. It had let out the shops for longer terms and the stalls for temporary durations and had earned income from the said letting. The question that arose was whether the income realised by the company from the tenants of the shops and stalls was liable to be taxed under Section 10 of the Income-tax Act as income from business or as income from property under Section 9 of the Act. It was held that the income was received from property and tell under Section 9, and that the character of the income was not altered merely because some stalls were occupied by the same occupants and the remaining stalls were occupied by a shifting class of occupants, or from the fact that the company was required to obtain a licence from the Calcutta Municipality to maintain sanitary and other facilities and for that purpose it had to maintain a staff and to incur expenditure. It was held that the primary source of income from the stalls was the occupation of the stalls, and it was a matter of little moment that me occupation which was the source of the income was temporary. In this case also the tenants of the shops and stalls had the advantage of the sanitary and other services which had been provided by the company. These services, however, were regarded as incidental to the letting out of the property and not sufficient to convert the nature of operations of the company into those of a trader as distinguished from the operations of a landowner.
The two latter cases referred to by Mr. Joshi 1929-15 Tax Cas 266 and 1961-42 ITR 49 (SC) would lead to the proposition that not only when the letting is of the bare tenement but also where the letting is along with certain other services and facilities, that the income will be regarded as income derived from the ownership of property and hence income from the property if the additional services or facilities rendered to the tenants are of a minor character or such as may be regarded as ordinarily provided by a private landlord to his tenants.



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