SEN, J. - (1.) THE Tribunal has referred the following question of law under S. 256 (1) of the IT Act, 1961 ('the Act') : "Whether, on the facts and in the circumstances of the case, and on a true construction of the various terms of the Indenture dt. the 7th July, 1967, the income from the multi-stored building in the accounting period relevant to the asst. yr. 1971-72 was assessable under the head 'Income from house property' under S. 22 of the IT Act, 1961?" In this case the assessment year involved is 1971-72 for which the relevant accounting period is the year ended on 31st March, 1971,
(2.) THE assessee-company was incorporated in 1963 and some of the objects of the company, inter alia, were to acquire by purchase, lease, exchange or otherwise land, building, etc., and also to create, sell and deal in freehold and lease-hold ground rents and generally to deal in traffic by way of sale, lease, exchange or otherwise of land and house property and any other property, whether immovable or real or moveable or real or movable or personal. The object was also to develop and turn to account any land, house or other property acquired by or in which the company is interested. One of the objects was to manage land, buildings and other property situated, whether belonging to the company or not and to collect rents and income and to supply to tenants and occupiers and others, refreshments, attendance messengers, light, waiting rooms, reading rooms, lavatories, laundry conveniences, electric conveniences, stables and other advantages. Besides these, the company had objects like carrying on business of the theatrical proprietors, distribution of films, running of hotels, agency business, business of general manufactures and business of mining and minerals etc. In the year under consideration the assessee was busy in constructing a multi-storeyed building at No. 1 Shakespeare Sarani, Calcutta and for the year under consideration a part of the building had been constructed and the remaining part was still under construction. Some rents were received from this multi-storeyed building and that income was shown in the P&L A/c of the assessee. By a lease deed dt. 7th July, 1967 the land of the property bearing No. 1 Shakespeare Sarani, Calcutta was taken on lease by the assessee-company from Surendra Kumar Rampuria on the terms and conditions, stated therein for a period of 99 years commencing from 1st Nov., 1966. Thereunder the assessee was to pay to the lessor a monthly rent of Rs. 1,500 for the first two years and a monthly rent of Rs. 4,500 for the remaining 97 years on or before the 7th day of each and every month succeeding the month for which the rent shall become due. It was a condition of the lease that the assessee was to construct within five years upon the demised land certain building and the cost of construction shall not be less than Rs. 40 lakhs. The assessee- company was to obtain necessary permissions and sanctions from the local authorities and the consent of the lesser was to be given wherever required. The assessee as the lessee had to keep and maintain the erections and construction as well as fixtures and fittings in good repair and condition. The assessee-company was not to damage or allow to be damaged any erections or constructions but it was not prevented from making any additions or alterations whatsoever that may from time to time be made or caused to be made by the lessee for beneficial enjoyment of any construction, buildings, structures to be erected. The lessor and his agents had the right to enter upon the demised land to satisfy themselves that they were kept in proper condition. The buildings to be constructed were not to be used for illegal or immoral purposes and at the expiration of or sooner determination of this lease the assessee had to yield up the demised land and all buildings and structures to the lessor who would be entitled thereto absolutely only upon this lease coming to an end. The lessor had agreed to let the assessee quietly and peacefully hold and enjoy the demised land and the buildings, structures to be constructed thereon without any interruption by the lessor. It was further provided in the said lease deed that if the lease rent was not paid or any condition of the lease was not fulfilled, it was to be lawful for the lessor to re-enter upon the demised land and building without payment of any compensation. The lessee of his nominee shall be always entitled to assign this lease or part thereof to a cooperative society that may hereafter be formed for the purpose of erecting and constructing buildings and such assignee society shall be entitled to sell or to lease out flat or flats which might be constructed on "Own Your Own Flat" Scheme basis and for this purpose the assessee-company was not required to obtain any permission or consent whatsoever of the lessor and to enjoy all benefits, advantages, rents and profits thereof. The assessee-company had also the power to let, sub-let demise and sub-demise the demised land along with the basement or any construction without any permission of the lessor. For the year under consideration the assessee had disclosed a huge loss from all its activities taken together and the ITO had proceeded to compute the income on the basis of the P&L A/c. While the ITO assessed the income of some of the properties as income from property he did not consider the income received from the tenants at No. 1 Shakespeare Sarani, Calcutta as income from property. That income as was considered as income from business along with other business of the assessee-company. It appears from the order of the ITO that the construction of the building was still being carried on and he had, therefore, disallowed certain expenses from the claims of salary and interest on the ground that the same related to the construction of the building and he treated the same as capital expenditure. The said assessment order was passed on 30th March, 1974.
(3.) THE CIT, Rajasthan was of the view that the ITO for the accounting period relevant to the asst. yr. 1971-72 had passed an erroneous order which was prejudicial to the interests of Revenue. According to him, the income form No. 1 Shakespeare Sarani, Calcutta had wrongly been assessed as income from business and it was properly assessable as income from property in view of the fact that the building in question was owned by the assessee. Before the CIT it was contended that the rental income from the said property was taxable as business income. The assessee relied on the decision of Supreme Court in the case of S.G. Mercantile Corpn. (P.) Ltd. vs. CIT 1972 CTR (SC) 8 : (1972) 83 ITR 700. The CIT was, however, of the view that the above decision of the Supreme Court was not applicable to the case of the assessee as in the case before the Supreme Court the assessee was not the owner of the building and there was no dispute on the point. The CIT observed that as far as this case was concerned, the assessee was the owner of the building and, hence, the income was assessable as income from property. Before the CIT the assessee has stated that the land at No. 1 Shakespeare Sarani, Calcutta had been taken on lease and the assessee-company constructed a building at its own cost on the said land in terms of the said lease. It was also submitted that the assessee-company was carrying on business of running diverse services and letting out of the premises. It was also submitted that the tenants were supplied with air-conditioning from the Central plant owned by the assessee. The tenants were also supplied with electric current purchases in bulk by the company. The electric current was purchased at high tension and it was converted into low tension and then supplied to the tenants. For that purpose the company had installed its own transformers and other equipments. It was further contended that the company provided the tenants the services of watch and ward, lift services, sanitary service and car parking facilities. For those purposes the company maintained staff and huge expenditure was incurred for rendering those services. It was also submitted that the company recovered from the tenants besides rent, charges for air-conditioning and electric current and for rendering various other services. It was, therefore, contended that these activities were in the nature if business. Without prejudice to the above contention it was submitted before the CIT that the amounts realised for service charges, air-conditioning charges, supply of electric current could not be assessed as income from house property. The CIT was of the view that many of the facilities were such which were invariably provided by the land-lords to the tenants and they did not result in the entire income form the property being transformed into business income. He further observed that there was due provision in ss. 22 to 24 of the Act which deal with property income to take note of such services and the income from such services. He was further of the view that the decision of the Supreme Court in the case of Karnani Properties Ltd. vs. CIT (1971) 82 ITR 547 was not applicable as the facts in the present case were different. The CIT, therefore, held that the ITO erred in treating the income as business income whereas the same was taxable as income from house property. The Commissioner, therefore, amended the assessment order and directed the ITO to treat the income from the said property as income from house property. The ITO was to modify the assessment accordingly.;