CHHANGANI, J. - (1.) THIS is a reference by the Income-tax Appellate Tribunal (Delhi Bench "c") under sec. 256 (1) of the Income-tax Act, 1961 (hereinafter referred to as the Act) stating the following question for our answer: - "whether on the facts and in the circumstances of the case and on correct interpretation of the lease deed dated 13-9-1954, the assessee has been rightly assessed under the head 'income from property' in respect of the income received by it from the Syria Market ?"
(2.) THE material facts may be shortly stated as follows:- THE assessee is a Hindu United Family represented by its Manager Trilok chand and the assessment relates to the years 1961-62 and 1962-63 the previous years being the years ending Deepawali Samvat year 2017 and 2018 respectively. THE assessee derives income from shares in registered firm M/s Prabhat Talkies, Ajmer, and also from immovable properties including the property known as "syria Market" THE position with regard to Syria Market is as follows: - The Government of former Ajmer State had some scheme for rehabilitation of the displaced persons from West Pakistan. In connection with that scheme, the assessee offered to take an open land from the Government on lease for 30 years and to construct 75 shops on that plot and proposed certain terms and conditions on -1-5-1948. The terms and conditions were approved by the Chief Commissioner on 9-6-1948 and the assessee started construction of shops. A regular lease deed was executed on 13-9-1954. The deed was not on record but was placed on record on behalf of the assessee with the consent of the counsel for the Department. The relevant terms of the deed may be indicated at this stage: - (1) The assesse was to hold the land for a period of 30 years with effect from 1-6-1949. (2) The assessee was liable to payment of annual rent of Rs. 1380 per shop. (3) The lessee was to let out each shop for a rent not exceeding Rs. 17/-per month. (4) The lessor was entitled to terminate the tenancy at any time during the currency of the term thereof by giving three months notice in writing to the lessee and the lessee was entitled to receive depreciated value of the constructions put by him as may be determined by the Government. (5) It was also provided that after the expiry of the period of 30 years, all the shops will vest in the Government. (6) The lessee shall lease out the shops in the first instance to displaced persons only. (7) Yet, anther condition of the lease was that in case of default of payment of rent the lessor was entitled to enter into and upon the said plot of land and to resume and to pull down the structure and sell the material thereof and after retaining the amount of rent due, if any, and the cost of such demolition and sale and a further sum of Rs. 50/- to pay the balance of money realised by the said sale, if any to the lessee. It is a common ground that the assessee constructed 42 shops under the above agreement at a total cost of Rs. 82,899/ -. The lease was terminated by the Government in the year 1961 for contravention of the lease deed and the shops constructed by the assessee were taken over by the Government. The question of their depreciated value is still said to be under consideration. In the preceding years, the assessee declared the income from these shops under the head "income from property", and they were taxed as such. In the assessment years 1961-62 and 1962-63 the income from these properties has been shown as Rs. 5,825/- respectively and the appellant claimed that the income should be treated as falling under the head "income from other sources". The Income Tax Officer, however, over ruled the contention of assessee and treated income from the shops as "income from property" by his order dated 19-10-1964. The assessee's appeal was dismissed by the Appellate Assistant Commissioner on 3-11-65 and a further appeal by the Appellate Tribunal (Delhi Bench "c") on 4-1-1967. At the instance of the assessee, however, the Appellate Tribunal made the present reference. We have heard Mr. Bissa for the assessee and Mr. Bhandari for the Department. The assessee in canvassing the answer in its favour relied upon: - (1) In the matter of Basant Rai Takhat Singh of Agra; (2) Gooptu Estate Ltd. In re. (3) Sultan Brothers Private Ltd. vs. Commissioner of Income Tax, Bombay City II. (4) Commissioner of Income Tax, Bombay City II. vs. National Storage Pvt. Bombay. (5) M/s. New Savan Sugar & Gur Refining Co. Ltd. vs. Commissioner of Income-tax, Calcutta. The counsel for the Department has relied upon: - (6) Ballygunge Bank Ltd. Calcutta vs. Commissioner of Income Tax, Bengal. (7) Sri Ganesh Properties Ltd. vs. Commissioner of Income Tax, West Bengal. (8) Commissioner of Income Tax vs. Madras Cricket Club. Before noticing the cases we may refer to the statutory provisions. The statutory provisions, both under the old Act as also under the new Act, describe income from property as the annual value of the property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner. Under both the Acts, vide sec. 9 of the old Act and sec. 24 sub-sec. (7) of the New Act, the assessee is entitled to deduction of the ground rent. This deduction can only be available to the assessee who is not the owner of the land and is only entitled to erect super-structure. On a plain and literal consideration of the provisions it is abundantly clear that in order to attract the relevant provisions in relation to income from property the assessee need only be the owner of the super-structure. His ownership need not extend to the land on which the superstructure is erected. A lessee of an open land can thus be an owner of the super structure. A question when a lessee should be treated as an owner of the super structure cannot, however, be decided on abstract consideration. On a closes examination of the conditions and terms of the lease, specially by relating to: - 1. (i) the nature and authority of the lessee to raise super structure at his cost; (ii) the nature and extent of the use of the structure by the lessee during the lease period; (iii) (a) provisions relating to the right of the lessee to remove the super structure on the termination of the lease by the expiry of the lease period or otherwise; (iii) (b) for compensation to the lessee for the money spent on super structure in case the super structure is to vest in the lessor on the expiry of the lease or on its termination or otherwise. Further, in deciding the question we should be guided by the observations of the Supreme Court indicating a proper approach to the question. In Nalinikant Ambalal Mody vs. S. A. L. Narayan Row, vs. Commissioner of Income-tax, Bombay City 1, Bombay (9) the Supreme Court laid the law as follows: "the several heads of income mentioned in S. 6 are mutually exclusive a particular income can come only under one them. Whether an income falls under one head or another, has to be decided according to the common practical notions and on which kind of income it is, because the Act does not provide any guidance in the matter. This question cannot be decided on the basis of the time of receipt of the income by the assessee or by reference to the assessee's treatment of such income. " These observations have been approved in subsequent cases of the Supreme Court. We now turn to the cases cited by the parties. In the matter of Basant Rai Takhat Singh (1) the assessee held a lease from the Cantonment for one year. One of the conditions of the lease was that no permanent structure shall be erected on the land leased and that the structure that is erected should be removable within twelve hours. The assessee let out sites with or without any shelter and constructed by themselves over them, to different persons and realised ground rent from the sub-lessees. The income of the assessee from the sub-lease was less than the rent payable to the cantonment authorities and the Income Tax Department permitted a deduction from the income of other house property of the deficit in the contract. The assessee, however, claimed that the contract obtained from the cantonment authorities was a business and further as they borrowed certain moneys in earlier years for other kinds of business, and as they were paying interest on money so borrowed in previous years, they should be credited under sec. 10 (2) (3), Income Tax Act, with the interest they had to pay. The one of the question referred by the Commissioner was: - (a) Where, as in the present case, the assessee has taken land on lease and has erected on a pert thereof house and shops which are let out on rent and has let out the rest to squatters on rent, should the Income derived from such rents be assessed under secs. 9 and 12 or under sec. 10, Income Tax Act, 1952? The High Court did not consider the language of the question happy on the facts stated by the Commissioner and thought the buildings erected were of a temporary nature and that this could not be substantial under the terms of the lease and gave their decision as follows: - "for the purposes of our answer, we have to take it, therefore, that several pieces of land belonging to Cantonment authorities were taken on lease, for one year only with the idea that parcels of it should be let out to sub-lessees for a period not more than one year, and rent should be received from these sublessees" for the benefit of the lessee. The question then is whether this contract which the lessees obtained from the Cantonment authorities is 'property' or it is 'business'. In our opinion, it is neither 'property' nor is it 'business'. The income from this source must come under cl. (6), sec. 6 Income Tax Act and it must be assessed as directed in sec. 12, Income Tax Act. " In Geoptu Estate Ltd. In re (2) the lease was of certain properties. The assessee's income from the lease property was assessed under s. 12 under 'other sources'. The assessee claimed that the income should be included under the head 'business'. In disposing of the reference the High Court repelled the assessee's contention but made the following observations in connection with the applicability of section 9: - "as the assessees in this case have only a limited interest, namely, the interest of a lessee for fifty years, the Incone-tax authorities may well be right in regarding S. 9 as in-applicable to the case. " The two distinguishing features of the case are: - (i) That it was a lease of the property and not of the open land. (ii) That the controversy as to the applicability of sec. 9 or s. 12 did not arise for precise determination. In Sultan Brothers Private Ltd. v. Commissioner of Income Tax, Bombay (3), the assessee constructed building on a certain plot of land, fitted it up with furniture and fixtures and let it out on lease fully equipped and furnished for the purpose of running a hotel. It was a case of composite letting of building fitted with furniture and fixtures. The controversy was whether the income from letting should be treated as income from 'business' or from 'house property' or from 'other sources'. The Supreme Court held, 1. That the letting of the building did not amount to the carrying out of a business. 2. That as the assessee and the lessee intended that the building and the fixtures and furnitures were to be used for one purpose, namely, for the purpose of running a hotel all together, and not one separately from the other, not withstanding that the sums payable for their enjoyment were fixed separately, the lease satisfied all the conditions for applicability of sec. 12 (4) and rent from the building has to be computed under sec. 12 after providing for the allowances mentioned in sub-sec. (4) thereof, and sec. 9 did not apply. " It is a case of an owner constituting a composite letting and is not to the point in the present controversy. Commissioner of Income-tax, Bombay City I, Bombay vs. National Storage Pvt. Ltd. Bombay (4) has also no bearing to the present controversy. In that case the assessee company was formed with an object of carrying on business of storing films. It purchased certain lands and constructed safe deposit vaults in conformity with the specifications laid down in the Cinematograph Film Rules, 1948 for hiring out. 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. The assessee also rendered other service to the vault-holder. The agreements with the vault holders were licences and not leases. On these facts it was held that the assessee was 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. It was consequently held that the assessee was carrying on adventure in the nature of trade and income arising therefrom was assessable under sec. 10 of the Act.
(3.) M/s. New Savan Sugar & Gur Refining Co. Ltd. (v) Commissioner of Income-tax, Calcutta (5) is also a case of a composite letting and has no bearing. In addition to these cases, the counsel for the assessee in his attempt to show that there were divergence of judicial opinion, invited our attention to the following passage on page 931 of Iyengar on Income Tax, Fifth Edition, 1963, Volume 2.- "the contrary was decided in two cases, Basantrai Takht vs. C. I. T. , B & O. , 4 I. T. C. 324, Basantrai v. C. I. T. , B. , & Co. , T I. T. C, 441, where the distinction was taken that the buildings put up on the leasehold property were merely of a temporary nature, there being a covenant in the lease not to put up a permanent structure. It was held under those circumstances that the assess-ment ought to be under sec. 12, 'other Sources'. But when the latter matter went up to the Privy Council on appeal in 1933 I. T. R. 197, P. C, their Lordships expressly reserved their opinion as to whether the assessment was made under the proper section, the assessee having not taken the point before the High Court and the question hence having become final. " He argued that in two cases a contrary view was taken. The one case referred is Massrs. Basant Rai Takhat Singh vs. The Commissioner of Income-tax, United Provinces (10) which is the same case as has been reported in A. I, R. i960 Allahabad 288 (1), and noticed in detail above. The other case, 5 Income Tax Cases 441 was not made available to me by any of the parties,, This case was taken to the Privy Council in appeal and the decision of the Privy Council is reported in Commissioner of Income Tax, U. P. vs. Basant Rai Takhat Singh (l ). It appears from a perusal of the Privy Council decision that the Commissioner himself had proceeded under sec. 12 in assessing the income. There was no direct controversy with regard to the applicability of sec. 9 and 12 before the High Court, the controversy being whether a particular deduction was permissible by the terms of sec. 12. The Privy Council, however, made observations expressly reserving their opinion as to the applicability of sec. 12 and made the following observations: "now in the circumstances of this case and having regard to the course which the case has taken and the attitude of the respondents, their Lordships feel themselves constrained to consider the matter upon the footing that Sec. 12 is the proper section under which the assessment should be made, and accordingly they propose to deal with the matter upon that footing, but in so doing their Lordships must not be taken to be accepting the view that in fact Sec. 12 is the proper section, or that Sec. 9 is not applicable to this case. " A similar passage from the book "iyengar on Income Tax" at page 1164, foot note "x" was referred to. In that foot note the cases In re-Geoptu Estates Ltd. (2) and G. I. T. U. P. vs. Basantrai Takhat Singh (l0) were also referred to. The case reported to in In re Gooptu Estates Ltd. in the same as reported in AIR 1930 Calcutta 1, already noticed and the other case has also been dealt with earlier. We now proceed to examine the cases relied upon by the Department. In Commissioner of Income Tax, Madras vs. The Madras Cricket C1ub (3) it was held that "an assessee who takes on long lease a parcel of kind from the Government and erects buildings thereon and is entitled under the terms of the said lease to remove the buildings within a stipulated period on the termination of the said lease is assessable in respect of the annual value of the buildings under sec. 9 of the Indian Income Tax Act, 1922. " ;