1963 (12) TMI 4 - SC - Income Tax

Whether on the facts and circumstances of the case the income derived from letting of the building constructed on Plot No. 7 is properly to be computed under sections 9 10 or under section 12 of the Income-tax Act? Held that - The rent from the building will be computed separately from the income from the furniture and fixtures and in the case of rent from the building the appellant will be entitled to the allowances mentioned in sub-section (4) of section 12 and in the case of income from the furniture and fixtures to those mentioned in sub-section (3) and that no part of the income can be assessed under section 9 or under section 10. Appeal allowed.

Issues Involved:
1. Under which section of the Income-tax Act, 1922, should the income from the building and the hire from the furniture and fixtures be assessed?
2. Whether the income derived from letting of the building constructed on Plot No. 7 is properly to be computed under sections 9, 10, or 12 of the Income-tax Act?
3. Whether the letting of the building and furniture is inseparable under section 12(4) of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Under which section of the Income-tax Act, 1922, should the income from the building and the hire from the furniture and fixtures be assessed?

The appellant, a limited company, leased out a fully equipped hotel building and furniture. For the assessment year 1953-54, the appellant was taxed under section 9 for the building and section 12 for the furniture hire. The appellant contended that the entire income should be assessed under section 10 as business income or alternatively under section 12 as residuary income. The Income-tax Officer and the Appellate Assistant Commissioner held that the building had to be assessed under section 9, and the Tribunal confirmed this decision. The High Court also held that the income from the building should be computed under section 9 and the income from furniture under section 12(3), with no part of the income taxable under section 10.

2. Whether the income derived from letting of the building constructed on Plot No. 7 is properly to be computed under sections 9, 10, or 12 of the Income-tax Act?

The Supreme Court noted that the heads of income in section 6 of the Act are mutually exclusive. Section 9 deals with "Income from property," section 10 with "profits and gains of business," and section 12 with "income from other sources." The appellant argued that letting out a commercial asset like a fully equipped hotel building constitutes a business, thus falling under section 10. However, the Court found that the letting of the building did not amount to doing business. The Court referred to previous cases, concluding that the appellant did not let out any business undertaking and had never carried on a hotel business in the premises. Therefore, the income could not be assessed under section 10.

3. Whether the letting of the building and furniture is inseparable under section 12(4) of the Income-tax Act?

Section 12(4) deals with allowances when machinery, plant, or furniture is inseparably let with buildings. The Court held that section 12(4) applies when the letting of the building is inseparable from the letting of the furniture, based on the intention of the parties. The Court examined the lease provisions and found that the building and furniture were intended to be enjoyed together for running a hotel. The Court rejected the view that the primary letting must be of the machinery or furniture, stating that the language of section 12(4) does not support such a conclusion. The Court concluded that the lease satisfied the conditions for the applicability of section 12(4).

Conclusion:

The Supreme Court held that the rent from the building should be computed separately from the income from the furniture and fixtures. The appellant is entitled to the allowances mentioned in section 12(4) for the building and section 12(3) for the furniture and fixtures. No part of the income can be assessed under section 9 or section 10. The judgment of the High Court was set aside, and the appeal was allowed with costs awarded to the appellant.

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