1960 (11) TMI 7 - SC - Income Tax

Whether the income derived by the company from shops and stalls is income received from property and falls under the specific head described in section 9? Held that - The income received by the appellant from shops is indisputably income from property; so is the income from stalls from occupants. The character of the income is not altered merely because some stalls remain occupied by the same occupants and the remaining stalls are occupied by a shifting class of occupants. The primary source of income from the stalls is occupation of the stalls, and it is a matter of little moment that the occupation which is the source of the income is temporary. The income-tax authorities were, in our judgment, right in holding that the income received by the appellant was assessable under section 9 of the Income-tax Act. Appeal dismissed.

Summary

Issues:
1. Classification of income derived from shops and stalls for taxation under the Income-tax Act.

Analysis:
The case involved an appeal regarding the taxation of income derived from shops and stalls by a private company registered under the Indian Companies Act. The appellant contended that the income should be taxed under section 10 of the Income-tax Act as "profits or gains of business" rather than under section 9 as "income from property." The appellant argued that being formed to promote and develop markets, the income should be classified as business income. However, the court emphasized that the classification of income under specific heads in the Income-tax Act is based on the sources from which income is derived. The court explained that the distinct heads specified in section 6 are mutually exclusive, and income derived from different sources falling under specific heads must be computed accordingly for taxation purposes.

The court referred to the case of United Commercial Bank Ltd. v. Commissioner of Income-tax to highlight that the heads of income enumerated in the Income-tax Act are mutually exclusive, with each specific head covering income arising from a particular source. Additionally, the court cited the case of Fry v. Salisbury House Estates Co. Ltd., where a company's income from letting out rooms was held assessable under a specific schedule related to property income rather than trade receipts. Similarly, in Commercial Properties Ltd. v. Commissioner of Income-tax, income derived from rents by a company formed to acquire lands and let out houses to tenants was held assessable under section 9, emphasizing the importance of the source of income in determining its tax treatment.

The court concluded that the income received by the appellant from shops and stalls is fundamentally income from property, falling under the specific head described in section 9 of the Income-tax Act. The court dismissed the appeal, affirming the tax authorities' decision to assess the income under section 9. The judgment highlighted that the primary source of income from the stalls is the occupation of the stalls, regardless of whether the occupants are temporary or permanent, reinforcing the classification of the income as property income under section 9.

In summary, the judgment clarified the classification of income derived from shops and stalls by a company under the Income-tax Act, emphasizing the importance of the source of income in determining its tax treatment. The court upheld the tax authorities' decision to assess the income as property income under section 9, dismissing the appellant's appeal.