1991 (6) TMI 102 - AT - Income Tax

Summary

Issues Involved:
1. Classification of income from godown rent under the correct head of income.
2. Interpretation of the terms of the Clearing and Forwarding (C & F) contract.
3. Application of legal precedents to determine the nature of the income.

Detailed Analysis:

1. Classification of Income from Godown Rent:
The primary issue in this case was whether the sum of Rs. 2,21,068 received by the assessee from the Director General of Supplies & Disposals (DGS&D) should be classified under 'Income from house property' or 'Income from business'. The Assessing Officer (AO) initially classified this income under 'Income from business', but the Appellate Assistant Commissioner (AAC) reclassified it under 'Income from house property'.

2. Interpretation of the Terms of the C & F Contract:
The contract between the assessee and DGS&D was comprehensive, covering various aspects of clearing and forwarding operations, including the provision of temporary storage space. Significant clauses included:
- Clause 5: Required the Clearing Agents to handle imports and exports and perform auxiliary and incidental services.
- Clause 7: Mandated the Clearing Agents to render services as directed by DGS&D.
- Clause 9: Detailed the duties and responsibilities of the Clearing Agents, including the transfer and storage of cargo.
- Clause 10: Defined import operations as an integrated process from handling and clearing stores to final dispatch.
- Clause 11: Addressed temporary storage, stipulating that the Clearing Agents would be responsible for any loss or damage to goods while in their custody.
- Clause 12: Defined export operations similarly to import operations.
- Clause 19(a)(1): Specified that payments to Clearing Agents would be made according to fixed rates.
- Clause 29: Required Clearing Agents to provide storage accommodation and specified that they would be paid transit storage rent.

3. Application of Legal Precedents:
The Tribunal considered various legal precedents to determine the nature of the income:
- Jamshedpur Engg. & Machine Mfg. Co. vs. CIT (1957) 32 ITR 41 (Pat): Held that letting out residential quarters to employees was incidental to the business and thus, the income was business income.
- CIT vs. National Storage P. Ltd. (1963) 48 ITR 577 (Bom): The High Court held that income from vaults provided for film storage was business income, as the vaults were specifically constructed for that purpose.
- Commercial Properties Ltd., In re: The High Court held that rental income from properties owned by a company was 'Income from house property' and not business income.
- Salisbury House Estate Ltd.: The House of Lords held that income from letting out a building was 'Income from house property' as the company was merely acting as an ordinary landlord.

Conclusion:
The Tribunal concluded that the godown rent of Rs. 2,21,068 received by the assessee from DGS&D under the C & F contract should be classified as 'Income from business'. The key reasons were:
- The contract was an integrated, organic whole, encompassing all aspects of C & F operations.
- The provision of temporary storage space was an integral part of the C & F operations.
- The assessee did not transfer possession and control of the godowns to DGS&D and was responsible for the safety and security of the goods, distinguishing it from ordinary letting.
- The income arose in the ordinary course of the assessee's business as a C & F agent.

The Tribunal set aside the AAC's order and restored the AO's classification of the income under 'Income from business'. The Departmental appeal was allowed.