1970 (5) TMI 20 - HC - Income Tax

Whether on a proper construction of the indenture of lease the Tribunal was right in holding that the entire rental income from premies should be assessed under section 12 of the Income-tax Act, 1922 - If the property remained in possession of the seller even after the sale, whether the seller is liable to assessment under section 9

Issues Involved:
1. Applicability of Section 12 vs. Section 9 of the Indian Income-tax Act, 1922.
2. Inseparability of letting buildings and machinery, plant, or furniture.
3. Deductibility of enhanced municipal taxes for previous years.
4. Assessment of rental income from different properties.

Issue-wise Detailed Analysis:

1. Applicability of Section 12 vs. Section 9 of the Indian Income-tax Act, 1922:
The primary issue was whether the rental income from premises No. 8, Clive Row, Calcutta, should be assessed under Section 12 or Section 9 of the Indian Income-tax Act, 1922. The Tribunal held that the entire rental income should be assessed under Section 12, as the letting of the building was inseparable from the letting of fixtures, fittings, and air-conditioning plants. The court agreed with the Tribunal's application of the Supreme Court's test in Sultan Brothers v. Commissioner of Income-tax, which emphasized the intention of the parties to the lease. The court concluded that the rental income from the property was indeed inseparable and thus fell under Section 12.

2. Inseparability of Letting Buildings and Machinery, Plant, or Furniture:
The court analyzed the lease and found several dominant features indicating inseparability:
- Clause 1 of the lease treated the building and fixtures as a whole, despite separate rents.
- Sub-clause (c) of Clause 1 collectively described the building and fixtures as "the demised premises."
- The term of the lease was the same for both the building and fixtures.
- Rent for both the building and fixtures was payable simultaneously.
- There was only one lease for each tenant, indicating joint and several liability.
These factors led the court to conclude that the letting was inseparable within the meaning of Section 12(4).

3. Deductibility of Enhanced Municipal Taxes for Previous Years:
In Income-tax Reference No. 130 of 1967, the issue was whether enhanced municipal taxes of Rs. 25,803 for earlier years were deductible under Section 9. Given the decision that Section 12 applied to the case, the question of Section 9's applicability did not arise. The court formally answered that Section 12 applied, and thus no deduction under Section 9 was warranted.

4. Assessment of Rental Income from Different Properties:
In Income-tax Reference No. 132 of 1967, two questions were raised:
1. Whether arrear municipal taxes for No. 8, Clive Row, were deductible under Section 12.
2. Whether the rental income from No. 62, Hazra Road, was rightly assessed under Section 9 even after January 8, 1960.

For the first question, the Tribunal had not decided on the deductibility of arrear municipal taxes, leaving it open. Therefore, the court did not answer this question.

For the second question, the court affirmed that the rental income from No. 62, Hazra Road, was correctly assessed under Section 9. The court referenced a Division Bench decision in Commissioner of Income-tax v. Ganga Properties Ltd., which supported the assessment under Section 9. The court noted that the deeds of conveyance indicated the owner was in possession at the relevant time, contradicting the assessee's claim of possession being given in part-performance of an agreement for sale.

The court also clarified that it was not determining the interpretation of "owner" in Section 9, leaving that for future cases with appropriate facts.

Conclusion:
The court concluded that the entire rental income from premises No. 8, Clive Row, should be assessed under Section 12 of the Indian Income-tax Act, 1922. The enhanced municipal taxes were not deductible under Section 9, and the rental income from No. 62, Hazra Road, was rightly assessed under Section 9. The court emphasized the importance of the intention of the parties in determining the inseparability of lettings and the appropriate section for tax assessment.

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