1967 (4) TMI 16 - SC - Income Tax

Hiring out of specially built vaults and providing special services to the licensees - return received by the assessee is not the income derived from the exercise of property rights only but is derived from carrying on an adventure or concern in the nature of trade. Therefore, the income arising therefrom is assessable under s. 10.

Summary

Issues Involved:

1. Whether the vaults were used for the purposes of the business and income arising therefrom is assessable under section 10 of the Indian Income-tax Act, 1922.
2. If the answer to the first question is negative, whether the income is assessable under section 9 or section 12 of the Indian Income-tax Act, 1922.

Issue-wise Detailed Analysis:

1. Whether the vaults were used for the purposes of the business and income arising therefrom is assessable under section 10 of the Indian Income-tax Act, 1922:

The Supreme Court considered whether the income derived from the vaults should be assessed under section 10, which pertains to "profits and gains of business, profession or vocation." The relevant facts showed that the assessee constructed vaults specifically for storing cinema films in compliance with the Cinematograph Film Rules, 1948. The assessee provided several services, including fire alarms, railway booking offices, canteen facilities, and telephone services, which were not typical of a landlord's responsibilities.

The Court referred to the High Court's deduction that the income obtained required considerable expenditure, which is not usually incurred by a landlord. The High Court concluded that the income was not from property ownership but from business activities, thus falling under section 10. The Supreme Court agreed, stating, "The subject which is hired out is a complex one," and the income was derived from carrying on an adventure or concern in the nature of trade.

2. If the answer to the first question is in the negative, whether the income is assessable under section 9 or section 12 of the Indian Income-tax Act, 1922:

Since the first question was answered affirmatively, the second question became redundant. However, the Court still examined the argument that the income should be assessed under section 9, which deals with "income from property." The Court noted that section 9 specifically excludes income derived from property if the property is occupied for the purposes of a business.

The Court found that the agreements between the assessee and the licensees were licenses, not leases, as the assessee retained control over the premises. The Court concluded that the assessee was in occupation of the premises for its business purposes, thus reinforcing the applicability of section 10 over section 9.

Conclusion:

The Supreme Court upheld the High Court's judgment, concluding that the income derived from the vaults was assessable under section 10 of the Indian Income-tax Act, 1922, as it was income from business activities. The appeals were dismissed with costs.