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TMI Blog1991 (6) TMI 102X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract, which the assessee had entered into with the DGS D. Initially, the said sum was accounted for under the head 'Income from business'. Subsequently, however, the assessee shifted the said sum to the head 'Income from house property.' 5. The assessee's case before the ITO was that even though it had received the said sum from the D.G.S. D. In the course of the clearing and forwarding work done for the D.G.S. D., yet the real nature of the said sum was rent assessable under the head 'Income from house property.' This argument did not find favour with the ITO who held that the said sum of Rs. 2,21,068 was nothing but an integral part of the clearing and forwarding charges received by the assessee from the D.G.S. D. under the C F contract. He, therefore, brought to tax the said amount under the head 'Income from business.' 6. On his part, the AAC allowed the assessee's claim. He took the line that the storage space provided by the assessee was an additional facility given or additional service rendered by the assessee to the D.G.S. D. That consequently the rent received therefor was not a part of the clearing and forwarding operations; and that by the same token t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him, the provision of storage facility followed after the C F. Operations were completed. Therefore, the real character of the sum of Rs. 2,21,068 is rent and this fact cannot be ignored. 12. Strongly relying on the cases cited by the AAC in the impugned order, Shri Rajasekharan contended that decision of the AAC does not invite any inference. 13. The dispute in this case is constructed on a receipt which has had its genesis in the C F contract which the assessee had entered into with the D.G.S. D. It is, therefore, necessary to notice the material terms of the contract. 14. The contract, which was entered into on 22nd Dec., 1975, was initially for a period of two years from 16th Dec., 1975. The currency of the said contract, it is common ground, was extended from time to time till 31st Dec., 1982 after which date there was no subsisting contract between the assessee and the D.G.S. D. 15. The contract is a comprehensive one and it deals with all material aspects of C. F. Operations and the duties and responsibilities of the clearing agents. For the purpose on hand, however, it would suffice if we notice the following terms of the contract: (i) Classes 5 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... milar stipulations. (vi) Clause-10 dealing with import operations makes it clear that "import operation will include the whole process of handling and clearing stores from the wharf upto putting it on rails road truck, freighters or on any other means of transport till final despatch to Indentor/consignee or their Representative's godowns. In case of local (delivery of Government Stores) deliveries till they are delivered to the consignees at their godowns or any other place designated by the Consignees/Indentors and clear receipt obtained from them." It also stipulates that wherever cargoes are removed to Government Transit Depots/sheds or removed to the Clearing Agents' own godown with the approval of the D.G.S. D., the Clearing Agents shall continue to be responsible till the consignments are finally despatched/delivered to the consignees. (v) Provisions relating to temporary storage pending despatch are contained in cl. 11. Taking note of the fact that it may be necessary in some cases to hold incoming/outgoing cargoes in the temporary storage at the or pending despatch, the clause states that the Government will, as far as possible, provide suitable transit/storage acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age at the Port pending despatch to consignees or shipments in case of export to overseas. In such cases the Clearing Agents will have to provide suitable storage accommodation within harbour premises. For this operation they will be paid transit storage rent only for actual space occupied and for the actual period the consignment was kept in storage calculated in pro rata basis at the rates per month payable to the Cochin Port Authorities." 16. To turn next to the Schedule of rates annexed to the contract. The exhaustive Schedule classifies under as many as 7 broad heads the rates at which payment is to be made to the Clearing Agents for the services rendered by them under the contract. The details need not detain us here. However, Note No. 1 under the head "II. Transportation Charges" merits attention. It reads as under. "Note: 1. Transportation within harbour area of consignment, from where to the godown (plot of Clearing Agents) and again from the godown (plot of Clearing Agents) to Rly. Siding or the any other means of transportation for loading will be one operation." 17. As we see it, a combined reading of the contract and the Schedule annexed to it brings into bold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... htly assessed by the ITO, to tax under head 'Income from Business.' For fact, we will not be far off the mark if we observe that had not the assessee owned godowns in the Port Area, which, if need arose, could be used for storing cargo temporarily, the assessee would not have been eligible to submit its tender for the work. 19. There is a related aspect of the matter that is noteworthy. This very assessee had let on lease other godowns belonging to it to parties such as Philips (India) Ltd., and received rent from them. The letting of those godowns meat nothing more than that the assessee turned to profitable account its proprietary interest in the godowns. The rent received in respect of these godowns flowed from the assessee's ownership of the godowns. Further, the assessee did not retain possession and control over those godowns; it transferred the possession and control to the lessees. Again, the assessee did not assume any responsibility for the safety and security of the goods stored by the lessees in the godowns in question. The rental income from the goods stored by the lessees in the godowns in question. The rental income from these godowns was assessable and was rightl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the aforesaid view was supported by two English authorities. In Russell(surveyor of Taxes) vs. Aberdeon Town Country Bank 2 TC 321 the assessee bank owned buildings in which the business of the bank was carried on and portions of the buildings were occupied as residences by the bank managers and agents. It was held, in these circumstances by the House of Lords, that the assessee was entailed to deduct the annual value of the whole premises in calculating the assessee's business profits. 24. In Usher's Wiltsh Brewery Ltd. vs. Bruce(Surveyor of Taxes) 6 TC 395, the assessee, a brewery company, had a number of premises licensed to all(size z) bar. Some of the premises were owned by them, while there had been taken on rent lease. The question that arose for consideration was whether the assessee company entitled to claim deduction of cost of repairs and other expenditure relating to the licensed premises in the computation of its business profits under Schedule-D. It was found that the company had acquired the premises solely in the course of and for the purposes of its business as brewers. The licensed premises were let to 'tried tenants' who were bound under a contract to et ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities, railway booking offices, telephones, a canteen, and watch and ward staff. The ITO took the line that the income in question was assessable under s. 9 of the old Act. The Tribunal, by a majority, held that the income was chargeable to tax under s. 10 of the Act. The High Court agreed with the view of the majority. In the process, on a review of reported cases, the High Court abstracted the following principles which are to be applied in determining whether a certain income from house property or income from business: (1) Income-tax is a single tax levied on the total income classified and chargeable under the various heads and not aggregate of the distinct taxes levied separately on each head of income. (2) That the heads of income are specific heads, which are exclusive and exhaustive. (3) The income which falls under any of these specific heads has got to be computed under that head only in the manner specified in the Act. (4) If the income falls under the head 'Income from property', which is chargeable under s.9 of the old Act, it has to be taxed under s.9 only, and cannot be taken to s. 18 on the ground that the business of the assessee was to exploit propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Supreme Court, which affirmed the decision of the Bombay High Court. The Supreme Court applied the ratio of the case of Governors of the Routunda Hospital vs. Coman 7 TC 517 in which Viscount Finally, having regard to the fact that "the subject which is hired out is compels one", held that the 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. 29. In National Newsprint Paper Mills Ltd. vs. CIT 1977 CTR (MP)234:(1978) 114 ITR 172(MP) the assessee, a Government undertaking in the public sector and engaged in the business of manufacture and sale of newsprint, built not only residential quarters for its employees but also made available to the Government authorities its building for locating a branch of the State Bank of India, Post Offices, Police Station, Central Excise Office and Railway Staff Quarters. The rent collected by the assessee was brought to charge by the ITO under s.9. The Tribunal held that the rent received by the assessee was incidental and subservient to the assessee's business and was, therefore, chargeable to tax under s.10. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and turn it to account in any way which might be possible or expedient. Salisbury House had a very large floor space and contained some 800 rooms. These rooms were let out by the company to some 200 tenants singly or in suites which may or may not be self-contained. The company provided and operated the lifts in the building which was of nine floors and also provided uniformed staff of 25 persons for that purpose and to Act as porters and watch and protect the building. The company also engaged cleaners and a house-keeper. It provided radiators for heating purposes and also supplied lights in the passage of the building. 33. The Revenue's case was that the entire receipts from the building is chargeable under Schedule-D(analogous to the head of income 'income from business'). The House of Lords held that the rent received by the company fell under Schedule-A(analogous to the head 'income from house property') and not under Schedule-D. Starting from the proposition that income-tax is one tax and not an aggregate or collection of different taxes under the different Schedules, the House of Lords went on to point out that to see which head of income you are to apply, you have to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... landlord is subsidiary, an incident of his trade as brewer". Here also, the rent received is treated as business income. Type C: Cases to which Salisbury House ratio applies The type subsumes case of what is variously described as "mere letting" "bare letting", "ordinary letting", "letting simpliciter". Here ownership, and the attendant management of the property—and nothing more—is the source of rent. The landlord turns to profitable account his proprietary rights in the property. Here the rent received is treated as income from property. 36. Now the question is: Under which of the 3 types listed above does the case before us fall? As we see it, the case clearly falls under Type 'B'. Modifying slightly Lord Summer's observation, we justifiably say: "On the findings here the clearing agent is a clearing agent first and a landlord only afterwards. His role as landlord is subsidiary, an incident of his business as clearing agent". We accordingly hold that the godown rent of Rs. 2,21,068 received by the assessee from the DGS D under the C F contract in question was rightly brought to tax by the ITO under the head "income from business". 37. In view of the foregoing, th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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