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TMI Blog1980 (12) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... urth share in the Colaba property for a sum of Rs. 45,000, provided he is relieved of all liabilities arising after 31st March, 1959, whether the sale deed or the documents are completed or not. By a letter dated February 27, 1959, Mr. Sidhwa replied that his wife would be willing to purchase the one-fourth share in the property for the sum of Rs. 45,000. By a letter dated March 16, 1959, Mr. Eddie M. Dinshaw confirmed the proposal made by the assessee's husband, Mr. Sidhwa, and pursuant thereto, the assessee executed a pro-note in favour of Mr. M. N. Dinshaw for Rs. 45,000 on March 26, 1959. In June, 1960, however, Mr. M. N. Dinshaw died. Thereafter, his legal heirs including his son, Mr. Eddie Dinshaw, confirmed the proposed sale of the said property for Rs. 45,000 as from April 1, 1959. Thereafter, by letter dated December 8, 1960, addressed to the legal heirs, the respondent-assessee cancelled the old promissory note and forwarded a fresh one for the same amount of Rs. 45,000 in the name of the legal heirs. By letter dated December 27, 1960, the legal heirs again confirmed the sale of the property by M.N.E. Dinshaw as from 1st April, 1959. Subsequently, on February 2, 1963, a r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the, head " Income from other sources " under s. 12 of the Indian I.T. Act, 1922, for the assessment years 1960-61 and 1961-62, or under s. 56 of the I.T. Act, 1961, for the assessment years 1962-63 and 1963-64. Accordingly, the assessee's rental income amounting to Rs. 10,892, Rs. 6,079, Rs. 9,077 and Rs. 25,669 was brought to tax for the assessment years 1960-61, 1961-62, 1962-63 and 1963-64, respectively, as " Income from other sources ". As far as the last assessment year is concerned, since the assessee was treated as the owner of the property from February, 1963, of her one-fourth share, the rental income for the last two months, that is, February, 1963, and March, 1963, amounting to Rs. 5,502 was assessed to tax under s. 22 of the I.T. Act of 1961, as " Income from house property ". However, for the first 10 months of the accounting year, her one-fourth share in the rental income of the said property was assessed to tax under s. 56 of the Act of 1961 as " Income from other sources ". The AAC confirmed the assessments made by the ITO. He held that the assessee was the de facto owner of the property for the period from April 1, 1959, to February 2, 1963, and the income recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t out the relevant provisions of the Indian I.T. Act, 1922, and the I.T. Act, 1961, in so far as they are material. The provisions to be noticed are as under: Indian Income-tax Act, 1922 " 3. Charge of income-tax.-Where any Central Act enacts that income-tax shall be charged for any year at any rate or rates tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this Act in respect of the total income of the previous year ...... 4. Application of Act.-(1) Subject to the provisions of this Act, the total income of any previous year of any person includes all income, profits and gains from whatever source derived ...... 6. Heads of income chargeable to income-tax.-Save as otherwise provided by this Act, the following heads of income, profits and gains shall be chargeable to income-tax in the manner hereinafter appearing, namely : (i) Salaries. (ii) Interest on securities. (iii) Income from property. (iv) Profits -and gains of business, profession or vocation. (v) Income from other sources. (vi) Capital gains. 9. Property.-(1) The tax shall be payable by an assessee under the head 'Income fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on by him the profits of which are chargeable to income-tax, shall be chargeable to incometax under the head Income from house property 56. Income from other sources.-(1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head 'Income from other sources', if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E. (2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes shall be chargeable to income-tax under the head 'Income from-other sources', namely: (i) Dividends ........" In this case, the assessment for the two years 1960-61 and 1961-62 would be governed by the provisions of the Indian I.T. Act, 1922. The assessment for the subsequent two years, viz., 1962-63 and 1963-64, would be governed by the provisions of the I.T. Act, 1961. The question is whether the assessee's rental income from the house property, of which she was not the owner, is chargeable to tax under the head " Income from other sources " under the computing s. 12 of the Act of 1922, or under s. 56 of the Act of 1961, becaus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he is not the owner. On the other hand, he submitted that the question before us is covered by the ratio of the Supreme Court decision in S. G. Mercantile Corporation P. Ltd. v. CIT [1972] 83 ITR 700. In N. A. Mody's case [1966] 61 ITR 428 (SC), the majority judgment was delivered by Sarkar C. J., speaking for himself and Mudholkar J., and a dissenting judgment was delivered by Bachawat J. The facts of that case were that the assessee was practising as an advocate till March 1, 1957, on which date he was elevated to the Bench of the Bombay High Court. Since his elevation to the Bench, he ceased to carry on the profession. As an advocate, he had adopted the calendar year as the accounting year and had kept his accounts on a cash basis. In the years 1958 and 1959, during no part of which he carried on any profession, he received certain moneys on account of fees outstanding for professional work done by him. The question that arose for decision was whether he was liable to pay income-tax on these receipts recovered by him during the accounting year when he was not practising as an advocate. The court held that the receipts were not chargeable to tax at all, since the receipts were th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e matter. In other words, the heads of income must be decided on the nature of the income by applying practical common notion and not by reference to the assessee's treatment of income. (iv) Whether an income is included in any of the heads other than the residuary head would depend on what kind of income it is, and if the income is the profit or gain of profession, it cannot come under section 12, for, section 12 does not say that an income which escapes taxation under a preceding head will be computed under it for chargeability to tax. (v) An income has to be brought under one of the heads in section 6 and can be charged to tax only if it is so chargeable under the computing section corresponding to that head. Income which comes under the fourth head, that is, professional income, can be brought to tax only if it can be so done under the rules of computation laid down in section 10. If it cannot be so brought to tax, it will escape taxation even if it be included in the total income under section 4. The expression 'total income' in section 3 has to be understood as it is defined in section 2(15). Under that definition, total income means " total amount of income, profits and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the computing s. 10 because he had kept his accounts on the cash basis in the accounting year in which the profession had not been carried on, such income must necessarily come for taxation under the computing s. 12 as "income from other sources ". Such a result would be directly contrary to the ratio laid down in Mody's case. In our view, there is no valid basis for making a distinction between the case of income from property and the case of income from profession as is sought to be done by the learned counsel. To our mind, the ratio of the decision in N. A. Mody's case [1966] 61 ITR 428 (SC), is that one has to first determine the kind of income under the classifying s. 6. Once this is done, then it has to be quantified only under the corresponding section and subject to the conditions laid down in that section and cannot be brought to tax under the residuary head under s. 12. In Mody's case, an argument was advanced before the Supreme Court that the professional receipts have to be included in the total income stated in s. 4 and since they do not fall under the exceptions mentioned in that section, they must be liable to tax, and, therefore, they must be considered as incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding computing section is section 9 which says that tax shall be payable on income under this head in respect of the bona fide annual value of property. It is conceivable that income actually received from the property in a year may exceed the notional figure. The excess would certainly be liable to be included in total income under section 4. It however cannot be brought to tax as income under the head 'Other sources': See Salisbury House Estate Ltd. v. Fry [1930] 15 TC 266 (HL). It is an income which cannot be taxed at all though it is included in total income as defined in section 4. " The reference to a case of income from property which cannot be brought to tax under the computing s. 9 as an illustration in the above passage is significant. As observed by the Supreme Court, in a given case, only a portion of the income from property in a year may be chargeable to tax under the computing s. 9. Although the excess income is liable to be included in the total income mentioned in s. 4, still it cannot be brought to tax as income under the head " Income from other sources ", and it is an income which cannot be taxed at all. The scheme is the same for each head, as is seen from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the result that such income can be brought to tax under the residuary head. In S. G. Mercantile Corporation P. Ltd. [1972] 83 ITR 700 (SC) which has been relied on by Mr. Joshi, the facts were that one of the objects of the assessee-company as specified in the memorandum of association was to take on lease or otherwise acquire and to hold, improve, lease or otherwise dispose of land, houses and other real and personal property and to deal with the same commercially. Shortly after its incorporation, the company took on lease a market place for an initial term of 50 years, undertaking to spend Rs. 5 lakhs for the purpose of remodelling and repairing the structure on the side. It was also given the right to sublet the different portions. The activity of the company during the period covered by the assessment years 1956-57 to 1958-59 consisted of developing the property and letting out portions thereof as shops, stalls and ground spaces to shopkeepers, stall-holders and daily casual market vendors. The question that arose for consideration was whether the appellant's income from subletting the stalls was assessable as business income under s. 10 of the Act of 1922, or as income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y an assessee under the head 'Profits and gains of business, profession or vocation' in respect of the profits and gains of any business, profession or vocation carried on by him. 'Business', according to section 2(4) of the Act, includes any trade, commerce, or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. Section 12 of the Act deals with income from other sources. Sub-section (1) of that section reads as under: '(1) The tax shall be payable by an assessee under the head " Income from other sources " in respect of income, profits and gains of every kind which may be included in his total income (if not included under any of the preceding heads).' Section 12 deals with the residuary head of income and applies to all such taxable income, profits and gains as are not covered by preceding specific heads. The residuary head of income can be resorted to only if none of the specific heads is applicable to the income in question it comes into operation only after the preceding heads are excluded. It is, therefore, manifest that section 12 of the Act can be invoked in the present case only if we exclude the applicability of section 10 by hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... practical common notion could be treated as business income and not income from property as commonly understood. In Mercantile Corporation's case [1972] 83 ITR 700 (SC), a reference is made to another decision of the Supreme Court in Karanpura Development Co. Ltd. v. CIT [1962] 44 ITR 362, 377. The following observations in that case are relevant: "As has been already pointed out in connection with the other two cases where there is a letting out of premises and collection of rents the assessment on property basis may be correct but not so, where the letting or sub-letting is part of a trading operation. The dividing line is difficult to find; but in the case of a company with its professed objects and the manner of its activities and the nature of its dealings with its property, it is possible to say on which side the operations fall and to what head the income is to be assigned. Ownership of property and leasing it out may be done as a part of business, or it may be done as landowner. Whether it is the one or the other must necessarily depend upon the object with which the act is done. It is not that no company can own property and enjoy it as property, whether by itself or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome, as given in section 10, are ruled out. Where, as in the present case, the income can appropriately fall under section 10 as being business income, no resort can be made to section 12 of the Act. " In our view, the reference to s. 9 in the above quoted paragraph has to be read in the context of the question posed, viz., whether s. 10 or s. 12 applies to the income in question. It is only by implication that Mr. Joshi contends that in the Mercantile Corporation case [1972] 83 ITR 700, the Supreme Court has laid down that where s. 9 becomes inapplicable because the assessee is not the owner of the property, such income has to be brought under the residuary head under s. 12. As the income in that case was treated as a business income, the only question that arose for consideration was whether the corresponding computing s. 10 is attracted or s. 12, which applies to the " Income from other sources " is attracted. What Mr. Joshi wants to contend is that the observations in the judgment suggest that it was because s. 9 was excluded on the ground that the assessee was not the owner that the court proceeded to consider whether the income could be brought to tax under the computing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 6 are mutually exclusive, a particular income can come only under one of them. Therefore, the income of the assessee in the present case having once been classified under the head " Income from property ", there is no question of reclassifying such income under the residuary head. The next principle laid down by the Supreme Court in N. A. Mody's case is that after the income is thus classified under a particular head, such income can be brought to tax only under the computing section corresponding to that head of income. If it cannot be so brought to tax, it will escape taxation. Applying this principle again, the assessee's income from property in the present case cannot be brought to tax under s. 9, because he is not the owner of the property. In other words, it cannot be brought to tax because the conditions laid down in s. 9 is not fulfilled ; but that is no ground for reclassifying the income under the residuary head, and then charge the income to tax under s. 12. In N. A. Mody's case [1966] 61 ITR 428 (SC), the income was due to professional activity and fell under the 4th head, viz., " Profits and gains of business, profession or vocation ". The corresponding computing s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be said to have realised any income whatsoever from the trust property which could be computed under s. 9 and they were, therefore, not liable to pay any income-tax in respect of that property. The Division Bench negatived this contention and held that the annual value of the property should be included in the assessment of the trustees under s. 9. Chagla J., as he then was, concurring with Kania, Act., C.J., as he then was, observed thus (p. 304): " It is true that under the Indian Income-tax Act, the only thing that can be taxed is income and nothing else. The charging section is section 3 ; it charges the total income of an assessee; and 'total income' is defined in section 2(15) as the total amount of income, profits and gains computed in the manner laid down in this Act. Before income can be computed in the manner laid down in the Act there must be income to which the mode of computation can be applied. Now, it cannot be disputed that income from property is taxable income. The only question is what is income from property or how is it to be computed ? And for that purpose one must turn to section 9 of the Indian Income-tax Act. The scheme of the Income-tax Act is that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mean that in respect of the income from the same property, the assessee would be chargeable to income-tax under s. 12 also. This would lead to double taxation in respect of the income from the same property although the basis of computation of income may be different. There is no express provision in the Act which permits such double taxation. As observed by the Supreme Court in Laxmipat Singhania v. CIT [1969] 72 ITR 291, at p. 294, it is the fundamental rule of law of taxation that, unless otherwise expressly provided, income cannot be taxed twice. In the absence of clear provisions to that effect, it would be impermissible for the revenue to bring to tax the income from the house property in the hands of the purchaser (assessee in this case) under s. 12 and also to charge the owner under s. 9 in respect of the bona fide annual value of the property. We asked Mr. Joshi whether the owner of the property in this case has been taxed under s. 9 in respect of the bona fide annual value of the property in question. He, however, was unable to give any information. Whatever that may be, assuming that the owner who is liable to be assessed to tax under s. 9 has not been so taxed, that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im. These arrears of fees were realised by his widow, Mrs. Roma Bose in March, 1965. The question was whether the said money realised in the accounting years subsequent to the death of Subhodh Kumar Bose was chargeable to incometax in the assessment year relevant to the accounting year under the residuary head " Income from other sources " under s. 56 of the new Act. On behalf of the assessee, reliance was placed on the decision of the Supreme Court in Nalinikant Ambalal Mody v. s. A. L. Narayan Row, CIT [1966] 61 ITR 428. It must be noticed that under the new Act, a significant departure has been made by incorporating a new s. 176 so far as the professional and business income is concerned. Section 176, inter alia, provides: " (1) to (3) ......... (3A) Where any business is discontinued in any year, any sum received after the discontinuance shall be deemed to be the income of the recipient and charged to tax accordingly in the year of receipt, if such sum would have been included in the total income of the person who carried on the business had such sum been received before such discontinuance. (4) Where any profession is discontinued in any year on account of the cessation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umerated in sections 6(i) to section 6(iv) and section 6(vi) such income could not be included under the residuary head mentioned in section 6(v) of the old Act. If an income cannot be charged to income-tax under any of the heads mentioned in clauses A to E of section 14 of the new Act the same shall be chargeable to income-tax under the head 'Income from other sources', mentioned in clause F of the said section 14, under the express provision of section 56(1) of the new Act. Thus under the new Act money received by a person on account of profits or gains of a profession which had been discontinued by him even prior to the year previous to that when he received the same would be chargeable to tax under the provisions of the new Act mentioned above." On a comparison of the relevant provisions, we do not think that there is any material difference in the scheme of the relevant provisions under the two Acts. The sections have been rearranged. Although different words are used, the contents as well as the intention remain the same. There is no difference between the two charging sections, s. 3 of the Act of 1922 and s. 4 of the Act of 1961. There is no material difference between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of total income." Now, as far as the provisions of s. 14 of the new Act are concerned, it appears that in Mrs. Roma Bose v. ITO [1974] 95 ITR 299, the Calcutta High Court assumed that it is a charging section, which, according to it, was not the case with the corresponding s. 6 of the old Act. With respect, this is not the position. As indicated earlier, s. 4 of the new Act, which corresponds to s. 3, is the charging section. Section 14 merely classifies the heads of income for the purpose of computation of the total income as was the position under s. 6 of the old Act. The charging section under the new Act is s. 4, while s. 14 merely classifies the chargeable income under different heads. Sections 22 to 27 of the new Act is a group of sections dealing with the income from house property. Section 22 of the new Act is a reproduction of s. 9(1) of the old Act except the portion relating to allowances and the deletion of the word " bona fide " occurring in s. 9(1). This deletion of the word "bona fide" obviously does not make any " difference so far as the question with which we are concerned. Here again, cl. 22 of the Bill reads : " In this clause, the words 'bona fide' befor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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