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PETITIONER: COMMISSIONER OF INCOME-TAX, BOMBAY CITY-1,   BOMBAY

       Vs.

RESPONDENT: NATIONAL STORAGE PVT.  LTD., BOMBAY

DATE OF JUDGMENT: 26/04/1967

BENCH: SIKRI, S.M. BENCH: SIKRI, S.M. SHAH, J.C. RAMASWAMI, V.

CITATION:  1968 AIR   70            1967 SCR  (3) 813  CITATOR INFO :  R          1972 SC2315  (13)

ACT: Indian   Income-tax Act (11 of 1922), ss. 9  & 10-Assessee’s premises hired out-Not an ordinary lease but for purposes of its own business-Assessment under which head.

HEADNOTE: The assessee-Company was promoted because the Government  of India  promulgated the Cinematograph Rules, 1948,  according to which distributors of films were required to store  films in godowns constructed in conformity with the specifications laid down in the Rules.  The assesses constructed vaults  of special design with special doors and electrical fittings as required   and   entered  into   agreements   with   several distributors who became vault-holders paying certain amounts for  the  use  of the vaults.  The key  to  each  vault  was retained  by the vault-holder, but the key to  the  entrance which  permitted  access  to  the vaults  was  kept  in  the exclusive possession of the assessee.  The assessee rendered valuable  service to the vault-holders by installing a  fire alarm,  by opening Railway Booking Offices in  the  premises and by employing a regular staff, and incurred the necessary expenditure.  The vaults were used for the specific  purpose of  storing  films and other activities connected  with  the examination, cleaning, waxing and rewinding of the films. On  the question whether the assessee was to be assessed  to Incometax under s. 9 or s. 10 of the Income-tax Act, 1922, HELD  :  The  assessee was carrying on  business,  that  is, carrying  on an adventure or concern in the nature of  trade in  the  premises, and was therefore liable to  be  assessed under s. 10 and not under s. 9 of the Act. The Act does not contemplate assessment of property under s. 9 in respect of the rental income and assessment under s. 10 in respect of the extra income derived from the carrying  on of  an  adventure or concern in the nature of trade  if  the assessee is in occupation of the premises for the purpose of the  business.   The scheme of the Act is that  the  various heads  of income, profits and gains enumerated in s.  6  are mutually  exclusive, each head being specific to  cover  the item arising from a particular source, and whether an income

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falls under one head or another has to be decided  according to  common notions of practical men.  In the  present  case, the  agreements  are licences and not leases,  the  assessee being in occupation of all the premises for purposes of  its own  concern,  namely,  the hiring out  of  specially  built vaults and providing services to the vault-holders, who were the  licensees.   The  subject which was  hired  out  was  a complex one and the return received by ’the assessee was not income derived from the exercise of property rights, but was derived  from  carrying on an adventure or  concern  in  the nature of trade. [8l8C; [S20C-F] The  Governors of the Rotunda Hospital, Dublin v.  Coman,  7 T.C. (H.L.) 517, applied.

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 1048- 1051 of 1966. 814 Appeals from the judgment and order dated July 2, 3, 1962 of the  Bombay  High Court in Income-tax Reference  No.  45  of 1960. T.   V.  Viswanatha Iyer, A. N. Kirpal and R.  N.  Sachthey, for the appellant (in all the appeals). S.   T.  Desai, F. N. Kaka, S. K. Dholakia and 0. C.  Mathur for the respondent (in all the appeals). The Judgment of the Court was delivered by Sikri, J. These appeals by certificate granted by the Bombay High  Court  under S. 66A(2) of the Indian  Income-tax  Act, 1925  -hereinafter  referred  to  as  the  Act-are  directed against its judgment in Income-tax Reference No. 45 of  1960 by  which it answered the first question of law referred  to it  by  the Income-tax Appellate Tribunal in favour  of  the National  Storage Ltd., Bombay, hereinafter referred  to  as the assessee.  The following questions were referred to  the High Court by the Appellate Tribunal at the instance of  the Commissioner of Income-tax, Bombay City-1, Bombay :               "1. Whether on the facts and circumstances  of               the  case,  the  vaults  were  used  for   the               purposes  of the business and  income  arising               therefrom is assessable under Section 10 ?               2.    If  the answer to question I is  in  the               negative,  whether  the income  is  assessable               under Section 9 or Section 12 ?" The  relevant facts and circumstances are as  follows  :-The assessee  was  promoted  because  the  Government  of  India promulgated the Cinematograph Film Rules, 1948,  hereinafter referred  to  as  the  Film Rules  according  to  which  the distributors  were required to store films only  in  godowns constructed  strictly in conformity with the  specifications laid down in the Film Rules and in a place to be approved by the  Chief Inspector of Explosives, Government of India.   A place  at  Mahim  was  approved  and  the  assessee,   after purchasing  a  plot  of  land  there  constructed  13  units thereon, 12 units meant for the Members of the Indian Motion Picture  Distributors’  Association,  who  had  floated  the Company,  and  one  unit for Foreign  Film  Distributors  in Bombay, who were not members of the Association.  Each  unit was  divided  into four vaults, having a  ground  floor  for rewinding of films and an upper floor for storage of  films. These   units  were  constructed  in  conformity  with   the requirements of and the specifications laid down in the Film Rules.   The walls and ceilings were of a  particular  width and  automatic  fire proof door was installed  in  one  wall

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which would close immediately on the outbreak of 815 fire in the vault.  Other walls had no opening or window and one ventilation was provided in the ceiling.  The units were built  at  a  distance of 50 feet  from  one  another.   The assessee entered into agreements with the film distributors. There  were two types of agreements, one was  classified  as ’A’  Licence and the other as ’B’ Licence.   The  agreements were  more or less in identical terms with minor  variations here  and  there.   One agreement has been  annexed  to  the statement  of  the  case as annexure ’A’  and  some  of  the relevant clauses are as under : Clause 2 provides that the licensee shall not use the  vault for  any other purpose except for storing cinema  films  and shall  use the ground floor (examination room) only for  the purpose  of  examination,  repairs,  cleaning,  waxing   and rewinding of the films.  According to clause 9, the licensee could  not transfer, assign, sublet, underlet or  grant  any licence  in  respect of or part with the possession  of  the vault or any part thereof without the written permission  of the  assessee.   According to clause 12,  the  assessee  was entitled to revoke, determine and put an end to the  licence by  giving  the licensee at any time seventy  days  previous notice  in writing.  Further, the licensee was not  entitled to  terminate the licence for a period of five years  except with  the consent in writing of the assessee.  According  to clause  13,  the  assessee was  entitled  to  terminate  the licence  by  giving  two  days’ notice  in  writing  to  the licensee  and allocate to the licensee alternative space  in another  vault  of the said property.  Clause  16  makes  it clear  that  nothing  contained in the  agreement  shall  be construed  to  create  any right other  than  the  revocable permission granted by the assessee in favour of the licensee of  the licensed vault nor as conferring any right to  quiet enjoyment  or other right except so far as the assessee  has power  to  grant the same and the assessee may of  its  mere motion  and  absolutely retain possession  of  the  licensed vault  with  all additions, fittings and  fixtures  thereto. Apart  from  these  conditions, the key to  each  vault  was retained  by the vault-holder, but the key to  the  entrance which  permitted  access  to  the vaults  was  kept  in  the exclusive possession of the assessee.  It is further  stated in the statement of the case that the assessee also rendered other  services  to  the vault-holders.  A  fire  alarm  was installed and an annual amount was paid to the  municipality towards fire services.  The assessee opened in the  premises two  Railway  Booking Offices free, of charge for  the  con- venience  of  the members for despatch and receipt  of  film parcels.   A  canteen was also run in the premises  for  the benefit  of  the  vault-holders and  a  telephone  had  been provided  for them.  ’A’ licensees paid Rs. 40/-  per  month while  ’B’ licensees paid Rs. 140/- per month.  The  Foreign Film  Distributors  were originally charged  Rs.  300/-  per month but later on the charges were reduced to Rs. 100/-. 816 For  the  assessment  years 1950-51,  1951-52  and  1952-53, assessments  were  made on the assessee under S. 10  of  the Act,  but for the assessment years 1953-54 and 1954-55,  the Income-tax Officer took the view that the assessee should be assessed  under  s.  9 and not under s. 1O.   His  view  was confirmed on appeal by the Appellate Assistant Commissioner, who also rejected the assessee’s alternative submission that the income if not taxed under S. 10 should be taxed under s. 12.   On  further  appeal  to  the  Tribunal,  there  was  a difference  of opinion between the Judicial Member, who  was

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the.   President, and the Accountant Member.  There being  a difference  of opinion, the following question was  referred to a third Member:-               "Whether on the facts and circumstances of the               case, the vaults were used for the purposes of               the  business and income arising therefrom  is               assessable under Section 10 or Section 9." The third Member, agreeing with the President, held that the assessee was carrying on business in these premises and -the business  was  of similar type as carried on by  a  bank  in letting safe deposit vaults, and income was taxable under S. 10.   As  already  stated, the Appellate  Tribunal,  at  the instance  of  the Commissioner referred  the  two  questions which  we  have  already  set out  above.   The  High  Court answered the first question in favour of the assessee.   The High  Court  after  reviewing several  cases  deduced  seven propositions.   The  sixth  and  seventh  propositions  were these:               "6. In cases where the income received is  not               from the bare letting of the tenement or  from               the letting accompanied by incidental services               or facilities, but the subject hired out is  a               complex one and the income obtained is not  so               much  because  of  the  bare  letting  of  the               tenement  but  because of the  facilities  and               services rendered, the operations involved  in               such  letting  of the property may be  of  the               nature  of business or trading operations  and               the  income  derived may be  income  not  from               exercise  of  property  rights  properly   so-               called.  so  as to fall under  Section  9  but               income  from  operations of a  trading  nature               falling under Section 10 of the Act.               7.    In  cases  where  the  letting  is  only               incidental   and  subservient  to   the   main               business  of the assessee, the income  derived               from  the letting will not be the income  from               property  falling  under  Section  9  and  the               exception  to  Section 9 may  also  come  into               operation in such cases."               .lm0               Then the High Court after examining the  facts               and circtumstances concluded :               81               "The income, which is obtained by the  company               in  the  present case,  required  considerable               expenditure  to  be incurred by  the  company,               which is ordinarily not incurred by a landlord               who  turns  his house property  to  profitable               account  and  which is also  not  taken  into.               account  in the deductions  permissible  under               Section  9.  In our  opinion,  therefore,  the               income  which  the company obtained  from  the               licence-holders in the present case, could not               be  regarded as income from  property  failing               under Section 9 of the Indian Income-tax  Act.               The  activity of the company in  earning  that               income was a business activity and the  source               of the income, which the company obtained from               the licence-holders, was not the ownership  of               the house property but its business."               The  Commissioner having obtained  certificate               of fitness from the High Court, the appeal  is               now before us.               The learned counsel for the appellant, Mr.  T.

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             V.  Viswanatha  Iyer, has  put  the  following               propositions before us :-               ( 1) The assessee is the owner of property and               has to be, assessed as such under s. 9 of  the               Act.   Any  incidental  services  rendered  as               owner  do  not  alter  the  character  of  the               relationship  between  the  assessee  and  the               users   of  the  vaults,  and  there   is   no               complexity   as  far  as  the   services   are               concerned;               (2)   In any event, assuming for a moment that               certain   services  are  rendered,  they   are               independent   of  and  in  addition  to,   the               ownership of the property;               (3)   The  assessee  is not  carrying  on  any               trade  or  business  by  was  of  letting   or               otherwise;               (4)   The  assessee  is not in  occupation  of               these vaults for the purpose of his  business,               and if any room is occupied by its staff, that               occupation is different from the occupation by               the users;               (5)   There is no plant or machinery which has               been  let to, the users and the  building  has               been  let  as something inseparable  from  the               plant and machinery, if any, which exists; and               (6)   Even  if  the assessee  is  carrying  on               business  insofar as it is an owner it has  to               be taxed under s. 9; additional income has, to               be dealt with under S. 10.               Mr.  S. T. Desai, the learned counsel for  the               assessee formulated his proposition as follows               :-Distinction  has to be drawn between  income               derived   by  exercise  of   property   rights               properly so called on the one hand, and on the               other  hand income derived from licensees  who               are allowed the use of any property, specially               818               constructed  safe deposit vaults for  securely               storing  hazardous  or inflammable  films,  or               similar  goods,  or safe deposit  lockers  for               securely  keeping  valuables  and  for   which               purpose  special amenities, are given; in  the               latter class of cases the object is a  complex               ,one  and not merely letting of  property  and               the activities amount to carrying on trade  or               business, property being the subjectmatter  of               business.   He further says that  propositions               sixth  and seventh as formulated by  the  High               Court are sound.               The  answer to the question depends  upon  the               interpretation  ,of ss. 9 and 1 0 of the  Act,               and  the ascertainment of ’the  activities  of               the  assessee.   It is not disputed  that  the               scheme of the, Indian Income-tax Act, 1922, is               that the various heads of income, profits  and               gains  enumerated  in section 6  are  mutually               exclusive,  each head being specific to  cover               the  item  arising from a  particular  source.               Further  "whether  an income falls  under  one               head or another has to be decided according to               the  common notions of practical men  for  the               Act  does  not  provide any  guidance  in  the               matter".   [vide  Sarkar  J.,  in   Nalinikant               Anbalal Mody v. Narayan Row(1)].

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             The relevant portion of S. 9 reads as follows               "9.  (1)  The  tax  shall  be  payable  by  an               assessee under the head ’Income from property’               in  respect of the bona fide annual  value  of               property consisting of any buildings or  lands               appurtenant thereto of which he is the  owner,               other  than such portions of such property  as               he   may  occupy  for  the  purposes  of   any               business, profession or vocation carried on by               him  the  profits of which are  assessable  to               tax,  subject  to  the  following  allowances,               namely........               ’Section 10(1) reads :               "10.  (1)  The  tax shall  be  payable  by  an               assessee under the head ’Profits and gains  of               business,  profession or vocation’ in  respect               of  the  profit  or  gains  of  any  business,               profession or vocation carried on by him. The  word  "business"  is defined in 2(4)  to  include  "any trade. commerce, or manufacture or any adventure or  concern in the nature of trade, commerce or manufacture." The  question  which really arises in the  present  case  is whether the assessee is carrying on any business i.e., is it carrying on any adventure or concern in the nature of trade, commerce or manufacture ? If it is carrying on any adventure or  concern in the nature of trade, then S.  9  specifically excludes the income derived ’from property from  computation under S. 9, if the property is (1)  61 I.T.R. 428 at p. 432. 819 occupied  for the purpose of adventure or concern.   Similar questions  have  arisen under the  English  Income-tax  Act. Though   the  scheme  of  the  English  Income-tax  Act   is different, some of the cases throw light on the question  as to "what is adventure or concern in the nature of trade." In the  Governors of the Rotunda Hospital, Dublin v.  Coman(1), the  Governors  of  a  maternity  hospital  established  for charitable  purposes  were  owners  of  a  building-   which comprised rooms adapted for public entertainments, and which was  connected  with  the hospital buildings  proper  by  an internal passage.  The hospital derived a substantial income from letting the rooms for public entertainments,  concerts, etc.,  for periods varying from one night to six months  and applied  the  income  to  the  general  maintenance  of  the hospital.  The rooms were let upon terms which included  the provision  of  seating  heating-,  and  attendance,  but  an additional charge was made for gas and electricity consumed. The  House of Lords held that the profits derived  from  the letting  of  the rooms were assessable to Income  Tax  under Schedule  D, either under Case 1, as the profits of a  trade or business, or under Case VI of that Schedule. The learned counsel for the assessee strongly relies on this case.  It seems to us that the reasoning of the Law Lords in their   speeches  does  assist  the  assessee.    The   Lord Chancellor observed ,it p. 582               "Profits  are  undoubtedly  received  in   the               present  case which are applied to  charitable               purposes,  but  they are profits  derived  not               merely  from the letting of the  tenement  but               from  its  being  let  properly  equipped  for               entertainments, with seats, lighting,  heating               and  attendance.  The subject which  is  hired               out is a complex one.  The mere tenement as it               stands,  without  furniture,  etc.,  would  be               almost   useless  for   entertainments.    The

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             business of the Governors in respect of  those               entertainments  is to have the  hall  properly               fitted  and prepared for being hired  out  for               such uses.  The profits fall under Schedule D,               and to such profits the allowance in  question               has no application, as they cannot be properly               described  as  rents  or  profits  of   lands,               tenements,  hereditaments or heritages.   They               are the proceeds of a concern in the nature of               a trade which is carried on by the  Governors,               and consists in finding tenants and having the               rooms  so  equipped  as  to  be  suitable  for               letting." In  our  view the High Court was right in holding  that  the assessee  was  carying  on an adventure or  concern  in  the nature of trade, The assessee not only constructed vaults of special design and special doors and electric fittings,  but it also rendered 1)   17 T.C. 517. 820 other  services  to the vault-holders.   It  installed  fire alarm  and was incurring expenditure for the maintenance  of fire  alarm  by  paying charges to  the  Municipality.   Two Railway Booking Offices were opened in the premises for  the despatch  and receipt of film parcels.  This, it appears  to us,  is a valuable service.  It .also maintained  a  regular staff  consisting of a Secretary, a peon. a watchman  and  a sweeper,  and apart from that it paid for the ,entire  staff of  the Indian Motion Picture Distributors’  Association  an amount of Rs. 800/- per month for services rendered to  tile licensees.  These vaults could only be used for the specific purpose ,of storing of films and other activities  connected with   the  examination,  repairs,  cleaning,   waxing   and rewinding of the films. But the learned counsel for the Commissioner says that s.  9 ,applies  because  the  assessee cannot be  said  to  be  in occupation  ,of the premises for the purpose of any  concern of  its own.  He says that the licensees were in  possession of the vaults as lessees and not merely as licensees.   But, in our opinion, the agreements are licences and not  leases. The  assessee kept the key of the entrance  which  permitted access to the vaults in its own exclusive possession.  The assessee was thus in occupation of all the premises for the purpose of its own concern, the concern being the hiring out of specially built vaults and providing special services  to the  licensees.  As observed by the Lord Chancellor  in  the Governors  of  the  Rotunda Hospital,  Dublin  v.  Coman(1), "’tile subject which is hired out is a complex one" and  the return  received ’by the assessee is not the income  derived from  the exercise ,of property rights only but  is  derived from  carrying  on  adventure or concern in  the  nature  of trade. There  is  no force in the sixth submission of  the  learned counsel for the appellant because the Indian Income-tax  Act does  not contemplate assessment of property under S.  9  in respect  of the rental income and assessment under s. 10  in respect of the extra income derived from the carrying on  of an  adventure  or  concern in the nature  of  trade  if  the assessee  is in occupation of the premises for the  purposes of the business.  The scheme of the En lish Act is different and  special  statutory  provisions  exist  in  the  English Income-tax  Act (see Rule 5, Schedule D, English Income  tax Act, 1918). A number of other cases have been cited before us but it  is not  necessary to deal with them because the answer  to  the

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question  whether an activity is an adventure or concern  in the  nature of trade or business must depend upon the  facts of each case. Accordingly the appeals fail and are dismissed with costs. V.P.S.                            Appeals dismissed. (1)  7 T.C. 517. 821