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Smart Summary

Structured Summary of the Opinion — P.B. Mukharji, A.C.J. (with T.K. Basu, J. agreeing)

Factual and Procedural Background

This opinion comprises three income-tax references (I.T. Ref. Nos. 102, 130 and 132 of 1967) heard together because they arise between the same parties and concern connected questions of fact and law arising from the same order of the Tribunal.

Brief factual matrix (as stated in the opinion):

  • The principal reference (I.T. Ref. No. 102 of 1967) is Commissioner of Income-tax v. Chitpore Golabari Co. Private Ltd. The assessment year is 1961–62 (accounting year 1960). The assessee was an investment and property-holding company (managed by Andrew Yule & Co. Ltd.) which owned, inter alia, premises No. 8, Clive Row, Calcutta (and other properties).
  • By an indenture of lease dated 28 October 1957, premises No. 8, Clive Row were let to several companies (managed by Andrew Yule & Co. Ltd.). The lease reserved a monthly rent of Rs. 8,612 for the building and a separate monthly hire charge of Rs. 5,082 for fixtures, fittings and air-conditioning plants (listed in a third schedule).
  • In its return the assessee treated the building rent under section 9 and the hire for fixtures/plant under section 12. The Income-tax Officer assessed on that basis and the Appellate Assistant Commissioner confirmed the assessment. On appeal to the Tribunal, the assessee argued the entire rental should be assessed under section 12 (relying on the Supreme Court decision in Sultan Brothers). The Tribunal held the lettings were inseparable and directed that the entire rental income from No. 8, Clive Row be assessed under section 12 after allowing deductions under that section. The Tribunal stated a case under section 66(1) for the High Court’s opinion.
  • I.T. Ref. No. 130 of 1967 raised whether enhanced municipal taxes debited by the assessee (in respect of No. 8, Clive Row) were deductible under section 9 for the assessment year 1961–62. In view of the decision in I.T. Ref. No. 102 (that section 12 applies), the question was treated as not arising and answered by reference to the decision in I.T. Ref. No. 102.
  • I.T. Ref. No. 132 of 1967 raised two questions: (1) whether arrear municipal taxes of Rs. 25,803 for earlier years in respect of No. 8, Clive Row were allowable as a deduction under section 12 (this point was left open by the Tribunal and not pressed by the assessee); and (2) whether Rs. 32,290 had been rightly assessed under section 9 as rental income from premises No. 62, Hazra Road, including for the period after 8 January 1960. The Court answered the second question affirmatively in favour of the revenue.

Legal Issues Presented

  1. Whether, on the facts and on a proper construction of the indenture of lease dated 28 October 1957, the Tribunal was right in holding that the entire rental income from premises No. 8, Clive Row should be assessed under section 12 of the Indian Income-tax Act, 1922 (i.e., whether the letting of the building was inseparable from the letting of machinery, plant or furniture so as to fall under section 12(4)).
  2. What is the meaning of the word “inseparable” in section 12(4) of the Income-tax Act, 1922, and whether the fixtures, fittings and air‑conditioning plants listed in the lease fall within the expression “machinery, plant or furniture” used in that subsection.
  3. Whether enhanced or arrear municipal taxes debited by the assessee in respect of No. 8, Clive Row are deductible under section 9 or section 12 (as raised in I.T. Refs. Nos. 130 and 132).
  4. Whether the sum of Rs. 32,290 was rightly assessed under section 9 as rental income from premises No. 62, Hazra Road (question in I.T. Ref. No. 132 of 1967).

Arguments of the Parties

Assessee (represented by Dr. Pal)

  • The assessee argued that the entire rental income from No. 8, Clive Row should be assessed under section 12, because the letting of fixtures, fittings and air-conditioning plant was inseparable from the letting of the building.
  • Relied upon the Supreme Court decision in Sultan Brothers v. Commissioner of Income-tax to support the proposition that where letting of building and plant is inseparable the income falls under section 12.
  • Dr. Pal sought to draw a distinction between the lease phrase “fixtures, fittings and air-conditioning plants” and the statutory phrase “machinery, plant or furniture” in section 12(4), arguing they did not necessarily mean the same thing (the practical thrust being to show how terms should be construed).

Revenue (represented by Mr. Sen)

  • The revenue contended that the income was income from property (premises No. 8, Clive Row) and therefore ought to be assessed under section 9 (which the revenue characterized as dealing with property—lands and buildings).
  • Mr. Sen argued that items such as air-conditioning plants and other listed items could be treated as part of the building (bricks and mortar) for the purposes of section 9 rather than as “machinery, plant or furniture” under section 12.
  • Mr. Sen also submitted that a subsequent Supreme Court decision (Nalinikant Ambalal Modi v. Commissioner of Income-tax) did not follow the Sultan Brothers decision; the Bench rejected this submission on examination of that later case.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Sultan Brothers (Private) Ltd. v. Commissioner of Income-tax [1964] 51 I.T.R. 353 (Supreme Court) Established that intention of the parties is the test of "inseparability" in section 12(4) and that when building and plant/machinery are inseparably let the rent from the building is to be treated as income under the residuary head (section 12) so that the allowances in sec.12(4) can operate. The Court applied the ratio: held intention is the test of inseparability and followed Sultan Brothers to conclude that the entire rent of No. 8, Clive Row should be assessed under section 12(4).
Commissioner of Income Tax, Madras v. Mir Mohammad Ali (Supreme Court) Held that the word "plant" in the Act is of wide import and discussed the ordinary meaning of the word "machinery" (citing Privy Council), indicating the ordinary meaning prevails unless context requires otherwise. The Court relied on this authority to conclude that items in the lease (air-conditioners, tube-wells, pumps, motors, frigidaires, lifts etc.) fall within the meaning of "plant" or "machinery" for the purposes of section 12(4).
Corporation of Calcutta v. Chairman of Cossipore & Chitpur Municipality (Privy Council) Provided a definition of "machinery" as prima facie mechanical contrivances which by combined movement/operation effect a definite result; used as an ordinary-language definition. The Privy Council's definition was quoted (via Mir Mohammad Ali) and accepted as the ordinary meaning of "machinery" unless context dictates otherwise; it supported treating several listed items as machinery/plant.
Nalinikant Ambalal Modi v. Commissioner of Income-tax (Supreme Court) Mentioned in argument by the revenue as a subsequent authority the revenue suggested might not have followed Sultan Brothers. The Court examined that submission and found no basis to conclude that the later decision either expressly or impliedly contradicted Sultan Brothers; the Bench did not accept the revenue's contention that it overruled or departed from Sultan Bros.
Commissioner of Income-tax v. Ganga Properties Ltd. (I.T. Ref. No. 68 of 1965 — Division Bench, unreported) Used by the Court as precedent on facts relevant to the question whether particular rental sums should be assessed under section 9. The Court relied on that Division Bench decision to answer in the affirmative the question in I.T. Ref. No. 132 whether Rs. 32,290 had been rightly assessed under section 9 for premises No. 62, Hazra Road.

Court's Reasoning and Analysis

(Presented in steps as stated in the opinion; limited to the material and reasoning actually expressed in the text.)

  1. Statutory context and textual points:
    • The Court examined section 12(4) of the Indian Income-tax Act, 1922 (which entitles an assessee letting on hire machinery, plant or furniture together with buildings, where the letting of the buildings is inseparable from the letting of the machinery/plant/furniture, to allowances in accordance with clauses of section 10(2)).
    • The Court contrasted section 9 (whose marginal headnote is "property") and noted that section 9's language speaks only of lands and buildings, whereas section 12 is the residuary head for "other sources" – "income, profits and gains of every kind… if not included under any of the preceding heads".
    • The Court emphasized the legislative sequence: section 12(3) (introduced 1939) recognised letting machinery/plant/furniture on hire; section 12(4) (introduced later) expressly dealt with cases where letting of machinery/plant/furniture and buildings were inseparable, thereby precluding separation of taxation under sections 9 and 12 in such cases.
  2. Meaning of "inseparable":
    • The Tribunal had found that, on the facts, the letting of fixtures/plant and of the building were inseparable. The Court accepted that finding and added further reasons explaining why the lease demonstrates inseparability.
    • Key factual/contractual indicia of inseparability identified by the Court (drawn from the lease): clause 1 treated building and fixtures as parts of a whole (sub-clauses (a), (b) and (c)); both were described collectively as "the demised premises"; the term of the lease (16 years) covered both; rents for both were payable at the same time; there were no separate leases and the 39 tenants were jointly and severally liable—indicating one indivisible letting.
    • The Court applied the test articulated in Sultan Brothers that "intention is the test of inseparability" and found the parties' intention (as evidenced by the lease) showed the lettings to be inseparable.
  3. Meaning of "machinery, plant or furniture" versus lease terminology:
    • Dr. Pal contended there was a difference between the lease language ("fixtures, fittings and air‑conditioning plants") and the statutory expression ("machinery, plant or furniture"). Mr. Sen contended these items could be treated as part of the building to bring them under section 9.
    • The Court, relying on Mir Mohammad Ali (and the Privy Council definition of "machinery"), concluded that items listed in the lease (air-conditioners, tube-wells, pumps, motors, tanks, lifts, lights and fans, refrigerators/frigidaires, kitchen equipment) are properly regarded as plant or machinery within the meaning of section 12(4).
  4. Allocation to sections 9 or 12:
    • The Court held that because section 9 is limited in language to lands and buildings, and section 12 is the residuary head for income not covered by earlier heads, rent or hire for machinery/plant/furniture (where not covered by section 9) falls under section 12.
    • Where letting of building and plant/machinery is inseparable, the statutory design of section 12(4) was intended to treat the income under section 12 so that the allowances provided therein could be given effect to; to construe otherwise (segregating rent to section 9) would render subsection (4) redundant.
  5. Application to the references:
    • Applying the above analysis and the ratio in Sultan Brothers, the Court held that in respect of premises No. 8, Clive Row the letting of the building and listed fixtures/plant was inseparable and the entire rental income must be assessed under section 12(4). The Court answered the primary question in I.T. Ref. No. 102 in the affirmative (in favour of the assessee).
    • Because of that conclusion, the question in I.T. Ref. No. 130 (concerning deductibility under section 9 of municipal taxes) was treated as not arising and was formally answered by reference to the conclusion that section 12 applies.
    • In I.T. Ref. No. 132: the Tribunal had left open the question whether arrear municipal taxes for No. 8, Clive Row were deductible under section 12; the Court did not decide that point (the question was not pressed and was left open). On the second question (No. 62, Hazra Road), the Court relied on the Division Bench decision in the unreported Ganga Properties Ltd. matter and on the factual recitals/covenants (showing the owner possessed the premises when conveyances executed) to answer that the Rs. 32,290 had been rightly assessed under section 9 (in favour of the revenue).
    • The Court expressly refrained from deciding the wider interpretative question whether "owner" in section 9 means absolute or limited owner; it stated that such a point must await appropriate facts and that no opinion was being expressed on that question.

Holding and Implications

Holdings

  • I.T. Reference No. 102 of 1967: The Tribunal was right. The Court answered the question in the affirmative and held that the entire rental income from premises No. 8, Clive Row, Calcutta should be assessed under section 12 of the Indian Income-tax Act, 1922 (i.e., the letting of building and listed plant/fixtures was inseparable and falls within section 12(4)).
  • I.T. Reference No. 130 of 1967: In view of the decision in I.T. Ref. No. 102, the question of deductibility under section 9 does not arise; the Court recorded that section 12 applies to the facts and circumstances of the case (and answered accordingly).
  • I.T. Reference No. 132 of 1967: Question (1) about allowability under section 12 of arrear municipal taxes for No. 8, Clive Row was not decided by the Tribunal and was not answered by the Court. Question (2) was answered in the affirmative in favour of the revenue: the sum of Rs. 32,290 was rightly assessed under section 9 as rental income from premises No. 62, Hazra Road.

Direct consequences for the parties

  • For No. 8, Clive Row: assessment of the entire rental income under section 12(4) — the assessee is entitled to claim the deductions/allowances available under that subsection as applied by the Tribunal and affirmed by the Court.
  • For No. 62, Hazra Road: the assessment of Rs. 32,290 under section 9 stands (decision in favour of the revenue).
  • The Court made no order as to costs in the references it decided.

Wider implications

The opinion applies and explains existing precedent (notably Sultan Brothers and Mir Mohammad Ali) to the facts at hand. The opinion does not set out a broader new principle beyond applying those authorities to the factual conclusions stated; accordingly, this summary records only the direct effects described above and does not identify any novel precedent created by this judgment.

Judge(s): P.B. Mukharji, Acting Chief Justice (delivered the opinion); T.K. Basu, J. (concurring).

Show full summary ...

    Chitpore Golabari Co. P. Ltd. v. Commissioner Of Income-Tax, West Bengal (And Vice Versa)

    P.B Mukharji, A.C.J:— These are three income-tax references which at counsel's request we have heard one after the other because they arise between the same parties and because there are certain connected questions of fact and law, and because they arise out of the same order of the Tribunal although three different references have been made.

    2. We shall take up first Income-tax Reference No. 102 of 1967, in the matter of Commissioner of Income-tax v. Chitpore Golabari Co. Private Ltd. The question set for an answer by this court in this reference is as follows:

    “Whether, on the facts and in the circumstances of the case, on a proper construction of the indenture of lease dated 28th October, 1957, the Tribunal was right in holding that the entire rental income from premises No. 8, Clive Row, Calcutta, should be assessed under section 12 of the Income-tax Act, 1922?”

    3. The facts of the case giving rise to this question are as follows:

    The assessment year is 1961–62 for which the corresponding accounting year in this case is the calendar year 1960. The assessee is an investment and property holding company managed by Andrew Yule & Co. Ltd. During the accounting year the company owned, inter alia, three properties, namely, No. 8, Clive Row, 243, Upper Chitpore Road, and No. 62, Hazra Road, all in the town of Calcutta. By an indenture of lease dated the 28th October, 1957, the assessee-company leased premises No. 8, Clive Row, to a number of companies managed by Andrew Yule & Co. Ltd. The deed records that in consideration of the rent reserved and other covenants and conditions, the landlord demised unto the tenants, 8, Clive Row, together with the compound, garage, outhouses belonging or appurtenant thereto excluding the fixtures and fittings therein at a monthly rent of Rs. 8,612. It was further provided in the said deed that the landlord would let out on hire and the tenants would take on hire the fixtures, fittings and the air-conditioning plants in the said premises whether affixed or not and specified in the third schedule thereto at a rent of Rs. 5,082 per month for the hire of the said fixtures and fittings and the air-conditioning plants. The lease is a part of the record of the case.

    4. In its return the assessee showed the rent reserved for the building under section 9 and the rent reserved for fixtures, buildings and air-conditioning plant under section 12. The assessment was made accordingly. Before the Appellate Assistant Commissioner on appeal from the order of assessment, the assessee raised no objection to the method of assessment of the income from 8, Clive Row property. On this point the Appellate Assistant Commissioner confirmed the order of the Income-tax Officer. The assessee appealed before the Tribunal. It was claimed on behalf of the assessee that the entire rental income from 8, Clive Row, should have been assessed under section 12 and the letting value of the fixtures, fittings, air-conditioning plant, etc., was inseparable from the letting of the buildings. Reliance was placed on the Supreme Court decision in Sultan. Brothers v. Commissioner of Income-tax [1964] 51 I.T.R 353. The Tribunal, on a consideration of the terms of the indenture of lease dated the 28th October, 1957, and in view of the fact that the building was situated in the principal commercial centre of Calcutta and was let out to the companies managed by Andrew Yule & Co. Ltd., to be used as their Calcutta offices, held that the lessee would not have accepted the lease of the premises without hire of the fixtures and fittings, such as the lifts, electrical fittings, air-conditioners, etc. The Tribunal applied the test laid down by the Supreme Court in the above-mentioned case and held that it was the intention of the parties to the deed of lease that the letting would be inseparable. Therefore, the Tribunal directed that the entire rental income from premises No. 8, Clive Row, should be assessed under section 12 after allowing all the deductions available under that section. On these facts, the Tribunal stated the case and raised the above question in this reference under section 66(1) of the Indian Income-tax Act, 1922.

    5. Section 12(4) of the Income-tax Act, 1922, reads as follows:

    “Where an assessee lets on hire machinery, plant or furniture belonging to him and also buildings, and the letting of the buildings is inseparable from the letting of the said machinery, plant or furniture, he shall be entitled to allowances in accordance with the provisions of clauses (iv), (v), (vi) and (vii) of sub-section (2) of section 10 in respect of such buildings.”

    6. The word “inseparable” is used in the above section. The Tribunal has found on the facts of this case and on the reading of the lease that in the instant reference the letting of the fixtures, plant and machinery in this case was inseparable from the letting of the building within the meaning of this statutory provision.

    7. Section 12(4) of the Income-tax Act, 1922, was introduced by the Indian Income-tax (Amendment) Act, 1941 (23 of 1941). Prior to that section 12(3) of the Income-tax Act, 1922, was introduced by the Indian Income-tax (Amendment) Act, 1939 (7 of 1939), and which reads as follows:

    “Where an assessee lets on hire machinery, plant or furniture belonging to him, he shall be entitled to allowances in accordance with the provisions of clauses (iv), (v), (vi) and (vii) of sub-section (2) of section 10.”

    8. The reason for setting out both sub-sections (3) and (4) of section 12 is to show the sequence and the juxtaposition which will have a bearing on the interpretation.

    9. Two obvious and major questions arise in this reference. The first is about the inseparability and the meaning to be given to the word “inseparable” in section 12(4) of the Indian Income-tax Act, 1922. The other is: What is the meaning and connotation of the expression “machinery, plant or furniture” appearing in section 12(4) of the Act.

    10. On a consideration of the facts and circumstances of the case, we are satisfied that in the instant reference the letting of the building is inseparable from the letting of the machinery, plant or furniture. The Tribunal has given certain reasons. We shall add our own to them to show why we consider that the letting of the building and the letting of the machinery, plant or furniture are inseparable in this case.

    11. An analysis of the lease clearly shows certain dominant features. In the first place, clause 1 of the lease deals with the lease as a whole and divides it into sub-clauses (a) and (b), sub-clause (a) relating to the building and its rent, and sub-clause (b) relating to what is described as “the fixtures, fittings and air-conditioning plants”. The idea is to treat them both as coming under clause 1 although separate rents are allocated for building and for fixtures, etc. Secondly, sub-clause (c) of clause 1 of the lease expressly describes the houses and the fixtures, fittings and air-conditioning plants collectively as “the demised premises”. From this, it follows that the letting of the building and the fixtures or fittings or plants are regarded as one, indivisible and inseparable. Thirdly, the term of the lease is for 16 years from the 1st day of April, 1956, for both the lettings and the fixtures, etc. This also shows that the two lettings of the buildings and the fixtures, etc., are regarded as indivisible and inseparable, so that one can terminate and the other can continue. Fourthly, the rent for either, viz., for (1) the building, and (2) fixtures, fittings and the air-conditioning plants, are payable at the same time with no difference. That fact also indicates that these two lettings are treated as one and inseparable. Lastly, there are no separate leases for these two lettings but one lease for each of the 39 tenants who are held jointly and severally liable by clause 2 of the lease indicating that it is one and inseparable letting. We have, therefore, no hesitation in holding that, in the facts and circumstances of this reference and on the express terms and conditions of the lease, the letting of the building and the letting of the fixtures, fittings and air-conditioning plants are “inseparable” within the meaning of that word used in section 12(4) of the Indian Income-tax Act, 1922.

    12. Dr. Pal for the assessee then drew a distinction between the expression “machinery, plant or furniture” used in section 12(4) of the Indian Income-tax Act, 1922, and the expression “fixtures, fittings and air-conditioning plants” used in the lease. The point of his submission was that these two expressions did not mean the same thing. In support of this argument, he drew our attention to the 3rd schedule of the lease which describes the property list under the following broad classifications:

    “1. Air-conditioners: portables.

    2. Air-conditioners: fixed plants.

    3. Tubewells, pumps, motors and tanks.

    4. Lift.

    5. Lights and fans.

    6. Refrigerators and kitchen equipment including frigidaires, coolers and cookers.”

    13. Both Dr. Pal for the assessee and Mr. Sen for the revenue contended that they were not the same as the expression “machinery, plant or furniture”, although, naturally, for different reasons. The reason of Mr. Sen for the revenue was to take it out from section 12 altogether and place it under section 9 in seeking to make this difference and suggesting that these kinds of plants are really a part of the building itself to be taken along with bricks and mortars. The reason for Dr. Pal making the distinction was to suggest that it was a distinction without a difference, for his main contention was that the expression “machinery, plant or furniture” under section 12(4) of the Act meant, for all practical purposes, the same thing as “the fixtures, fittings and air-conditioning plants” used in the context of the lease in this reference.

    14. Be that as it may, the conclusion is irresistible. Having regard to the definitions and decisions on this branch we find it difficult to hold that the air-conditioning plant is not a plant or machinery or that the tube-wells, pumps, motors and tanks are not machinery in this case or that frigidaires are not machinery. Reference may be made to the Supreme Court decision in Commissioner Of Income Tax, Madras v. Mir Mohammad Ali . At pages 171 and 172 of the report, Sikri J., delivering the judgment of the Supreme Court, points out “the definition of the word ‘plant’ in section 10(5) of the Indian Income-tax Act, 1922, does not throw any light on the meaning of the word ‘machinery’ and that the word ‘plant’ is of wide import.” The Supreme Court then proceeds to notice the Privy Council decision in Corporation of Calcutta v. Chairman of Cossipore & Chitpur Municipality, where the Privy Council said:

    “The word, ‘machinery’ when used in ordinary language prima facie means some mechanical contrivances which, by themselves or in combination with one or more other mechanical contrivances, by the combined movement and inter-dependent operation of their respective parts generate power, or evoke, modify, apply or direct natural forces with the object in each case of effecting so definite and specific a result.”

    15. The Supreme Court, after noticing this definition, observed2:

    “The Privy Council case was not a tax case but, prima facie, the ordinary meaning of the word ‘machinery’—and the word ‘machinery’ is an ordinary and not a technical word—must, unless there is something in the context, prevail in the Indian Income-tax Act also.”

    16. We, therefore, both on the facts and on the authority as discussed above, hold that although the lease uses the expression “fixtures, fittings and air-conditioning plants” they include items which are obviously plant and machinery within the meaning of section 12(4) of the Indian Income-tax Act, 1922.

    17. The controversy then began about the applicability of section 9 or section 12 of the Income-tax Act on this point. The revenue contends that this is an income from property and should come under section 9 of the Indian Income-tax Act. The assessee contends that it should come under section 12 of the Indian Income-tax Act relating to “other sources”. This competition between section 9 and section 12 is quite a complex problem in this branch of the law. The simple argument for the revenue is that this property is 8, Clive Row, and the income is an income of rent from this property. Therefore, section 9 of the Indian Income-tax Act dealing with “property” is the most appropriate section under which this matter should be decided. The assessee, on the other hand, contends that the appropriate section is section 12 which deals with “other sources”.

    18. Section 6 of the Indian Income-tax Act, 1922, gives the different heads of income chargeable to income-tax as, (1) salaries, (2) interest on securities, (3) income from property, (4) profits and gains of business, profession or vocation, (5) income from other sources and (6) capital gains.

    19. The first question that arises in this connection is whether property under section 6(iii) of the Indian Income-tax Act, 1922, read with section 9 thereof means property of any kind including not only lands and buildings but also plant, machinery or furniture. If that were so, there would be good deal of force in the contention for the revenue in this case. But we have come to the conclusion that the contention of the revenue is not sound on this point. A scrutiny of section 9 of the Indian Income-tax Act, 1922, shows that, although its marginal headnote is “property”, it speaks only of lands and buildings and nothing else. The whole scheme of section 9 relates to lands and buildings. They do not use words like “machinery, plant or furniture” or any similar or quasi-similar expression to be included in property under section 9 of the Indian Income-tax Act, 1922. Proceeding to the next section, section 10 of the Indian Income-tax Act, 1922, one finds that it deals with business and there it not only speaks of lands and buildings but also of machinery and plant. So, machinery and plant could be a consideration under section 10 of the Indian Income-tax Act when the profits and gains of business, profession or vocation are concerned. But we are not concerned with section 10 and there is no computation under section 10 in the instant reference. That has been nobody's case, either by the revenue or the assessee, on this point. This fact should be borne in mind in the instant reference in order to distinguish it from a possible confusion. Then when one comes to section 12 of the Indian Income-tax Act, 1922, the significant, relevant and decisive words for interpretation on this point are “other sources”, “income, profits and gains of every kind” and “if not included under any of the preceding heads”. Section 10 of the Income-tax Act, 1922, being out of the way in this reference, it follows that section 9 cannot be attracted to the facts of the case because it only speaks of lands and buildings. Therefore, it follows also that this is an “income, profits and gains….” which is “not included under any of the preceding heads” within the meaning of those expressions used in section 12 of the Act. In other words, our conclusion is that rent or hire for letting out or hiring machinery, plant or furniture can only be put under section 12 of the Act, on the ground that it is not covered by section 9 so far as this case is concerned which is confined to only land and buildings. This, in our view, is supported by the express words used in section 12(4) of the Act such as (1) assessee lets on hire, (2) machinery, plant or furniture, (3) buildings, and (4) the letting of the building inseparable from the letting of the machinery. When these tests are applicable, section 12(4) of the Act says that the assessee will be entitled to allowances “in accordance with sections 10(2)(iv), (v), (vi) and (vii)”. Therefore, section 12(4) of the Act includes letting on hire machinery, plant or furniture combined with letting of building and where the two lettings are inseparable. Such an income cannot come under section 9 of the Indian Income-tax Act, 1922, but can only come under the residuary clause of section 12 not only impliedly but expressly by the language of the statute as indicated above. To enforce this conclusion, we shall now emphasize the juxtaposition of sub-section (4) immediately after sub-section (3) in section 12. Section 12(3), which came earlier, for the first time introduced the consideration of the case where machinery, plant or furniture is let on hire and provided that the allowance should be “in accordance with the provisions of clauses (iv), (v), (vi) and (vii) of subsection (2) of section 10” which is the familiar ring to be repeated a few years later in the legislative history in sub-section (4). After the introduction of section 12(3) in 1939, it was found that the letting of machinery, plant or furniture did not stand alone but went along with the letting of building and, therefore, this amendment was introduced in 1944 to provide for the case where there was inseparable letting, combining the letting of machinery, plant or furniture and the building. In such a case, there is no further scope left to separate again section 9 from section 12 and say that the income from hire for machinery or the rent for the machinery should be taxed under section 12 whereas rent from the building should be taxed under section 9 of the Act. That would negative the whole concept of inseparable letting of the building and the machinery, plant or furniture for which express provision was made by section 12(4) of the Indian Income-tax Act, 1922.

    20. Here, it is necessary to notice the Supreme Court decision in Sultan Bros. (Private) Ltd. v. Commissioner of Income-tax, to which reference has already been made. At page 358, the learned judge, delivering the judgment of the Supreme Court, observed:

    “Whether a particular letting is business has to be decided in the circumstances of each case. We do not think that the cases cited lay down a test for deciding when a letting amounts to a business. We think each case has to be looked at from a businessman's point of view to find out whether the letting was the doing of a business or the exploitation of his property by an owner. We do not further think that a thing can by its very nature be a commercial asset. A commercial asset is only an asset used in a business and nothing else, and business may be carried on with practically all things. Therefore, it is not possible to say that a particular activity is business because it is concerned with an asset with which trade is commonly carried on.”

    21. There in that case the question was also involved whether section 10 relating to business had any applicability, and, therefore, there was this discussion whether the letting was a part of the business itself or not and what was being used was a commercial asset from that point of view. No such question, however, arises in the instant reference before us and there is no argument to suggest that section 10 has at all any application to this case. As the Supreme Court observes at pages 359-60 of that report that the assessee never carried on any business of a hotel in the premises let out in that case. Nor was there anything to show in that case that it intended to carry on a hotel business itself in the same building and, therefore, the income under the lease in the Supreme Court case could not be assessed under section 10 of the Act as the income of that business. Having disposed of this argument on section 10 of the Indian Income-tax Act, 1922, the Supreme Court proceeded to the discussion of the next point which is relevant for the purposes of deciding the instant reference before us. At page 361 of that report, the Supreme Court observed:

    “The only dispute that then remains is whether the building is to be assessed under section 9 which of course will have to be on the basis of its annual value or whether the rent from the building has to be assessed under section 12 after the allowances mentioned in sub-section (4) have been deducted.”

    22. That exactly is the point before us. At page 362, the Supreme Court lays down the following principle:

    “Under sub-section (4) of section 12 the assessee becomes entitled among others to an allowance in accordance with section 10(2)(vi) which is on account of depreciation of the building ‘being the property of the assessee’ from which it follows that sub-section (4) of section 12 contemplates the letting of the building by the owner. sub-section (4) of section 12 must therefore be applicable when machinery, plant or furniture are inseparably let along with the building by the owner. If sub-section (4) of section 12 is to have any effect—and it is the duty of the court so to construe every part of a statute that it has effect—it must be held that the income arising from the letting of a building in the circumstances mentioned in it is an income coming within the residuary head. If a person cannot be assessed under section 12 in respect of the rent of a building owned by him, sub-section (4) will become redundant; there will be no case in which the allowances mentioned by it can be granted in computing the actual income from a building. An interpretation producing such a result is not natural: We must therefore hold that when a building and plant, machinery or furniture are inseparably let, the Act contemplates the rent from the building as a residuary head of income.”

    23. See also the observations of the Supreme Court on this point at page 363 of the report. On the subject of the inseparability mentioned in section 12(4) of the Indian Income-tax Act, 1922, the Supreme Court, at page 363, observed:

    “It seems to us that the inseparability referred to in sub-section (4) is an inseparability arising from the intention of the parties.”

    24. It will therefore be seen from these observations of the Supreme Court that the two essential points relevant for the purposes of deciding the instant reference before us are: (1) intention is the test of inseparability, and (2) that rent from building let out along with the machinery is a residuary head of income. Applying the ratio of the Supreme Court decisions we are bound to hold that, in the facts and circumstances of the reference before us, the entire rental income from premises No. 8, dive Row, must be assessed under section 12(4) of that Act.

    25. Mr. Sen, appearing for the revenue, submitted that this decision of the Supreme Court has not really been followed in a subsequent case called Nalinikant Ambalal Modi v. Commissioner of Income-tax, where he said that the majority judgment did not refer to this decision at all but the minority judgment did. The majority judgment was delivered by the same learned judge who delivered the judgment in Sultan Brothers case quoted above. Reading the judgment in Nalinikant Ambalal's case we do not think that Mr. Sen's submission is correct and we do not find that the subsequent Supreme Court decision either expressly or impliedly was against the previous Supreme Court decision.

    26. For these reasons, we are of the opinion that the Tribunal was right in holding that the entire rental income from premises No. 8, Clive Row, Calcutta, should be assessed under section 12 of the Indian Income-tax Act, 1922, and answer the question in the affirmative and in favour of the assessee.

    27. There will be no order as to costs.

    T.K Basu, J.:— I agree.

    Income-tax Reference No. 130 of 1967.

    P.B Mukharji, A.C.J:— The facts of this reference would be found in the judgment just delivered by us in Income-tax Reference No. 102 of 1967. The question raised in this reference is as follows:

    “Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the enhanced municipal taxes of Rs. 25,803 for the earlier years in respect of premises No. 8, Clive Row, Calcutta, demanded by the municipality and debited by the assessee during the relevant previous year was not deductible in computing the assessee's income under section 9 of the Indian Income-tax Act, 1922, for the assessment year 1961–62?”

    28. In view of our decision in Income-tax Reference No. 102 of 1967, holding that section 12 applies to the facts of this case, no question arises about the applicability of section 9 of the Income-tax Act. The question asked, therefore, does not arise. In other words, to record a formal answer to this question would be that we hold that section 12 of the Indian Income-tax Act applies to the facts and circumstances of the case and not section 9 thereof. We answer the question accordingly.

    29. There will be no order as to costs.

    T.K Basu, J.:— I agree.

    Income-tax Reference No. 132 of 1967.

    P.B Mukharji, A.C.J:— This Reference No. 132 of 1967 is the third in the series of references in two of which, viz., I.T Ref. No. 102 of 1967 and I.T Ref. No. 130 of 1967, we have just delivered judgment. Again, the parties are the same. This reference under section 66(1) of the Indian Income-tax Act, 1922, raises the following two questions:

    “(1) Whether, on the facts and in the circumstances of the case and having regard to the fact that the Tribunal had held that the income from No. 8, Clive Row, was to be assessed under section 12 of the Indian Income-tax Act, 1922, the arrear municipal taxes in respect of that property amounting to Rs. 25,803 were allowable as a deduction under that section?

    (2) Whether, on the facts and in the circumstances of the case, the “Tribunal was right in holding that the sum of Rs. 32,290 had been rightly assessed under section 9 as the rental income from premises No. 62, Hazra Road, even for the period subsequent to the 8th January, 1960?”

    30. The first question relates to 8, Clive Row, whose facts have already been stated in our judgment in Income-tax Ref. No. 102 of 1967. Dr. Pal appearing for the assessee did not press this question because the Tribunal did not decide this point. The relevant observation of the Tribunal on the point is as follows:

    “…. In view of this conclusion, we must direct that the income from premises No. 8, Clive Row, should be assessed under section 12, after allowing all the deductions available under that sub-section.”

    31. Therefore, the Tribunal did not decide the point raised in question No. 1 but left it open. We, accordingly, do not answer this question.

    32. Question No. 2 raises certain facts which are special to this reference and relates to premises No. 62, Hazra Road. We think that so far as 62, Hazra Road, is concerned and having regard to the facts and circumstances relating to this premises and having regard to the decision of the Division Bench in Income-tax Ref. No. 68 of 1965 in Commissioner of Income-tax v. Ganga Properties Ltd. delivered on 23rd July, 1969 (as yet unreported) we must answer question No. 2 in the affirmative, in favour of the revenue and against the assessee and hold that the Tribunal was right in holding that the sum of Rs. 32,290 was rightly assessed under section 9 of the Indian Income-tax Act, 1922. We need only add that the recitals and covenants in the relevant deeds of conveyance show that the owner was possessed of the premises at the relevant time when these conveyances were being executed and thus contradicting the whole foundation of the case on facts raised by the assessee that possession had already been given in part-performance of the agreement for sale. In that view of the matter, the affirmative answer to question No. 2 is further enforced.

    33. We are, however, not to be understood as determining the point of interpretation of the word “owner” appearing in section 9 of the Indian Income-tax Act, 1922. We are not expressing any opinion whether “owner” in that context means an absolute owner or a limited owner or any qualified owner. In an appropriate case on appropriate facts, this question may have to be determined because the word “owner” in the case of property under section 9 of the Indian Income-tax Act, 1922, may have real property connotations. For instance, a lessor may be the owner of the property for the right of reversion but at the same time the lessee may be the owner of the leasehold rights. Similarly, the mortgagor may be the owner of the right of redemption in the property but the mortgagee in possession may be equally the owner of his rights as a mortgagee which are also real property. No doubt, in that event, the annual value of the property would depend on each case what that property is, viz., in the case of lessor the annual value of his right of reversion. In the unreported Division Bench judgment in I.T Ref. No. 68 of 1965 in Commissioner of Income-tax v. Ganga Properties Ltd. or in any other case on this point, there is no discussion about this aspect of the point involved under section 9 of the Income-tax Act, 1922. But, a decision on that point must await for proper facts. We do not express any opinion on that point. No order as to costs.

    T.K Basu, J.:— I agree.

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