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Indian City Properties Ltd. v. Commissioner Of Income-Tax, West Bengal-I
High Court Reference Summary — Sankar Prasad Mitra, C.J.
Factual and Procedural Background
The matter is a reference under section 256(1) of the Income-tax Act, 1961. The assessee is a limited company. The assessment year in dispute is 1963-64 and the relevant accounting period is the calendar year 1962. The assessee owned lands and buildings situated at Bombay, Delhi and Calcutta and derived income from letting those properties (rent from house properties), dealings in land and other sources including dividends.
The Income-tax Officer assessed the income from letting out the buildings under section 22 (income from house property) and included items described in the assessment order as (1) gross rental; (2) lift charges received; and (3) air-conditioning charges received. Deductions for certain expenses (electric charges, lift upkeep, water charges, air-conditioning charges and other deductions) were allowed to reach taxable income.
The assessee appealed, arguing (1) that the income should be assessed under section 28 (profits and gains of business) so that depreciation and business expenses would be allowable; (2) alternatively that the income should be assessed under section 56 (income from other sources) after allowing expenses under section 57; and (3) alternatively that at least the air-conditioning and lift charges should be assessed under section 56. The Appellate Assistant Commissioner and thereafter the Tribunal held that the income was properly assessable under section 22. The reference to the High Court raised two framed questions about the correct head of income.
Legal Issues Presented
- Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the income derived from letting out of the building is properly to be computed under section 22 and not under section 28 or under section 56 of the Income-tax Act, 1961?
- Whether, on the facts and in the circumstances of the case, the lift charges and the air-conditioning charges should be separately assessed under section 56 of the Income-tax Act, 1961?
Arguments of the Parties
Assessee's Arguments
- The letting of the properties constituted a business (income assessable under section 28), which would entitle the assessee to claim depreciation on buildings and fixtures (air-conditioners, lifts, electrical equipment) and other business expenses allowable under section 28.
- Alternatively, the assessee contended that the receipts should be treated as “income from other sources” under section 56 after allowing relevant expenses under section 57.
- As a further alternative, the assessee argued that the air-conditioning and lift receipts at least should be assessed separately under section 56.
Revenue / Assessing Authority Position
- The Income-tax Officer assessed the income from letting under section 22 (income from house property), treating the receipts (gross rent, lift charges, air-conditioning charges) together as house property income for assessment purposes.
- The Appellate Assistant Commissioner sustained the Income-tax Officer's treatment and held that the whole income arising from ownership of the property was assessable under section 22.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Dr. P.A. Varghese v. Commissioner of Income-tax, [1971] 80 ITR 180 (Ker) | Interpreted section 56(2)(iii): amenities provided with a building (partitions, lavatories, limited air-conditioning, tube fittings, separate meters, water supply, lift) do not amount to letting of machinery, plant or furniture; the subsection presupposes two lettings and applies only if letting of machinery/plant/furniture is inseparable from letting of the building. | The court relied on the Kerala High Court's view that provision of amenities does not convert a letting into one that falls under section 56(2)(iii). That authority supports treating the letting as income from house property (section 22) where machinery/plant/furniture are not let separately or inseparably. |
| Karnani Properties Ltd. v. Commissioner of Income Tax, West Bengal, [1971] 82 ITR 547 (SC) | Where a question referred to the High Court is framed “on the facts and in the circumstances of the case”, the High Court must accept the facts and circumstances found by the Tribunal and cannot reappraise evidence or go behind Tribunal's factual findings absent vitiating circumstances. | The court invoked this principle to treat the Tribunal's factual findings (that there was no letting of air-conditioning plant or lift and that the letting was of the building) as binding for the purpose of deciding the reference, thereby limiting the High Court's role to legal analysis applied to those findings. |
Court's Reasoning and Analysis
The court began by identifying the statutory text relevant to the contested classification: section 56(1) and, in particular, section 56(2)(iii) of the Income-tax Act, 1961. Section 56(2)(iii) was read as contemplating two distinct lettings — (1) letting of machinery, plant or furniture and (2) letting of the building — and applying to income from such letting only when the two lettings are inseparable (the example of a cinema house was noted as an instance where the letting of building and plant would be inseparable).
Applying that statutory structure, the court considered the Tribunal's factual findings. The Tribunal found (on the evidence before it) that the lease agreements were for leasing specified parts of the building and did not show a letting of the air-conditioning plant or the lift. The lessor agreed to install, operate and maintain air-conditioning equipment and a lift for use of tenants, but those items, the Tribunal found, were not let out as distinct machinery/plant to the tenant. The Tribunal observed that the rent bills and lease forms did not show separate amounts attributable to letting of the air-conditioning plant or the lift (only rent and some small hire items like fans might have been identifiable), and that the letting of any fans was not inseparable from the building letting.
The court applied the principle from Karnani Properties Ltd. to accept the Tribunal's findings of fact — because the reference was "on the facts and in the circumstances of the case" the High Court must not reappraise the evidence. The court also relied on the Kerala High Court decision in Dr. P.A. Varghese to reinforce the interpretive proposition that provision of amenities (including air-conditioning and lift services) as part of a building's occupation does not necessarily equate to letting machinery/plant or furniture on hire such that section 56(2)(iii) would apply.
On that combined basis — statutory reading of section 56(2)(iii), the Tribunal's factual findings that there was no separate letting of the lift or air-conditioning plant, and the Varghese authority — the court concluded that the principal receipts from letting the buildings were properly assessable as "income from house property" under section 22.
Separately, however, the court noted that the Income-tax Officer's assessment order had shown lift charges and air-conditioning charges as distinct items. The court, without recharacterising the primary letting, held that those separately shown lift and air-conditioning charges should be taxed as income from other sources under section 56. The opinion records this result but does not expand into a detailed doctrinal exposition as to the precise legal mechanism for taxing those specific charges under section 56 beyond the stated conclusions.
Holding and Implications
Core holdings:
Income derived from letting out of the building is to be assessed under section 22 of the Income-tax Act, 1961.
Income derived from lift charges and air-conditioning charges (as shown separately in the Income-tax Officer's assessment order) is to be assessed under section 56 of the Income-tax Act, 1961.
Direct consequences: the Tribunal's classification of the principal letting as income from house property (section 22) is affirmed; separately stated lift and air-conditioning receipts recorded in the assessment are to be treated as income from other sources (section 56). The court made no order as to costs.
The opinion applies established principles (notably the requirement that the High Court accept Tribunal-found facts on a reference "on the facts and in the circumstances of the case" and the interpretation of section 56(2)(iii) as requiring two lettings which must be inseparable) but does not purport to lay down a novel principle beyond these applications. No broader implications or new precedent-creating doctrine are discussed beyond the decision's direct effect on the parties.
Disposition: There will be no order as to costs. Deb, J. concurred.
Sankar Prasad Mitra, C.J:— This is a reference under section 256(1) of the Income-tax Act, 1961. The assessee is a limited company. The assessment year is 1963-64. The relevant accounting year is the calendar year 1962.
2. The assessee owns lands and buildings and derives income by way of rent from house properties, dealings in land, as well as income from other sources including dividend. The house properties were at Bombay, Delhi and Calcutta. One of me points of dispute is, whether the income derived from letting out of the buildings is to be computed under section 22 or 28 or 56 of the Income-tax Act, 1961, i.e, whether it should be taxed as income from house property or income from business or income from other sources. The Income-tax Officer has taxed the income as income from house property under Section 22.
3. In the Income-tax Officer's assessment order we find three items, viz., (1) Gross rental; (2) Lift charges received; and (3) Air-conditioning charges received. The total of the three is Rs. 11,17,679. Then the Income-tax Officer gives deductions in respect of (a) electric charges; (b) lift upkeep expenses; (c) water charges; and (d) air-conditioning charges. He has also allowed other deductions to arrive at the taxable income.
4. Before the Appellate Assistant Commissioner it was urged that the income from property should have been assessed under section 28, i.e, income from business, and not under section 22, i.e, income from house property and consequently depreciation on buildings and fixtures such as air-conditioners, lifts, electrical equipments, etc., and other expenses as allowable under section 28 should have been allowed. An alternative claim was that the entire income from house property should be assessed under section 56, i.e, income from other sources, after allowing all the expenses mentioned under section 57 of the Income-tax Act. A third alternative claim was that at least income from letting out of air-conditioner and lift should be assessed under section 56. The Appellate Assistant Commissioner held that the Income-tax Officer was justified in treating the entire income arising from ownership of the property as income assessable under section 22 of the Income-tax Act, 1961.
5. The Tribunal was of the opinion that the assessee's claim that the letting out of the property to tenants comprised business carried on by the assessee could not be accepted. The Tribunal then considered the assessee's claim that the income should be treated as “income from other sources” and taxed under section 56. The Tribunal has held that there was no income that could be assessed under the head “Income from other sources” under section 56. The Tribunal's view is that the assessee's income has to be taxed under section 22, that is, income from house property.
6. The following questions have been referred to us:
“(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the income derived from letting out of the building is properly to be computed under section 22 and not under section 28 or under section 56 of the Income-tax Act, 1961?
(2) Whether, on the facts and in the circumstances of the case, the lift charges and the air-conditioning charges should be separately assessed joinder section 56 of the Income-tax Act, 1961?”
7. Section 56 (that is, income from other sources) of the Income-tax Act, 1961, relevant for our purposes, is as follows:
“56.(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:……
(iii) 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, the income from such letting, if it is not chargeable to income-tax under the head ‘Profits and gains of business or profession’.”
8. It is indisputable that income from letting out of house property is assessable under section 22. Now, whether a particular income will be assessable under the head” Income from house property” or “Income from other sources” under section 56(2)(iii) would depend on the nature of the letting.
9. section 56(2)(iii) contemplates two several lettings, namely, (1) letting of the machinery, plant or furniture; and (2) letting of the building. If the two lettings are inseparable then only the income can be assessed under “Income from other sources”, as for example, a cinema house. But in a case of letting of a building providing to the tenants certain amenities like lift services and air-conditioning, there cannot be any question of letting of machinery, plant or furniture.
10. In this connection reference may be made to a judgment of the Kerala High Court in Dr. P.A Varghese v. Commissioner of Income-tax, [1971] 80 ITR 180 (Ker). The assessee in this case agreed to let out the second floor of a building for a rent of Rs. 2,350 per month agreeing to provide for partitions, necessary lavatories, closets, etc., air-conditioning for one room, one fluorescent tube fitting, separate electric meters, uninterrupted water supply and electric lift. The assessee contended that the above agreement evidenced a hire of machinery, plant and furniture along with the building and that the income’ received by him from the said transaction was, “Income from other sources” under section 56(2)(iii) of the Act.
11. The Kerala High Court held that there was no letting of the machinery, plant or furniture but only a letting of a building with certain amenities and section 56(2)(iii), therefore, was not applicable and the income from the letting was chargeable as “Income from house property” and not as “Income from other sources”. The Kerala High Court has pointed out that section 56(2)(iii) of the Income-tax Act, 1961, assumes that there are two lettings— a letting of the machinery, plant and furniture, and also a letting of the building. The question whether the two lettings formed part and parcel of the same transaction or the two lettings are inseparable so that the rent may be assessed as “Income from other sources”, arises only if there are two lettings.
12. Against the background of these legal principles, we have to analyse the facts of the instant reference as found by the Tribunal. At page 25 of the paper book in paragraph 8 the Tribunal has stated as follows:
“The first point for enquiry is, therefore, whether there was letting of machinery, plant or furniture on hire and if so whether such letting and the letting of the building were inseparable. The lease agreement, which was claimed to be a sample of the lease agreement with all the tenants, indicates that it was for the leasing or letting a specified part of the building and there was no lease or letting of the air-conditioning and cooling plant or the lift. The lessor or the assessee only undertook to instal, erect and fit up and operate and work an adequate and sufficient air-conditioning and cooling plant for air-conditioning and cooling the demised premises and to instal, fit up and maintain and operate one lift in the said building for the purposes of ingress to and egress from the demised premises. Neither the air-conditioning plant and equipment nor the lift had been let out to the tenant. There was, of course, a condition in the lease for installing, fixing and fitting in some ceiling fans with switches and regulators for the use of the lessee and these may be considered to have been let out to the tenants along with the portion of the building. The copy of the rent bill…… which was claimed to be a sample of rent bills made out for all the tenants, shows that the charges were for rent, for air-conditioning surcharge, for proportionate electric energy and water charges on account of air-conditioning, for filtered water charges, for hire charges of fans and other fittings, for lift charges and for house tax. The particular bill, however, showed only one charge, that is, for rent only. The bill form shows that rent as such was chargeable for the premises and also fans and other fittings and so the hire was for part of the buildings and for fans, etc., if any, and not for hire of air-conditioning plant or the lift. The assessee could not place before us particulars to show how much was collected by way of rent for hire of fans…… There was no intention to make the letting of the building and the fans practically one letting and the building might be let out without letting out the fans which might be procured by the tenants otherwise, if desired.”
13. The assessee made an application to the Tribunal on the 13th September, 1971, to rectify some ‘aspects of the aforesaid portion of the Tribunal's order. The Tribunal has rejected that application by an order dated the 10th November, 1971. In this order of rejection paragraphs 2, 3 and 5 are relevant for our purposes. These paragraphs run thus:
Paragraph 2:
“In paragraph 8 of the order the Tribunal observed that the copy of the rent bill…… was claimed to be a sample of rent bills made out for all the tenants and showed the different items of the charges made. The particular bill, however, was found to show only one charge, that is, for rent only. It is submitted at the hearing of the miscellaneous application that that was only a specimen copy relating to the year 1955 while the year under consideration was the year 1962 and the facts were different. Attention is drawn to page 259 of the paper book wherein the lease agreement is reproduced and it is pointed out that there was a surcharge provided for in respect of the air-conditioning plant at the rate of Rs. 10 per sq. ft. per month. Further, referring to page 255 of the paper book it is pointed out that there was a statement showing the total realisations under air-conditioning charge, lift charges and electric charges and water charges for the years 1956, 1957 and 1958 in respect of the Delhi buildings. It was stated that a similar statement for the year under appeal had been kept ready on similar lines showing the different charges up to the assessment year 1963-64. Although it is conceded that such statement had not been placed before the Tribunal at the hearing, it is contended that if the Tribunal were not satisfied that page 255 of the paper book explained the assessee's case for the assessment year 1963-64, then the same could be immediately placed before the Tribunal if so desired.”
Paragraph 3:
“In particular it is submitted that the Tribunal erred in making the remark that ‘no details were placed to show that air-conditioning charges, lift charges, etc., were realised separately’.”
Paragraph 5:
“There is no remark anywhere in the order that ‘no details were placed to show that air-conditioning charges, lift charges, etc., were realised separately It was the assessee who pointed out at the hearing the copy of the rent bill at page 268 of the paper book claiming it to be a sample of rent bills made out for all the tenants. The Tribunal took note of the different items for which charges were provided for in the bill. Incidentally it was observed that the particular bill-showed only one charge, that is, for rent only. From the bill the Tribunal found that the rent as such was chargeable for the premises and also fans and other fittings. The Tribunal held that the hire was for part of the buildings and for fans, etc., if any, and not for hire of air-conditioning plant or the lift. In regard to hire of fans, particulars to show how much was collected had not been placed by the assessee and even considering that there was realisation in this respect, the Tribunal held that the letting of fans could not be held to be inseparable from the letting of the building. In regard to the other items in the bill, it was seen that these included air-conditioning surcharge and lift charges and according to the Tribunal there was no hire of air-conditioning plant or the lift. The Tribunal's finding was that the air-conditioning plant and equipment and the lift had not been let out as such to the tenants. We see no mistake in our order which requires rectification.”
14. It is well-known that when the question referred to the High Court says: “On the facts and in the circumstances of the case”, it means the facts and circumstances found by the Tribunal and not facts and circumstances that may be found by the High Court on a reappraisal of the evidence. In the absence of a question whether the findings were vitiated for any reason “being before the High Court, the High Court has no jurisdiction to go behind or question the statements of fact made by the Tribunal: vide Karnani Properties Ltd. v. Commissioner Of Income Tax, West Bengal, [1971] 82 ITR 547 (SC).
15. From the facts found by the Tribunal in the instant case it is clear that there was a letting of the building. It may be argued that fans were separately let out. But there was no indication in the bill or in the deed of lease as to the rent payable in respect of fans. The Tribunal has found further that there was no letting either of the lift or of the air-conditioning plant. In these circumstances we are of opinion that the Tribunal is right in holding that the income derived from letting out of the building is to be assessed under section 22 of the Income-tax Act, 1961. We are, however, of opinion that the lift charges and the air-conditioning charges' which have been shown separately in the Income-tax Officer's assessment order should be taxed under section 56 of the Income-tax Act, 1961, that is, as income from other sources. We, therefore, answer the reframed questions as follows:
(1) Income derived from letting out of the building is to be assessed under section 22 of the Income-tax Act, 1961.
(2) Income derived from lift charges and air-conditioning charges are to be assessed under section 56 of the Income-tax Act, 1961.
16. There will be no order as to costs.
Deb, J.:— I agree.
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