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Commissioner Of Income-Tax. West Bengal-Iv v. Kanaiyalal Nimani And Others.
Factual and Procedural Background
The reference under s. 256(2) of the Income-tax Act, 1961, was made by the revenue in respect of assessment year 1962-63. The assessee leased premises No. 1, Strand Road, Howrah (7 bighas) under a registered lease dated 8 March 1939, erected numerous stalls thereon forming a market known as "Mangla Hat" and derived rental income from those stalls. The ITO assessed the income under the head "Other sources". On appeal the AAC confirmed the assessment subject to modifications. The Tribunal reversed, finding the stalls to be buildings and the income assessable under sections 22 to 27 of the Act. The Commissioner referred two questions to the court challenging the Tribunal's findings and conclusions.
Legal Issues Presented
- Whether, on the facts and in the circumstances of the case, and on a proper construction of the deed of lease dated 8th March, 1939, the finding of the Tribunal that the stalls in 'Mangla Hat' are 'buildings' within the meaning of section 22 of the Income-tax Act, 1961, is unreasonable or perverse?
- Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the rental income from the stalls in 'Mangla Hat' was assessable as income from house property under sections 22 to 27 of the Income-tax Act, 1961, and not as income from other sources under s. 56 of the said Act?
Arguments of the Parties
Revenue (Mr. B.L. Pal)
- Contended the stalls are not "buildings" within the meaning of s. 22 of the Act.
- Relied on the marginal heading of s. 22 and the decision in Rome and Co. v. Secretary of State, AIR 1921 Low Bur 30, to argue s. 8 of the Indian I.T. Act, 1918 (as then), dealt with house property used for residential purposes and excluded business premises such as shops, offices and godowns.
- Also relied on S.G Mercantile Corpn. (P) Ltd. v. Cit, Calcutta, [1972] 83 ITR 700 (SC), but the court treated that reliance as misplaced because of differing facts.
Assessee (Mr. Sukumar Mitra)
- Argued (as recorded) that two conceivable views were possible regarding whether the stalls are buildings, implying the Tribunal's finding was not perverse.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Rome and Co. v. Secretary of State, AIR 1921 Low Bur 30 | Held that s. 8 of the Indian I.T. Act, 1918 (as then), dealt with house property used for residential purposes and did not deal with businesses such as shops, offices and godowns. | The court noted this authority but rejected its applicability here, observing that later decisions (notably East India Housing) altered the position such that Rowe/Rome could no longer be followed for the present facts. |
| East India Housing and Land Development Trust Ltd. v. CIT, [1961] 42 ITR 49 | Holds that markets (shops/stalls) may be buildings and income derived therefrom by the owner is assessable under the head "Income from house property". | The court relied on this Supreme Court decision to uphold the Tribunal's conclusion that the stalls are buildings and that the rental income is assessable under sections 22 to 27, not under s. 56. |
| S.G Mercantile Corpn. (P) Ltd. v. Cit, Calcutta, [1972] 83 ITR 700 (SC) | Decided on facts where the assessee-company was not the owner of the buildings. | The court held reliance on this decision by the revenue was misplaced because it concerned different facts (non-ownership), whereas in the present case the assessee was found to be the owner during the lease period. |
Court's Reasoning and Analysis
The court observed that the terms "building" and "house property" are undefined in the Income-tax Acts and should be given their ordinary dictionary meaning. Sections 22 to 27 are silent as to the purpose for which a building or house property must be used; hence the provision is not confined to residential use. The court reviewed the Tribunal's factual findings: the stalls are permanently affixed to the ground, not temporary or movable box-type shops, were erected long ago, are used by stallholders for selling and storing goods, are erected on cement plinths with wooden walls and corrugated iron roofs, were assessed for municipal rates as buildings on their annual letting value, and the deed of lease permits erection of buildings and additions with lessor's consent and municipal permission. The court found nothing in the deed to suggest the stalls are not buildings and held that, on these facts, the Tribunal's finding that the stalls are "buildings" within s. 22 was not perverse. Applying the Supreme Court's decision in East India Housing and Land Development Trust Ltd., the court concluded the rental income is assessable under sections 22 to 27 rather than under s. 56.
Holding and Implications
Holding: Question No. 1 answered in the negative; Question No. 2 answered in the affirmative — both in favour of the assessee.
Implications: The Tribunal's finding that the stalls are "buildings" and its conclusion that the rental income is assessable under sections 22 to 27 (income from house property) are upheld; the income is not assessable under s. 56 (other sources). The court made no order as to costs and expressly recorded no opinion on the assessee counsel's submission that two conceivable views existed regarding the Tribunal's finding. No broader implications were discussed.
Sudhindra Mohan Guha, J.:— This reference under s. 256(2) of the I.T Act, 1961, at the instance of the revenue relates to the assessment year 1962-63, the relevant accounting year being 2018 R.N
2. The assessee is a lessee of premises No. 1, Strand Road, Howrah, measuring 7 bighas of land with a building thereon for 50 years, under a registered deed of lease dated March 8, 1939. The assessee erected many stalls in the demised premises and set up a market therein commonly known as “Mangla Hat”. The assessee claimed before the ITO that the income derived from these stalls should be assessed under ss. 22 to 27 of the I.T Act, 1961, but the ITO rejected the contention and assessed the income under the head “Other sources”.
3. On appeal by the assessee, the AAC confirmed the order of assessment subject to certain modifications. The assessee preferred a further appeal to the Tribunal. The Tribunal found that these stalls were not either ramshackle in nature or temporary sheds as argued by the department. The Tribunal found that these stalls were built to last for a number of years and were almost permanent in nature and were erected on cement plinths with wooden walls and corrugated iron roofs. The Tribunal also found that these stalls were used by the stallholders for selling their goods and also for the purpose of storing their goods. The Tribunal further found that under the deed of lease the assessee was entitled to erect buildings and was also entitled to make additions to the existing buildings with the consent of the lessor and with the permission of the municipality. The Tribunal also found that these stalls were assessed to municipal rates and taxes as buildings on their annual letting value. The Tribunal further considered the relevant provisions of the deed of lease and held that these stalls were buildings and the assessee was the owner of these stalls during the period of the lease. The Tribunal further held that the income derived from these stalls is assessable under ss. 22 to 27 of the Act and allowed the appeal.
4. Therefore, at the instance of the Commissioner, the following questions were called for by the court
“(1) Whether, on the facts and in the circumstances of the case, and on a proper construction of the deed of lease dated 8th March, 1939, the finding of the Tribunal that the stalls in ‘Mangla Hat’ are ‘buildings’ within the meaning of section 22 of the Income-tax Act, 1961, is unreasonable or perverse?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the rental income from the stalls in ‘Mangla Hat’ was assessable as income from house property under sections 22 to 27 of the Income-tax Act, 1961, and not as income from other sources under s. 56 of the said Act?”
5. Mr. B.L Pal, learned counsel for the revenue, argues before us that these stalls are not “buildings” within the meaning of that word used in s. 22 of the Act. In support of this contention, he places reliance on the “marginal heading” of s. 22 and argues that the word “building” has been used in the sense of a “house property” which should be used for residential purpose in view of the decision in the case of Rome and Co. v. Secretary of State, AIR 1921 Low Bur 30, in which it has been held that s. 8 of the Indian I.T Act, 1918, as it then stood, deals with the house property which is used for residential purposes and does not deal with business such as shops, offices and godowns. Mr. Pal, therefore, submits that these stalls are not buildings and accordingly both the questions should be answered in favour of the revenue.
6. Though the words “buildings” and “house property” have not been defined in the I.T Acts, they should be understood, in our opinion, in the same sense as in their ordinary dictionary meaning.
7. Sections 22 to 27 of the Act are wholly silent as to the purpose for which a building or a house property is to be used. Therefore, we are not impressed by the argument of Mr. Pal that the scope of this section is wholly confined to a building or a house property which is used in a market (sic) are buildings and income derived from them by the owner is assessable under the head “Income from house property” as held in East India Housing and Land Development Trust Ltd. v. CIT, [1961] 42 ITR 49 by the Supreme Court and, therefore, the case of Rowe and Co., AIR 1921 Low Bur 30 can no longer be followed.
8. Reliance on the case of S.G Mercantile Corpn. (P) Ltd. v. Cit, Calcutta, [1972] 83 ITR 700 (SC), was misplaced by Mr. Pal, for it was decided on different facts, namely, that the assessee-company was not the owner of the buildings, whereas in East India Housing and Land Development Trust Ltd.'s case, [1961] 42 ITR 49 (SC), the assessee-company was the owner of the shops and stalls.
9. We may now briefly state the relevant facts found by the Tribunal. These stalls are permanently affixed to the ground. They are not box type shops erected temporarily, nor they are capable of being shifted from place to place. They were erected long ago. The stallholders are using them for selling their merchandise and they can also use these stalls for storing their goods.
10. The assessee is the owner of these stalls during the period of this long lease. Further, there is nothing in the deed of lease even to suggest that these stalls are not buildings. Therefore, and in view of the aforesaid facts found by the Tribunal, the conclusion reached by it that these stalls are “buildings” within the meaning of s. 22 of the Act cannot be regarded as perverse. Similarly, it should be held that the Tribunal was right in holding that the rental income from these stalls is assessable under ss. 22 to 27 and not under s. 56 of the Act in view of the decision of the Supreme Court in East India Housing and Land Development Trust Ltd., [1961] 42 ITR 49 (SC).
11. We, accordingly, answer question No. 1 in the negative and question No. 2 in the affirmative and both in favour of the assessee.
12. We propose to make no order as to costs. Let it now be recorded here that we express no opinion on the argument of Mr. Sukumar Mitra, learned counsel for the assessee, that two conceivable views are possible regarding the finding of the Tribunal on the question whether these stalls are buildings and, therefore, it cannot be said that the aforesaid finding of the Tribunal is perverse.
Deb, J.:— I agree.
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