Karnani Properties Ltd. v. Commissioner Qf Income Tax, West Bengal

Hegde, J. These appeals by certificate arise from the ·decision of the High Court of Calcutta in Income Tax Reference No. 20 of 1963 on its file. That was a Reference under s. 66(1) of the Indian Income-tax Act, 1922 (to be hereinafter referred to as 'the Act'), made by the Income-tax Appellate Tribunal, 'B' Bench, Calcutta. The question referred to the High Court for .its opinion reads thus :

. "Whether on the facts and in the circumstances of ·the case, the Tribunal was justified in holding that the services rendered to the tenants, by supplying electrical energy, hot and cold water and maintenance of lifts and other amenities, constituted a business activity of the

assessee and as such the income arising therefrom was assessable under section 10 of the Income-tax Act, 1922."

The High Court came to the conclusion that the income in question is income from property and as such is assessable under s. 9 of the Act; that being so, the same cannot be assessed under s. 10. In the result it answered the question in the negative and in favour of the Department.

The assessment years with which we are concerned in these appeals are 1956-57 and 1957-58, the corresponding accounting periods being the calendar years 1955 and 1956.

The facts as set out in the Statement of the case submitted by the Tribunal are as follows :

The assessee company owned house properties, popularly known as Karnani Mansion in Park Street, Calcutta. The said Karnani Mansion consists of numerous residential flats and over a dozen shop premises. All those were let out to different tenants on a monthly rental basis. The tenants in respect of each of the fiats and shops let out had to make a monthly payment which included charges for electric current, for use of lifts, for the sup-ply of hot and cold water, for the arrangement for scavan&ing, for providing watch and ward facilities as well as other amemties. The Tribunal further found that the assessee company purchases from the Calcutta Electric Supply Corporation high voltage A.C. current in bulk, converts the same into low voltage A.C. current in the company's own power house within the premises and sup-plies the power to its tenants. It also maintains a separate water pump-house and a boiler for the supply of hot and cold water to the tenants. The company further provided for the benefit of tenants, Electric lifts working day and night. The further find-ing of the Tribunal was that for all these purposes the assessce company maintains a large number of permanent s.taff. No question under s. 66(1) ors. 66(2) was sought challenging the correctness of the findings referred to earlier. The question sub-mitted to the High Court proceeded on the basis that the facts found by the Tribunal are correct.

The total collection from the tenants made by the assessce in accordance with the terms of the a2reement between the tenants and the assessee was Rs. 5,53,541!- during the account-ing year 1956 and Rs. 5,59,145/- during the accounting year 1957. The assessee company claimed before the Income-tax Officer that the entire receipts should be treated as income fr?m business inasmuch as the company had been formed for carrym~ on the business of letting out fiats and shops. The Income:tax Officer while rejecting the assessee's contention, split the receipts into two parts; one part of the receipt be treated as the rent received by the assessee and the remaining part he treated as in-come from other sources taxable under s. 12. The total amount of the latter category as allocated by the Income-tax Officer was Rs. 1,32,4561.in the assessment year 1956-57 and Rs. 1,32,568/- in the assessment year 1957-58. It may be noted thM even accord-ing to the Income-tax Officer the entire receipt was not assessable under s. 9.

In the appeal before the Appellate Assistant Commissioner the only controversy was whether the receipt held by the Income-tax Officer as income from other source should have been held to be income from business .. Neither the Revenue nor the asses-ses contended that the same was assessable under s. 9 nor was there any dispute as regards that part of the receipt which was brought to tax under s. 9. The Appellate Assistant Commissioner rejected the contention of the assessee and affirmed the decision of the Income-tax Officer.

Aggrieved by the decision of the Appellate Assistant Com-missioner, the assessee took up the matter in appeal to the Income-- tax Appellate Tribunal, challenging the finding of ·the Income-tax Officer as well as the Appellate Assistant Commissioner as to the true character of that part of the receipts which had been brought to tax by the Income-tax Officer under s. 12. The assessee contended that the said amount should have been asses-sed under s. 10 and tjle Department's case was that the Income-tax Officer had rightly assessed the same under s. 12. Neither the assessee nor the Department contended before the Tribunal that the same was assessable under s. 9. The Tribunal accepted the contention of the assessee that the amount in question is asses- >able under s. 10. Thereafter at the instance of the Department . the question set out earlier was referred to the High Court of Calcutta for its opinion.

The High Court of Calcutta did nc.t accept the contention of the Department that the amount in question is assessable under s. 12 of the Act. On the other hand, it came to the conclusion that the same was assessable under s. 9 of the Act. As seen earlier the Department had all along proceeded on the basis that that amount was not assessable under s. 9 of the Act. If the Department had sought to assess that amount under s. 9, it was open to the assessee to claim the allowances to which it was en-titled under s. 9. The Department having all along proceeded on. the basis that the income of the assessee was inconie from two different sources, should not have been allowed to change its case. The High Court opined that some of the facts found by the Tribunal are not correct. That finding was arrived at on reappraisal of the evidence on record. As seen earlier the ques-tion whether the findings of fact reached by the Tribunal were vitiated for any reason was not before the High Court. The jurisdiction of the High Court in dealing with a Reference under s. 66 is a very limited one. It must take the fact as stated in the Statement of the case unless the question whether the firidings of the Tribunal are vitiated for one or the other of the reasons recognised by law is before it. It may be that the Income-tax Officer, the Appellate Assistant Commissioner as well as the Tri-bunal erred in holding that the income with which we are con-cerned in these appeals came from two different sources but then that question was foreign to the proceedings before the High · Court. The High Court had to accept rthe facts as found by the Tribunal and should have answered the question referred to it on the basis of those facts.

From the facts found by the Tribunal it follows that the ser-vices rendered by the assessee to its tenants were the result of its activities carried on continuously, in an organized man-ner;.with a set purpose and with a view to earn profits. Hence those activities have to be considered as business activities. In this connection Mr. M. C. Chagla, the learned Counsel for the assessee invited our attention to the decision of the House of Lords in Salisbury House Estate,,Ltd. v. Fry.(') The facts of that case are as follows :

The Appellant Company was the rated occupier of a large block of buildings let to tenants by rooms and by suites of rooms as unfurnished offices. The Company had no other business except the letting out and management of the one property. In addition to the rents for the offices the Company derived profits, from its tenants in connection with the provision of lighting,· cleaning, caretaking and other services, and admitted that liabi-lity to income-tax under Schedule D, with regard to such profits. The Crown contended that the Company was in respect of all its activities carrying on a trade and that accordingly in comput-ing its profits for the purposes of assessment under Schedule D. it was necessary to Take into account all its receipts, including receipts from rents, an allowance being made for the amount of the assessments under Schedule A (Schedule dealt with rents of properties). Assessments under Schedule D (which includes 'business' were made upon the Company upon this basis. The facts found were that the Appellate Company was a Company, the main objects of which were the acquisition, development, management, leasing and letting of land and property. Its pro-ll perties were for the most part shops and blocks of offices and

of flats in London, let unfurnished to tenants. The larger blocks' of offices, etc. contained lifts, the liftman being provided by

(I) 15, Tax Cases 266.

ll-c:cLl340l;uP,g/7! • the. Company. The Company also provided cleaning, beating, lighting and caretaking services in respect of which additional changes were made. The Company admitted its liability to in-come-tax under Sch. D, in respect of profits arising from such additional charges levied for the services rendered. The Crown contended that the Company was carrying on a trade namely . the letting of accommodation and provision of various services and that in addition to the profits assessed under Schedule A in respect of the property in the premises the Company made a fur-ther profit by the user of the premises as a commercial enterprise and hence the Company was assessable to income-tax under Sch. D. The House of Lords held that the Company's liability in respect of the rents was covered by the Sch. A assessments, and the rents could not be brought into the computation of any liabi-lity under Sch. D. In the course of the judgment, Lord Mac-millan (at p. 329 of the Report) observed :

"It is necessary, however, to make it quite clear that the income from property which is taxable under, and only under, Schedule A is income derived from the exercise of property rights properly so called.

Property is regarded as yielding income from the exercise by the proprietor of the right either of himself enjoying the possession or of parting with the possession by letting his property to tenants. The owner of pro-perty may make profit out of it in other ways and by doing so he may render himself liable to taxation under Schedule D. The case of Governors of the Rotunda Hospital, Dc1blin v. Coman, (1921) 1 A.C. l, is an excellent example. There as Lord Chancellor Lord Birkenhead pointed out at pag>~ 8 (1) the arrangements between the owners of the premises and the persons who paid for their use for the purpose of entertainments were not such as to constitute the relation of landlord and tenants, and the owners remained in possession and occupation of their property.

The receipts derived from hiring out their premises along with various movable fittings, and affording ser-vices in the way of heating, lighting and attendance, were receipts of an enterprise quite distinct from the ordinary receipts which a landlord derives from letting his property.

Consequently the owners of the premises were rightly held to be engaged in the carrying on of a trade or business in their premises, the trade or business", in Lord Shaw's language at p. 37(2 ) "of providing, or (t) 7, Tax Casesat p, 576. (2) Ibid. at p. 593.

providing for, public entertainments". There is nothing to prevent a landlord who has been assessed under Schedule A in respect of his income as a property owner being also assessed under Schedule D in respect of a trade, business or other enterprise carried on by him on his premises."

We are referring to these observations only to show that the activities of the assessee with which we are concerned in these appeals are business activities. We should not be understood as having laid down that in assessing the profits and gains of a business, the profits and gains arising from the several activities of that business can be separately computed or separate-ly brought to tax. If the facts are as found by the Tribunal-we must assume for the purpose of this case that the facts were correctly found by the Tribunal as there was no challenge to the correctness of those findings in the question referred to the High Court-then it is quite clear that the assessee had two sources of income and not one source as found by the High Court.

Mr. Manchanda, learned Counsel for the Department con-tended with some emphasis that there was no justification for the Income-tax Officer, the Appellate Assistant Commissioner as well as the Tribunal for coming to the conclusion that the services rendefed by the assesse·~ was an activity independent of let:ing out the premises to the tenants. According to him the primary activity of th.e assessee was to let out the premises and the services rendered were merely incidental. In support of his contention he relied on the ratio of the decision of this Court in Com-missioner of Income-tax, Bombay City v. National Storage Private Ltd.(') He alternatively contended that •the income said to have been realised as a result of rendering the services by the assessee should have been brought to tax under s. 12(4). For that con- •tention he relied on the decision of this Court in Sultan Brothers Private Ltd. v. Commissioner of Income-tax, Bombav City-II('). Tho~ High Court after reassessing the evidence on record has also taken the view that there was only one source of income and that source was of letting out the premises to the tenants. Mr. Manchanda contended, and the High Court has accepted that contention that the authorities under the Act have not pro-perly construed the lease deeds nor have they properly appreciakd the evidence on record. It may well be so. We say nothing about it as it is not within our province to reappreciate the evi-dence on record. The question as to the correctness of the facts found by the Tribunal was not before the High Court nor is it before us. When the question referred •to the High Court speaks of "on the facts and in the circumstances of the case", it means on the facts and circumstances found by the Tribunal and not about1he facts and circumstances that may be found by the High Court: We have earlier referred to the facts found and the cir-cumstances relied on by the Tribunal, the final fact finding a,uthority. It is for the Tribunal to find facts and it is for the High Court and this Court to lay down the law applicable to the facts found. Neither the High Court nor this Court has jurisdic-tion. to go behind or to question the statements of facts made by the Tribunal. The statement of the case is binding on the parties and they are not entitled to go behind tho~ facts found by the Tri-bunal in 1he Statement-, see, Kshetra Mohan Sannva;i Charan Stulhukhan v. Commissioner of Excess Profits Tax, West Bengai(1).

Mr. Manchanda was apprehensive that our decision in this case may have far reaching effect inasmuch as that the same may be considered as having laid down the rule that whenever a premises is let out with fixtures and furnitures for a consolidated rent or when the landlord in addition to providing fixtures and furnitures also renders services incidental to the letting out of the premises and charges a consolidated rent, it may be considered that the rent realised would have to be split up and assessed separately partly under s. 9 and partly under some other provision. There is no basis for this apprehension. Herein we are not con-sidering any abstract proposition of law. We are only laying down the law applicable to the facts found:

It was next urged by Mr. Manchanda that our decision in this case may preclude the Department from reconsidering the correctness of the findings reached by the Income-tax Officer, Ap-pellate Assistant Commiisioner and the Tribunal in the assessee's case in the subsequent years. This apprehension may again be not well founded. Generally speaking the rule of res judicata does not apply to taxation proceedings. _We have not gone into the correctness of the findings of fact reached by the Tribunal. Therefore whether those facts and circumstances were correctly found or not may still be a matter for consideration in this any future assessment. We do not wish to say anything more on aspect as we do not want to pronounce on questions which are not before us.

In the result these appeals succeed, the answer given by the High Court is discharged and in its place we answer the question in the affirmative and in-favour of the assessee. The assessee is entitled to its costs of these appeals-one heanng fee.

CIVIL APPELLATE JURISDICTION·: Civil Appeals Nos. 1874 and 1875 of 1968.

Appeals from the .iudgment and order dated June 16, 1967 of the Calcutta High Court in Income-tax Reference No. 20 of 1963.

M. C. Chagla, A. N. Sinha, P. K. Chatterjee nnd Rathin Das.

for the appellant (in both the appeals).

S. C. Manchanda, J. Ramamurthi, R. N. Sachthev and B. D . . Sharma, for the respondent (in both the appeals). ·