Authored By : Rankin, Charu Chander Ghose, Mookerjee

Rankin, C.J.

1. This is a case stated by the Commissioner of Income Tax,Bengal, and the question for decision is whether or not the assessees areliable to income-tax under sec. 9 of the Indian Income Tax Act, 1922 or onlyunder sec. 10 of that Act. It is the function of the Commissioner to find thefacts and it is for this Court to accept his findings on all matters of merefact.

2. The facts stated are that the assessee, the CommercialProperties, Limited, is a registered company of which the sole object is toacquire land, build houses and let premises to tenants in Calcutta or elsewherein India. The sole assets of the assessees consist of three properties and thesole business of the assessees is the management and collection of rents fromthe said properties.

3. The opinion of the Commissioner of Income Tax is that"Even if the assessees are held to be a business, they must be assessed inrespect of the property owned by them according to the special provisionsrelating to property."

4. It will be observed that sec. 6 of the Indian Income TaxAct states that "the following heads of income, profits and gains shall bechargeable to income-tax in the manner hereinafter appearing, namely."Then comes six heads of which the third is "property " and the fourthis "business." By sec. 9 "the tax shall be payable by anassessee under the head property in respect of the bonafide annual value ofproperty consisting of any building or lands appurtenant thereto of which he isthe owner, other than such portions of such property as he may occupy for thepurposes of his business"; and it goes on to lay down the method in whichthe quantum of the tax is to be computed. It points out, for example, thatwhere the property is in the occupation of the owner, or where it is let to atenant and the owner has undertaken to bear the cost of repairs, then one-sixthis to be the deduction for repairs. In like manner, a deduction is to beallowed for insurance. Questions of mortgage interest and ground-pent arecovered and there are specific provisions as regards allowance to be made forparts of the property being unoccupied from time to time. Again, it is to benoted that the "annual value" is to be deemed to be the sum for whichthe property might reasonably be expected to let from year to year so that thisclass of property is not to be taxed on the basis of de facto rent alone, andit is further provided that where the property is in the occupation of theowner for the purposes of his own residence, the annual value is not to bedeemed to be more than ten per cent, of the total income of the owner. Imention these matters to show that special computations which arise in the caseof house property are dealt with under sec. 9 which is a particular, detailedand special scheme for ensuring that any property which comes within thatsection shall be taxed in a particular way.

5. Sec. 10 which deals with business-- "profits orgains of any business carried on by him "--is also provided with certainrules as to allowances to be made before computing profits. These rules in sofar as they refer to louse property refer to "the premises in which suchbusiness is carried on " but with regard to insurance premiums, landrevenue rates and taxes refer to buildings and premises" used for thepurposes of the business."

6. In the present case we have a company which owns threeestates. It does not appear that any part of that property is outside thedefinition given in sec. 9. It is found to let the houses from time to time, tosee to the payment of rents and (doubtless) the doing of repairs. If that iscarrying on a business, then this company carried on a business in the sense inwhich every landlord or owner of this type of property must necessarily carryon business . We know from sec. 9 itself that it is applicable to propertywhich is let out to tenants and it has been argued before us that when onelooks at the case-law one finds that, at all events, where the owner is acompany and the objects of the company include the object of owning andmanaging house property, then the income that is derived from the tenants is anincome that is derived from business. It is in that way that, it is contendedthat these assessees should be charged under sec. 10. It is said that if thequestion were to arise under see. 10, these assessees would not be liable topay income-tax at all so that no income-tax would be recovered in respect ofany of these estates, the reason being that, in point of fact, they have tradedso unsuccessfully during the year in question that they have actually made aloss. This is certainly a very important question, from the point of view ofthe treasury, because if this argument be right then it will depend to someextent upon the success of the management whether or not the public treasuryshould derive any income-tax in respect of house property of this character. Itis obvious, too, that if we are to depart in such a case as this from thecareful provisions contained in sec. 9 for purposes of computing the correctfigure in the case of house property on which is to be levied, we will getunder sec. 10 all sorts of complicated questions special to house property uponwhich the law will be absolutely at large. In my judgment the words of sec. 6and sec. 9 and sec. 10 must be read so as to give some effect to the contrastthat is there made between income, profits and gains from "property"and from "business," and I entirely refuse my assent to theproposition that because it happens that the owner of a property is a companywhich has been incorporated for the purpose of owning such property, thereforethe income derived from "property" must be regarded as income derivedfrom "business." In my judgment, income derived from"property" is a more specific category applicable to the presentcase.

7. The cases to which we have been referred are cases inEngland with, I think, one exception which is a case from Burma. The case inBurma In re Kaladan Suratee Bazaar Co., Ltd. (1) 68 Ind. CAS.914 1920) aroseout of the Excess Profits Duty Act, 1919. The Excess Profits Duty Act laid aspecial tax upon the profits of business, and although it contained a specialprotection for the earnings of a man in his profession there was no specialprovision applicable to the case of an owner of property. There was a companycalled the Kaladan Suratee Bazaar Co., Ltd., which owned certain plots of landand stalls at Moulmein at a bazaar there. Its income was derived from the rentsof houses and bazaar stalls belonging to it and the financial Commissioner notdisputing that it was subject to in-come-tax under sec. 9, maintained that itwas liable to excess profits duty because it was a "business" withinthe meaning of the Excess Profits Duty Act. The decision of the Court was thatthese two Acts were to be interpreted in the same way. It was pointed out thata person or a company drawing income from house property was clearly not contemplatedin the Indian Income Tax Act as carrying on a business but was treated as aperson who derived income from the property; and, in the same way, when thequestion of excess profits duty had to be decided, the Court determined thatthe company was not carrying on a business within the meaning of that Act. Itwas pointed out that if the mere Jetting of stalls was carrying on a businesswithin the meaning of the Act, every person who had invested his capital inhouse property was liable to excess profits duty when his income rose above theminimum limit. It was further said that a man who had invested his capital inhouse property and who kept a rent office and a staff of rent-collectors,clerks, etc., for the purpose of letting out his houses and collecting therents was not carrying on a business. He was merely taking the ordinary stepsnecessary for enjoying the income from his property. That, therefore, is theIndian case which bears upon this question and it is not in favour of theassessees.

8. Of the English cases to which we have been referred, thefirst is the case of Commissioners of Inland Revenue v. Sangster [1920] 1 K. B.587. That was a decision of Mr. Justice Rowlatt. It was the case of a man whowas an inventor and who derived considerable sums of money from royalties paidto him by companies of which he was a Manager. He had sold one invention it istrue, but that was a good long time ago; and in these circumstances it wascontended that he carried on the business of an inventor and was thereforeliable under the provisions of the Finance Act of 1915 to excess profits duty.That argument was rejected, Mr. Justice Rowlatt saying that he was not carryingon a business because he was an owner of royalties and that he was not carryingon a business because he was a share-holder in a certain company.

9. Much reliance has been placed, however, upon certaincases of which the case of Commissioners of Inland Revenue v. Korean SyndicateLimited [1921] 3 K. B. 258 is the chief. There, again, was a question notwhether the company was liable to pay under Sch. A of the Income Tax Act orunder Sch. D, but whether it was liable to excess profits duty as carrying on atrade or business at all. It was a very complicated case and I do not proposeto set out the facts, but it is clear that the company was originallyincorporated to get and work a concession in Korea but ultimately it obtained ashare and had an agreement with a co-sharer to do the actual working of theconcession; a certain sum was to be paid to it under this agreement. Thedocument purported to be a lease and the sum by the document was called aroyalty; but on a close examination of the particulars by the Master of theRolls, Lord Sterndale, it was held that the company was carrying on in this particularway the business of obtaining a working concession for which it had beenincorporated, that the document was not really a "lease," that thepayments were not truly and strictly "royalties" and that, therefore,it was not entitled to say that it was outside the scope of the excess profitsduty. Very similar are the decisions under the Corporation Profits Tax imposedby sec. 52 of the Finance Act of 1920. There tax was put prima facie upon everyBritish Company which carried on trade or business or anything of that kind.Cases arose on the border line, such as a case where a company having put upmoney to build an Indian Railway and an Indian Railway having been built by theSecretary of State and managed more or less successfully the company was now inthe position of receiving under its agreement certain payments, and it wascontended on the one hand that it was not carrying on a business at all. It hasultimately been decided by the House of Lords that if you look at the matterfrom the beginning as a whole the company was carrying on the business offinancing this Indian Railway and that although it had finished finding thefinance and only had to receive what was due to it under the agreement it couldnot be said that it was no longer carrying on business.

10. In my judgment, these cases are not authorities to theeffect that as between the word "property" and the word"business" in sec. 6 of the Indian Income Tax Act, 1922, a case ofthis character is to be put under the word "business." It comes moredirectly and specifically under the word " property." In my judgment,the mere fact that the house-owner is a company does not change the incidenceof the tax in the way contended for. The income of the assessee is incomederived from its ownership of buildings and their cartilages . To obtain suchincome a certain amount of management is always necessary but the Act does notregard such income as profits of management. To own houses one must buy orbuild them but the Act does not regard such income as profits of investment.

11. In my opinion, the Income Tax Commissioner was right andwe should answer the question which he has put to us that the assessees are tobe assessed under sec. 9 of the Act. The assessees must pay the costs of thereference.

Charu Chander Ghose, J.

I agree.

Mookerjee, J.

I agree.

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Commercial Properties Ltd.vs. Commissioner of Income Tax, Bengal(09.01.1928 - CALHC)