My client lets specially built units with security, services and staff. The officer says it is still just letting, so it is house property. Is there authority the other way?
Yes. Where what is hired out is a complex subject — a purpose-built structure together with services the ordinary landlord does not supply — the return is not income derived from the exercise of property rights but income from an adventure or concern in the nature of trade. The Supreme Court also held that the Act does not allow the receipt to be split, taxing the rental element as property income and the extra as business income, where the assessee is in occupation of the premises for the purposes of its business.
Decided by the Supreme Court (S.M. Sikri, J.C. Shah and V. Ramaswami JJ) on 1967-04-26, reported as 1968 AIR 70; 1967 SCR (3) 813; Civil Appeals Nos. 1048-1051 of 1966. It bears on section 22, section 28, section 14 of the Income Tax Act 1961, in House Property and How Tax Law Is Read matters.
This is the authority that gives content to the words 'complex subject', which every later decision on business centres, serviced offices, warehousing, cold storage, film vaults and safe deposit lockers turns on. Two features of the reasoning decide cases in practice. First, control: the assessee kept the key to the entrance giving access to the vaults, so it, and not the licensees, remained in occupation of the premises for the purposes of its own concern — a hard, checkable fact that separates a licence from a lease. Second, the refusal to apportion: the Court rejected the Revenue's fallback that the rental element be taxed under the property head and only the extra under business, holding the Act does not contemplate that split. That refusal cuts both ways, and a taxpayer who has already offered part of the receipt as rent has largely conceded the point. Against this stands East India Housing, decided seven years earlier by the same Court, where staff and municipal services incurred by an owner did not convert rent into business profits — the difference lies in whether the subject hired out is the bare tenement or something the owner has equipped and services.
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The assessee was promoted after the Government of India made the Cinematograph Film Rules 1948, under which film distributors had to store films only in godowns built strictly to the specifications in those Rules and at a place approved by the Chief Inspector of Explosives. A place at Mahim was approved. The assessee bought a plot there and constructed thirteen units, twelve for members of the Indian Motion Picture Distributors' Association which had floated the company and one for foreign film distributors. Each unit was divided into four vaults with a ground floor for rewinding films and an upper floor for storage. The walls and ceilings were of a prescribed width, an automatic fireproof door closed on an outbreak of fire, the other walls had no opening or window, one ventilator was provided in the ceiling, and the units stood fifty feet apart. The agreements with distributors were of two classes, 'A' and 'B' licences. The licensee could use the vault only for storing cinema films and the ground floor only for examination, repair, cleaning, waxing and rewinding; he could not transfer, assign, sublet or part with possession without written permission; the assessee could revoke the licence on seventy days' notice, and on two days' notice could move the licensee to alternative space in another vault; the licensee could not terminate for five years without the assessee's written consent; and the agreement was expressed to create no right beyond a revocable permission. The vault-holder kept the key to his vault but the key to the entrance giving access to the vaults stayed in the assessee's exclusive possession. The assessee installed a fire alarm and paid the municipality annually for fire services, opened two railway booking offices in the premises free of charge for despatch and receipt of film parcels, ran a canteen and provided a telephone, and maintained a secretary, a peon, a watchman and a sweeper besides paying Rs 800 a month for the staff of the Association. 'A' licensees paid Rs 40 a month and 'B' licensees Rs 140; foreign distributors paid Rs 300 a month, later reduced to Rs 100. For 1950-51 to 1952-53 the assessments were made under section 10, but for 1953-54 and 1954-55 the Income-tax Officer assessed under section 9 and the Appellate Assistant Commissioner confirmed that, also rejecting the alternative plea of section 12. In the Tribunal the Judicial Member, who was the President, and the Accountant Member differed; the third Member agreed with the President that the assessee carried on business of a type similar to a bank letting safe deposit vaults. The Bombay High Court answered the first question in favour of the assessee and the Commissioner appealed by certificate.
The appeals were dismissed with costs. The assessee was carrying on an adventure or concern in the nature of trade; the return it received was not income derived from the exercise of property rights only, and it was in occupation of all the premises for the purposes of its own concern, that concern being the hiring out of specially built vaults and providing special services to the licensees. The Revenue's alternative contention that the rental element be assessed under section 9 and the extra income under section 10 was rejected, the Act not contemplating such a split where the assessee is in occupation of the premises for the purposes of the business.
The Court took as common ground that the heads in section 6 of the 1922 Act are mutually exclusive and that whether an income falls under one head or another is decided according to the common notions of practical men, the Act giving no guidance, citing Sarkar J. in Nalinikant Anbalal Mody v. Narayan Row. Section 9 charged the annual value of property of which the assessee is the owner 'other than such portions of such property as he may occupy for the purposes of any business', so the real question was whether the assessee was carrying on an adventure or concern in the nature of trade; if it was, and it occupied the property for that concern, section 9 excluded the income by its own terms. The Court drew on The Governors of the Rotunda Hospital, Dublin v. Coman, where the House of Lords held profits from letting hospital rooms equipped with seating, lighting, heating and attendance to be trade profits under Schedule D, and adopted the Lord Chancellor's reasoning that the subject hired out was a complex one. Applying that, the Court pointed to the vaults of special design with special doors and electric fittings, the fire alarm and the annual payment to the municipality for fire services, the two railway booking offices which it described as a valuable service, the regular staff of secretary, peon, watchman and sweeper and the Rs 800 a month paid for the Association's staff, and the restriction of the vaults to the specific purpose of storing and handling films. On the Revenue's argument that the licensees were lessees in possession, the Court held the agreements were licences and not leases, the decisive fact being that the assessee kept the key to the entrance permitting access to the vaults in its own exclusive possession, so that the assessee remained in occupation of all the premises for the purposes of its own concern. The Court approved the sixth and seventh propositions the High Court had deduced — that where the subject hired out is a complex one and the income is obtained because of the facilities and services rendered rather than the bare letting, the operations may be of a trading nature; and that where the letting is only incidental and subservient to the main business, the income is not property income and the exception in section 9 may also apply. On the apportionment argument the Court held that the Indian Act, unlike the English Act with its Rule 5 of Schedule D, does not contemplate assessment under section 9 of the rental income and under section 10 of the extra income. It ended by saying that a number of other cases had been cited but it was unnecessary to deal with them, because the answer must depend on the facts of each case.
As observed by the Lord Chancellor in the Governors of the Rotunda Hospital, Dublin v. Coman, "the subject which is hired out is a complex one" and the return received by the assessee is not the income derived from the exercise of property rights only but is derived from carrying on adventure or concern in the nature of trade.
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Handle my notice → Ask a CA on WhatsAppYes. Where what is hired out is a complex subject — a purpose-built structure together with services the ordinary landlord does not supply — the return is not income derived from the exercise of property rights but income from an adventure or concern in the nature of trade. The Supreme Court also held that the Act does not allow the receipt to be split, taxing the rental element as property income and the extra as business income, where the assessee is in occupation of the premises for the purposes of its business. This was decided by the Supreme Court (S.M. Sikri, J.C. Shah and V. Ramaswami JJ) and bears on section 22, section 28, section 14 of the Income Tax Act 1961. It is reported as 1968 AIR 70; 1967 SCR (3) 813; Civil Appeals Nos. 1048-1051 of 1966. This is the authority that gives content to the words 'complex subject', which every later decision on business centres, serviced offices, warehousing, cold storage, film vaults and safe deposit lockers turns on. Two features of the reasoning decide cases in practice. First, control: the assessee kept the key to the entrance giving access to the vaults, so it, and not the licensees, remained in occupation of the premises for the purposes of its own concern — a hard, checkable fact that separates a licence from a lease. Second, the refusal to apportion: the Court rejected the Revenue's fallback that the rental element be taxed under the property head and only the extra under business, holding the Act does not contemplate that split. That refusal cuts both ways, and a taxpayer who has already offered part of the receipt as rent has largely conceded the point. Against this stands East India Housing, decided seven years earlier by the same Court, where staff and municipal services incurred by an owner did not convert rent into business profits — the difference lies in whether the subject hired out is the bare tenement or something the owner has equipped and services. If it applies to you, the first step is this: Build the record around what makes the subject complex: the specifications the structure had to meet, the equipment installed, the services supplied and their cost, and the staff maintained.
The assessee was promoted after the Government of India made the Cinematograph Film Rules 1948, under which film distributors had to store films only in godowns built strictly to the specifications in those Rules and at a place approved by the Chief Inspector of Explosives. A place at Mahim was approved. The assessee bought a plot there and constructed thirteen units, twelve for members of the Indian Motion Picture Distributors' Association which had floated the company and one for foreign film distributors. Each unit was divided into four vaults with a ground floor for rewinding films and an upper floor for storage. The walls and ceilings were of a prescribed width, an automatic fireproof door closed on an outbreak of fire, the other walls had no opening or window, one ventilator was provided in the ceiling, and the units stood fifty feet apart. The agreements with distributors were of two classes, 'A' and 'B' licences. The licensee could use the vault only for storing cinema films and the ground floor only for examination, repair, cleaning, waxing and rewinding; he could not transfer, assign, sublet or part with possession without written permission; the assessee could revoke the licence on seventy days' notice, and on two days' notice could move the licensee to alternative space in another vault; the licensee could not terminate for five years without the assessee's written consent; and the agreement was expressed to create no right beyond a revocable permission. The vault-holder kept the key to his vault but the key to the entrance giving access to the vaults stayed in the assessee's exclusive possession. The assessee installed a fire alarm and paid the municipality annually for fire services, opened two railway booking offices in the premises free of charge for despatch and receipt of film parcels, ran a canteen and provided a telephone, and maintained a secretary, a peon, a watchman and a sweeper besides paying Rs 800 a month for the staff of the Association. 'A' licensees paid Rs 40 a month and 'B' licensees Rs 140; foreign distributors paid Rs 300 a month, later reduced to Rs 100. For 1950-51 to 1952-53 the assessments were made under section 10, but for 1953-54 and 1954-55 the Income-tax Officer assessed under section 9 and the Appellate Assistant Commissioner confirmed that, also rejecting the alternative plea of section 12. In the Tribunal the Judicial Member, who was the President, and the Accountant Member differed; the third Member agreed with the President that the assessee carried on business of a type similar to a bank letting safe deposit vaults. The Bombay High Court answered the first question in favour of the assessee and the Commissioner appealed by certificate. The matter was decided on 1967-04-26 by the Supreme Court (S.M. Sikri, J.C. Shah and V. Ramaswami JJ). On those facts the Supreme Court held as follows. The appeals were dismissed with costs. The assessee was carrying on an adventure or concern in the nature of trade; the return it received was not income derived from the exercise of property rights only, and it was in occupation of all the premises for the purposes of its own concern, that concern being the hiring out of specially built vaults and providing special services to the licensees. The Revenue's alternative contention that the rental element be assessed under section 9 and the extra income under section 10 was rejected, the Act not contemplating such a split where the assessee is in occupation of the premises for the purposes of the business.
The Court took as common ground that the heads in section 6 of the 1922 Act are mutually exclusive and that whether an income falls under one head or another is decided according to the common notions of practical men, the Act giving no guidance, citing Sarkar J. in Nalinikant Anbalal Mody v. Narayan Row. Section 9 charged the annual value of property of which the assessee is the owner 'other than such portions of such property as he may occupy for the purposes of any business', so the real question was whether the assessee was carrying on an adventure or concern in the nature of trade; if it was, and it occupied the property for that concern, section 9 excluded the income by its own terms. The Court drew on The Governors of the Rotunda Hospital, Dublin v. Coman, where the House of Lords held profits from letting hospital rooms equipped with seating, lighting, heating and attendance to be trade profits under Schedule D, and adopted the Lord Chancellor's reasoning that the subject hired out was a complex one. Applying that, the Court pointed to the vaults of special design with special doors and electric fittings, the fire alarm and the annual payment to the municipality for fire services, the two railway booking offices which it described as a valuable service, the regular staff of secretary, peon, watchman and sweeper and the Rs 800 a month paid for the Association's staff, and the restriction of the vaults to the specific purpose of storing and handling films. On the Revenue's argument that the licensees were lessees in possession, the Court held the agreements were licences and not leases, the decisive fact being that the assessee kept the key to the entrance permitting access to the vaults in its own exclusive possession, so that the assessee remained in occupation of all the premises for the purposes of its own concern. The Court approved the sixth and seventh propositions the High Court had deduced — that where the subject hired out is a complex one and the income is obtained because of the facilities and services rendered rather than the bare letting, the operations may be of a trading nature; and that where the letting is only incidental and subservient to the main business, the income is not property income and the exception in section 9 may also apply. On the apportionment argument the Court held that the Indian Act, unlike the English Act with its Rule 5 of Schedule D, does not contemplate assessment under section 9 of the rental income and under section 10 of the extra income. It ended by saying that a number of other cases had been cited but it was unnecessary to deal with them, because the answer must depend on the facts of each case. In the words reproduced by the source cited on this page: "As observed by the Lord Chancellor in the Governors of the Rotunda Hospital, Dublin v. Coman, "the subject which is hired out is a complex one" and the return received by the assessee is not the income derived from the exercise of property rights only but is derived from carrying on adventure or concern in the nature of trade." The decision followed or applied The Governors of the Rotunda Hospital, Dublin v. Coman (House of Lords) — relied on and applied; Nalinikant Anbalal Mody v. Narayan Row (SC) — relied on for the approach to identifying the head of income; Commissioner of Income-tax v. National Storage Private Ltd. (Bombay High Court, 3 July 1962), including its sixth and seventh propositions — approved.
It was decided by the Supreme Court on 1967-04-26 and is reported as 1968 AIR 70; 1967 SCR (3) 813; Civil Appeals Nos. 1048-1051 of 1966. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 22, section 28, section 14, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeals were dismissed with costs. The assessee was carrying on an adventure or concern in the nature of trade; the return it received was not income derived from the exercise of property rights only, and it was in occupation of all the premises for the purposes of its own concern, that concern being the hiring out of specially built vaults and providing special services to the licensees. The Revenue's alternative contention that the rental element be assessed under section 9 and the extra income under section 10 was rejected, the Act not contemplating such a split where the assessee is in occupation of the premises for the purposes of the business. It arises in House Property and How Tax Law Is Read matters, on section 22, section 28, section 14 of the Income Tax Act 1961, and was decided by S.M. Sikri, J.C. Shah and V. Ramaswami JJ. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Prove control. Who holds the keys, who can enter, who can move the occupant to another space, whether the occupant may assign or sublet, and whether the document is revocable at the grantor's will — these were the facts that made the agreements licences rather than leases here. Do not concede a rental component. Take the whole receipt under one head; this judgment holds that splitting between property income and business income is not open where the assessee is in occupation for the purposes of its business. Test the arrangement against East India Housing before advising: statutory services and staff that any owner of that class of property must maintain will not by themselves make the income business income. Expect a fact-specific fight. The Court said in terms that whether an activity is an adventure or concern in the nature of trade depends on the facts of each case, so a paper argument without an evidenced service model will fail.
Validity check could not be completed. Validity check could not be completed. No search for later treatment of this 1967 judgment was carried out, and nothing here should be read as a statement that none exists. Two points about its reach are visible on the face of the report itself. The decision is under the Indian Income-tax Act 1922, but the exclusion it turns on survives: s.22 of the 1961 Act carries the same words, charging the annual value of property of which the assessee is the owner 'other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax'. The one real limit is that the Court itself said the answer to whether an activity is an adventure or concern in the nature of trade must depend on the facts of each case. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The retrieved text says the certificate was granted by the Bombay High Court 'under S. 66A(2) of the Indian Income-tax Act, 1925'; there is no Indian Income-tax Act 1925 and the reference must be to section 66A(2) of the Indian Income-tax Act 1922, which is the Act the whole judgment construes. The assessee is called 'National Storage Ltd., Bombay' in the opening paragraph and 'National Storage Pvt. Ltd.' in the cause title. The reference below was Income-tax Reference No. 45 of 1960 of the Bombay High Court and the High Court judgment of 3 July 1962 is separately reported; only the Supreme Court judgment was read. No ITR citation appeared in the retrieved text, so only the AIR and SCR citations are given. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeals were dismissed with costs. The assessee was carrying on an adventure or concern in the nature of trade; the return it received was not income derived from the exercise of property rights only, and it was in occupation of all the premises for the purposes of its own concern, that concern being the hiring out of specially built vaults and providing special services to the licensees. The Revenue's alternative contention that the rental element be assessed under section 9 and the extra income under section 10 was rejected, the Act not contemplating such a split where the assessee is in occupation of the premises for the purposes of the business.
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