# imprisonment. Appeal allowed. SULTAN BROTHERS (P) LTD v. COMMISSIONER OF INCOME-TAX

- **Citation:** [1964] 5 S.C.R. 807
- **Court:** Supreme Court of India
- **Decided:** 1963-12-06
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/imprisonment-appeal-allowed-sultan-brothers-p-ltd-v-commissioner-of-income-tax-3046
- **Pages:** 17

## Headnote

. 5 S.C.R.
. SUPREME COURT REPORTS
807
to see' that the fence which under the Act it was his
1963
duty to see was kept in position all along had not
-'.-.
been . removed. It seems to us clear that if it was State 0! Gujarat
his duty to exercise due diligence for the purpose in a
. . V• •• ·
case where he could establish that somebody else
Jetha1'!1
had removed the fence, it would be equally his duty Chelabha•. P<:!el
to exercise that diligence where he could not prove
Sarkar J .. :
who had removed it. If it were not so, the intention
of the Act to give protection to workmen would be
wholly defeated.· ·
For these. reasons we are unable to agree with th~
view of the High Court or the learned trial magisttate.
Accordingly we allow the appeal and set aside the
judgment of the Courts below and convict the respondent under s. 92 for contravening the terms of
s. 2l{l){iv)(c). We impose on him a fine of Rs.
200. In default he. shall undergo one week's simple . ·
imprisonment.
Appeal allowed.
SULTAN BROTHERS (P) LTD.
v.
COMMISSIONER OF INCOME-TAX
(B.P. SINHA, C.J., A.K. SARKAR, M. HIDAYA'Tfill!AH,
K.C. DAS GUPTA AND N; RAfAGOPALA 'AYYANGAR
JJ.)
.
Income Tax-Assessment-Letting of building and furnitureSuch letting, if business-Income Tax Act, 1922 (11 of 1922), ss.
JO, 12(4).
.
. .
The appellant assessee Jet out a building fully equipped and
furnished, for a term of six years for running a hotel and for certain
ancillary purposes. The lease provided for a rent for the building
and a hire for the furniture and fixtures. In the assessment of the
income under· the lease to income-tax,
. Held: Whether a particular letting is business has to be decid·
ed in the circumstances of each case. It would not be'..the doing
1963
December 6
.
-
808
·SUPREME COURT REPORTS
[1964]
... ·.•
'1963
of a'·business if it was exploitation of his property by an owner.
. , .
..
. .
~ A thing cannot by its very nature be a commercial asset. A com-
. Sultan Broth eh mercial asset is only an asset used in a business and nothing else .
.(eJ't.td.
A:i acti~ity is no~ business becaus~ it is concerned with an asset
, . , v . o. ,,
with which trade 1s commonly camed on.
' c~/nm~~iolz~i
. The present letting of the building did not amount to the
of Jncomi.tax · doing of a business by the assessee and as such the income under
·" . ·'··. c.
the lease could not be assessed under s. JO of the Income-tax Act
as the income of a business.
·Commissioner of Income-tax v. Mangalagiri Sri Umamaheswara
Gin and Rice Factory Ltd. (1927) I.L.R. 50 Mad. 529 and Commissioner of Income-tax v. Basotto Brothers Ltd . . Madras. (1940)
8 I.T.R. 41, distinguished.
· ·
United Commercial ·Bank Ltd. v. Commissioner of Income-
. tax, West Bengal, 32 I.T.R. 688. referred to.
Even'if the object of the assessee, ~-conipany,.which was to
~cquire lands and buildings. and to tum them into account by
leasing, be assumed to be a business activity, that would not turn
the income from the lease to income from business. · · . . . . • . · ·
· East Indian Housing & Land Development Trust Ltd. v. Commissioner of Income-lax, (1961) 42 I.T.R. 49, relied on.
The income from the hire of the furniture and fixture was
assessable under s. 12 of the Act· after providing for the allowances mentioned in sub-s. (3) of that section.
Sub-section ( 4) of s. 12 is not confined to a case where the
building let out does.not belong to the person' who let it out.
The income contemplated in sub-s. (4) ·of s. 12 is an income
which does not come within any of the earlier sections dealing
with specific. heads of income .
. . . In order that sub-s. (4) of s. 12 may apply, it is not necessary
that the primary!ettingmust be of the machinery, plant or furniture
· and together with such letting there_ is a letting of the building. ·
When sub-s. (4) of~. 12 says that "the letting of the buildings
is inseparable from the letting of the said machinery, plant or
furniture" it only means that the parties to the letting must have
so intended. T

## Text

. 5 S.C.R.
. SUPREME COURT REPORTS
807
to see' that the fence which under the Act it was his
1963
duty to see was kept in position all along had not
-'.-.
been . removed. It seems to us clear that if it was State 0! Gujarat
his duty to exercise due diligence for the purpose in a
. . V• •• ·
case where he could establish that somebody else
Jetha1'!1
had removed the fence, it would be equally his duty Chelabha•. P<:!el
to exercise that diligence where he could not prove
Sarkar J .. :
who had removed it. If it were not so, the intention
of the Act to give protection to workmen would be
wholly defeated.· ·
For these. reasons we are unable to agree with th~
view of the High Court or the learned trial magisttate.
Accordingly we allow the appeal and set aside the
judgment of the Courts below and convict the respondent under s. 92 for contravening the terms of
s. 2l{l){iv)(c). We impose on him a fine of Rs.
200. In default he. shall undergo one week's simple . ·
imprisonment.
Appeal allowed.
SULTAN BROTHERS (P) LTD.
v.
COMMISSIONER OF INCOME-TAX
(B.P. SINHA, C.J., A.K. SARKAR, M. HIDAYA'Tfill!AH,
K.C. DAS GUPTA AND N; RAfAGOPALA 'AYYANGAR
JJ.)
.
Income Tax-Assessment-Letting of building and furnitureSuch letting, if business-Income Tax Act, 1922 (11 of 1922), ss.
JO, 12(4).
.
. .
The appellant assessee Jet out a building fully equipped and
furnished, for a term of six years for running a hotel and for certain
ancillary purposes. The lease provided for a rent for the building
and a hire for the furniture and fixtures. In the assessment of the
income under· the lease to income-tax,
. Held: Whether a particular letting is business has to be decid·
ed in the circumstances of each case. It would not be'..the doing
1963
December 6
.
-
808
·SUPREME COURT REPORTS
[1964]
... ·.•
'1963
of a'·business if it was exploitation of his property by an owner.
. , .
..
. .
~ A thing cannot by its very nature be a commercial asset. A com-
. Sultan Broth eh mercial asset is only an asset used in a business and nothing else .
.(eJ't.td.
A:i acti~ity is no~ business becaus~ it is concerned with an asset
, . , v . o. ,,
with which trade 1s commonly camed on.
' c~/nm~~iolz~i
. The present letting of the building did not amount to the
of Jncomi.tax · doing of a business by the assessee and as such the income under
·" . ·'··. c.
the lease could not be assessed under s. JO of the Income-tax Act
as the income of a business.
·Commissioner of Income-tax v. Mangalagiri Sri Umamaheswara
Gin and Rice Factory Ltd. (1927) I.L.R. 50 Mad. 529 and Commissioner of Income-tax v. Basotto Brothers Ltd . . Madras. (1940)
8 I.T.R. 41, distinguished.
· ·
United Commercial ·Bank Ltd. v. Commissioner of Income-
. tax, West Bengal, 32 I.T.R. 688. referred to.
Even'if the object of the assessee, ~-conipany,.which was to
~cquire lands and buildings. and to tum them into account by
leasing, be assumed to be a business activity, that would not turn
the income from the lease to income from business. · · . . . . • . · ·
· East Indian Housing & Land Development Trust Ltd. v. Commissioner of Income-lax, (1961) 42 I.T.R. 49, relied on.
The income from the hire of the furniture and fixture was
assessable under s. 12 of the Act· after providing for the allowances mentioned in sub-s. (3) of that section.
Sub-section ( 4) of s. 12 is not confined to a case where the
building let out does.not belong to the person' who let it out.
The income contemplated in sub-s. (4) ·of s. 12 is an income
which does not come within any of the earlier sections dealing
with specific. heads of income .
. . . In order that sub-s. (4) of s. 12 may apply, it is not necessary
that the primary!ettingmust be of the machinery, plant or furniture
· and together with such letting there_ is a letting of the building. ·
When sub-s. (4) of~. 12 says that "the letting of the buildings
is inseparable from the letting of the said machinery, plant or
furniture" it only means that the parties to the letting must have
so intended. There would be such an intention when they were
intended to be· enjoyed: together ..
.• . .. C1Vir,, ·A.PPEl'.LATE JURISDICTION·:
Civil Appeal
No .. · 63 of 1961.
. Appeal from the judgment and order dated July 2,
1959; of the· Bombay High Court in Income-tax
. Reference· No. 59/1958.
5 S.C.R.
SUPREME COURT REPORTS
809
A. V. Viswanatha Sastri, T.S.
Diwanji, O.C.
1963
Mathur, J.B. Dadachanji and Ravinder Narain, for
the appellant.
Sultan Brothers
K.N. Rajagopa/ Sastri and R.N. Sachthey, for
(P)Ltd.
the respondent.
v.
Co1nmissioner
December 6, 1963.
The Judgment of the Court of Income-tax
was delivered by.
SARKAR J.-The appellant, which is a limited
company is the owner of a certain building constructed
on Plot No. 7 on the Church Gate Reclamation in
Bombay which it had fitted up with furniture and
fixtures for being run as a hotel. By a lease dated
August 30, 1949, the appellant let out the building
fully equipped and furnished to one Voyantzis for a
term ·of six years certain from December 9, 1946
for running a hotel and for certain other ancillary
purposes. The lease provided for a monthly rent
of Rs. 5,950 for the building and a hire of Rs. 5,000
for the furniture and fixtures. The question in this
appeal is how the income received as rent and hire is
to be assessed, that is, under which section of the
Income-tax Act, 1922 is it assessable. The appellant
contends that the entire income should be assessed
under s. 1-0 as the income of a business or, in the alternative, the income should be assessed under s. 12 as
income from a residuary source, that is, a source not
specified in the preceding sections 7 to 11, with the
allowances respectively specified in sub-ss. (3) and
(4) of that section.
For the assessment year 1953-54, the appellant
was taxed under s. 9 of the Income-tax Act in respect
of the building and under s. 12 in respect of the hire
received from the furniture and fixtures. The Incometax Officer held that the building had to be assessed
under s. 9 as it was the specific section covering it
and there was, therfore, no scope for resorting to the
residuary section, s. 12, in respect of its income. The
Appellate Assistant Commissioner held on appeal
that the rent from a building could only be assessed
under s. 12 with the allowances mentioned in subSarkar J.
810
SUPREME COURT REPORTS
[1964]
1963
· s. (4) where for the letting of the furniture and fixtures
--
it was indispensable to let the building also and as
Sultan Brothers that was not the case here the building had been rightly
(P) Ltd.
assessed under s. 9 . The appellant then appealed to
v.
the Income-tax Appellate Tribunal. The Tribunal
Commissioner confirmed the decision of the authorities below holding
of Income-tax that the allowances mentioned in sub-s. (4) of s. 12
could not be allowed as the sub-section permitted
Sarkar J.
them only where the letting of the building was incidental to the letting of the furniture and fixtures
and as that had not happened in the present case
the rent could not be assessed under s. 12. It was
also contended by the appellant before the Tribunala contention which does not appear to have been advanced at any earlier stage-that the entire income should
really have been assessed under s. IO of the Act inasmuch as the income taxed was from "the letting
out of the totality of the assets which was the business
of the assessee". The Tribunal rejected this contention
also, holding that since there was a specific head in
regard to income from property, namely, s. 9,
the income from the property leased had to be computed under that section alone and referred to United
Commercial Bank Ltd. v. Commissioner of Incometax, West Benga[a> in support of this view.
Thereafter at the request of the appellant the
Tribunal stated a case under s. 66(1) of the Act to the
High Court at Bombay for decision of the following
question:-
"Whether on the facts and circumstances of
the case, the income derived from letting of the
building constructed on Plot No. 7 is properly
to be computed under section 9, 10 or under
section 12 of the Income -tax Act."
The High Court answered the question as follows:-
"The income from the building will be computed under section 9, income from furniture
and fixtures under section 12(3). and that no
part of the income is taxable under section 10."
(1) 32 I.T.R. 688.
'
T
•
..
5 SC.R.
SUPREME COURT REPORTS
811
The question framed is clearly somewhat in1963
accurate for what the appellant contends in the first
--
place is that the entire income and not that from the Sultan Brothers
building alone, should be assessed under s. JO.
This
(P)Ltd.
inaccuracy has not however misled anyone and the
v.
matter has been argued before us without any objecCommissioner
tion from the respondent ;:m the basis as if the question of Income-tax
was in terms of the appellant's contention.
Now, it is beyond dispute that the several heads
of income mentioned in s. 6 of the Act and dealt
with separately in FS. 7 to 12 are mutually exclusive,
each head being specific to cover the income arising
from
~, particular source and that it cannot be said
that any one of these sections is more specific than
another: see United Commercial Bank Ltd. v. Commissioner of Income-tax(!).
Therefore a particular variety
of income must be assignable to one or other of these
sections.
A broad reference to ss. 9,
JO and 12 may now
be profitably made. Section 9 provides for the payment of tax under the head "Income from property"
in 1 espect of the bona fide annual value of buildings
or lands appurtenant thereto of which the assessee
is the owner. Certain buildings are exempted but
it is not necessary to refer to them. This section also
sets out the method of calculation of the annual value
of the property on which the tax is to be assessed.
It is important to note here that under this section a
building has to be assessed to tax on its annual value
irrespective of the rent received from it, if any .
Section JO deals with profits and gains of business,
profession or vocation. This section also provides
the method of computing the income and the allowances that the assessee is entitled to deduct in making
the computation.
Section 12 is the residuary section
covering income, profits and gains of every kind not
assessable under any of the heads specified earlier.
It follows that if the income now under consideration
is taxable under s. 9 or s. 10, then it cannot be taxed
under s. 12. This is not in dispute.
(!} 321.T.R. 688
Sarkar J.
812
SUPREME COURT REPORTS
[1964]
1963
The first contention of the appellant, as already
--
seen, is that the assessment should be made under
Sultan Brothers s. 10 as of income from a business. The reason for
(P) Ltd.
this preference is that under that section it would be
v.
entitled to much larger allowances as deductions in
Commissioner the computation of the income than it would be under
of Income-tax either s. 9 or s. 12. The appellant put the matter in
this way.
Letting out of a commercial asset is a
Sarkar J.
business and what it did was to let out a commercial
asset, namely, a fully equipped hotel building. It
also said that the lessor's covenants m the lease showed
that in making the lease, the appellant was carrying
on a business and not letting out property. This
is somewhat different. from the way in which it was
put before the Tribunal. The argument advanced
before the Tribunal was not advanced in this Court
and need not, therefore, be considered. It is indeed
not very clear.
A very large number of cases was referred to
in support of this contention but it does not seem to
us that much assistance can be derived from them.
Whether a particular letting is business has to be
decided in the circumstances of each case.
We
do not think that the cases cited lay down a test for
deciding when a letting amounts to a business. We
think each case has to be looked at from a businessman's point of view to find out whether the letting
was the doing of a business or the exploitation of his
property by an owner. We do not further think that
a thing can by its very nature be a commercial asset.
A commercial asset is only an asset used in a business
and nothing else, and business may be carried on with
practically all things. Therefore it is not possible
to say that a particular activity 1s business because
it is concerned with an asset with which trade is
commonly carried on. We find nothing in the cases
referred, to support the proposition that certain
assets are commercial assets in their very nature.
The object of the appellant company no doubt
was to acquire land and buildings and to turn the
same into account by constrnction and reconstrucI
-
-,
5 S.C.R.
SUPREME COURT REPORTS
813
tion, decoration, furnishing and maintenance of them
1963
and by leasing and selling the same. The activity
--
contemplated in the aforesaid object of the company, Sultan Brothers
assuming it to be a business activity, would not by
(PJ Ltd.
itself turn the lease in the present case into a business
v.
deal. That would follow from the decision of this Commissioner
Court in East India Housing and Land Development oflncome-tax
Trust Ltd. v. Commissioner of Income-tax( 1l
where
it was observed that "the income derived bv the
Sarkar J.
company from shops and stalls is income received
from property and falls under the specific head described in s. 9. The character of that income is not altered
because it is received by a company formed with the
object of developing and setting np markets."
Now the cases on which learned counsel for
the appellant especially relied were cases of the letting out of plant and machinery, in some instances
along with the factory buildings in which they had
been housed. In all of them, except one, which we
will presently mention, the assessee had previously
been operating the factory or mill as a business and
had only temporarily let it out as it was not convenient
for him at the time to carry on the business of running
the mill or factory. In these circumstances, it was
held that by letting out the plant, machinery and
building the assessee was still conducting a business
though not the business of running the mill or factory.
In Commissioner of Income-tax v. Mangalagiri
Sri Umamaheswara Gin and Rice Factory Ltd. (2),
the assessee who was the owner of a fully equipped
rice mill which it had constructed for its own trade
but had never worked it, decided to lease it out to
another person. It was held that the income was
income from business. The reason given by one
of the learned Judges, Krishnan J., was, "the rent
received is not only for the use of the mill but also
to cover the necessary wear and tear" and the lease
was of the mill as a working concern. Beasley J.
agreed but perhaps with a certain amount of hesita-
(1) [1961] 42 1.T.R. 49.
(2) [1927] 1.L.R. 50 Mad. 529.
814
SUPREME COURT REPORTS
[1964]
1963
tion. In the later case of Commissioner of Incometax v. Bosotto Brothers Limited, MadrasOJ
which
Sultan Brothers concerned income from the letting out of a fully
(PJ Ltd.
equipped hotel which had previously been run by the
v.
assessee himself as a hotel, Krishnaswami Ayyangar
Commissioner J. felt himself bound by the Mangalagiri Gin and
of Income-tax Rice factorj(2) and apparently for that reason only
decided to agree with his colleagues that the case
Sarkar J.
might fall under s. 10. Mockett J. thought that what
was done was to lease out an undertaking of a hotel
known as a hotel business and in that view he agreed
that the case might come under s. 10.
It seems to us that Bosotto Brothers Ltd. case<ll
would have no application because it cannot possibly
be , said in the case in hand that the appellant had
Jet out any business undertaking. Admittedly it
never carried on any business of a hotel in the premises
let out or otherwise at all. Nor is there anything
to show that it intended to carry on a hotel business
itself in the same building even if it had the power
under its memorandum to do so, as to which a great
deal of doubt may be entertained.
In Mangalagiri
Gin and Rice Factory case<2),
what appears to have
been really let out was the plant and machinery and
the case was decided on the basis of the wear and tear
caused to them. Furthermore, in that case it does
not appear at all to .have been contended that s. 9
had any application. Whether that case was rightly
decided or not, is not a question that properly arises
in this case for none of the considerations which
led to the decision arrived at there, exists here; there
is no question of any wear and tear to machinery
nor of a letting out of any working concern. Besides,
the cases of Mangalagiri Gin and Rice Factory (2)
and Bosotto Brothers LimitedOJ were both decided
before sub-s. ( 4) of s. 12 was enacted. Sub-section
(4) covers a case where a building and furniture are
inseparably Jet out. It cannot be said what the decision in those cases would have been if s. 12(4) was
then in existence. We do not think that it would be
(!) [1940] 8 l.T.R. 41.
(2) [1927] l.L.R. 50 Mad. 529·
,,
!
I
(
•
-
5 S.C.R.
SUPREME COURT REPORTS
815
profitable to refer to the other cases cited at the bar
for they carry the matter no further.
Learned counsel for the appellant also relied
on certain clauses in the lease and a clause in the
memorandum of the appellant company to show
that the lease amounted to the carrying on of a business.
We shall now turn to these provisions. Clause 3(b)
of the memorandum gave power to the appellant
to manage land, buildings, and other property and
to supply the tenants and occupiers thereof refreshment, attendants, messengers, light, waiting-room,
reading room, meeting room, libraries, laundry convenience, electric conveniences, lifts, stables and other
advantages. The contention was that this clause
in the memorandum gave the appellant a power to
carry on a business of the nature of running a hotel.
We do not think, it did. But in any case, by the
lease none of the objects mentioned in this clause
was sought to be achieved.
We find nothing in. the
lessor's covenants to some of which we were referred
to bring the matter within cl'. 3(b) of the memorandum.
None of these clauses support the contention that by
granting the lease, the appellant did anything like
carrying on the business of running a hotel. Thus
cl. (a) is a covenant for quiet enjoyment. Clause
(b) provides for a renewal of the lease of the demised
premises being granted to the lessee for a further term
of six years at his request. Clause ( c) deals with
payment of municipal bills and similar charges and
ground rent. Clause (d) provides that the lessor
shall during the continuance of the lease and on its
renewal provide various things which included furniture, pillows, mattresses, gas-stoves, bottle coolers,
refrigerators, lift, electric fittings and the like and
also paint the outside of the building with oil once
in five years and keep the building insured. These
are ordinary covenants in a lease of a furnished
building. These do not at all show that the lessor
was rendering any service in the hotel business carried
on by the lessee or in fact doing any business at all.
On the facts of this case we are unable to agree that
1963
Sultan Brothers
(P)Ltd.
v.
Comfnissioner
of Income-tax
Sarkar J.
816
SUPREME COURT REPORTS
[ 1964]
1963
the letting of the building amounted to the doing of
--
a business. The income under · the lease cannot,
Sultan Brothers therefore be assessed under s. 10 of the Act as the
(P) Ltd.
income of a business.
Comm~;sioner
The next question is about sub-s. (4) of s. 12.
of Income-tax The relevant part of s. 12 may now be set out.
S. 12. (1) The tax shall be payable by an asses see
Sarkar J.
under the head 'Income from other sources'
in respect of income, profits and gains of every
kind which may be included in his total income
if not included under any of the
preceding
heads.
x
x
x
x
x
(3) Where an assessee lets on hire machinery
plant or furniture belonging to him, he shall be
entitled to allowances in accordance with the
provisions of clauses (iv), (v), (vi) and (vii) of
sub-section (2) of section 10.
(4) 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, he shall be entitled to allowances in accordance with the provisions of the
clauses (iv), (v), (vi) and (vii). of sub-section (2)
of section 10 in respect of such buildings.
To clear the ground it may be stated here that
once s. 10 is found inapplicable to the case, there
is no dispute that the income from the hire of the
furniture and fixtures was rightly assessed under
s. 12 after providing for the allowances mentioned
in sub-s. (3) of that section. The only dispute that
then remains is whether, the building is to be assessed
under s. 9 which of course will have to be on the basis
of its annual value or whether the rent from the building has to be assessed under s. 12 after the allowances
mentioned in sub-s. (4) have been deducted.
We have earlier said that s. 12 can only apply
if no other section is applicable, because it deals
(
-
•
I
'
5 S.C.R.
SUPREME COURT REPORTS
817
with the residuary head of income. Now sub-s.
1963
(4) of s. 12 only deals with certain allowances and it
--
ohviously proceeds on the basis that the income men- Sultan Brothers
tioned in it, namely, that from the buildings when
(P)Lrd.
inseparably let with plant, machinery or furniture
v.
is not income falling under any of the specific heads Commissioner
dealt with by ss. 7 to 11 and is, therefore, income of Income-tax
falling under the residuary head contained in s. 12.
There a preliminary difficulty arises. In respect of
Sarkar J.
buildings-and with them alone sub-s. (4) of s. 12
is concerned-as already seen, the owner is liable to
tax under s. 9 not on the actual income received from
it but on its annual value and in fact quite irrespective
of whether he has let it out or not. How then can
it be said that the rent received from a building could
at all come under s. 12? In other words, why can
it not be said that the specific section, that is, s. 9,
covers the case and the income from the building
cannot be assessed under s. 12 and no question of
giving any allowances under s. 12 (4) arises? It
has sometimes been suggested as a solution for this
difficulty that sub-s. (4) of s. 12 applies only when
the building is let out by a person who is not the
owner because such a case would not come under
s. 9. Counsel for neither party however was prepared
to accept that suggestion.
Indeed that suggestion
has its own difficulty. Under sub-s. (4) of s. 12 the
assessee becomes entitled among others to an allowance in accordance with s. 10(2)(vi) which is on
account of depreciation of the building "being the
property of the assessee" from which it follows that
sub-s. (4) of s. 12 contemplates the letting of the building by the owner. Sub-section (4) of s. 12 must,
therefore, be
applicable when machinery, plant or
furniture are inseparably let along with the building
by the owner. If sub-s. (4) of s. 12 is to have any
effect-and it is the duty of the court so to construe
every part of a statute that it has effect-it must be
held that the income arising from the letting of a
building in the circumstances mentioned in it is an
income coming within the residuary head. If a person
cannot be assessed under s. 12 in respect of the rent
l/SCI/64-52
818
SUPREME COURT REPORTS
[1964]
1963
of a building owned by him, sub"s. (4) will become
redundant; there will be no case in which the allowSultan Brothers ances mentioned by it can be granted in computing
(P) Ltd.
the actual income from a building. An interpretav.
tion producing such a result is not natural.
We
Corr.missioner must, therefore, hold that when a building and plant,
of lncome-tax machinery or furniture are inseparably let the Act
contemplates the rent from the building as a residuary
Sarkar J.
head of income.
The next question is, does the present letting
come within the term of sub-s. (4) of s. 12 ? That
provision requires two
conditions,
namely, that
the furniture should be let and also buildings and the
letting of the buildings should be inseparable from
the letting of the furniture. Now here both furniture
and building have no doubt been let. The question
is,. are they inseparably let? The High Court does
not appear to have answered this . question for it
was of the view that not only must the two be inseparably let out but also that "the primary letting
must be of the machinery, plant or furniture and that
together with .such letting or along with such letting,
there is a letting of buildings". The High Court
held that the primary letting in the present case was
of the building and, therefore, deprived the appellant
of the benefit of s. 12 (4). · We may state here that the
Tribunal had thought that by requiring that the letting
of one should be inseparable from the letting
of the other, the section really meant that the
primary letting was of the machinery . and the
letting of the building was only incidental to
the letting of the machinery.
It also held that
in the present case the primary letting was of the
building.
•
Now the difficulty that we feel in accepting the
view which appealed to the High Court and the Tribunal is that we find nothing in the language of sub-s.
(4) of s. 12 to support it. No doubt the sub-section
first mentions the letting of the machinery, plant or
:
furniture and then refers to the letting of the building
and further uses the word 'also' in connection with
~
-'
5 S.C.R.
SUPREME COURT REPORTS
819
the letting of the building. We, however, think
1963
that this is too slender a foundation for the conclusion that the intention was that the primary letting Sultan Brothers
must be of the machinery, plant or furnitures. In
(P) Ltd.
· the absence of a much stronger indication in the
v.
language used, there is no warrant for saying that Commissioner
the sub-section contemplated that the letting of the of Income-tax
building had to be incidental to the letting of the
plant, machinery or furniture. It is pertinent to
Sarkar J.
ask that if the intention was that the letting of the
plant, machinery or furniture should be primary,
why did not the section say so? Furthermore, we
find it practically impossible to imagine how the
letting of a building could be incidental to the letting
of furniture, though we can see that the letting of
a factory building may be incidental to the letting of
the machinery or plant in it for the object there may
be really to work the machinery. If we are right
in our view, as we think we are, that the letting of a
building can never be incidental to the letting of
furniture contained in it, then it must be held that no
consideration cif primary or secondary lettings arises
in construing the section for what must apply when
furniture is let and also buildings must equally apply
when plant and machinery are let and also buildings.
We think all that sub-s. (4) of s. 12 contemplates
is that the letting of machmery, plant or furniture
should be inseparable from the letting of the buildings.
What, then, is inseparable letting? It was suggested on behalf of the respondent Commissioner that
the sub-section contemplates a case where the machinery, plant or furniture are by their nature inseparable
from a building so that if the machinery, plant or
furniture are let, the building has also necessarily
to be let along with it. There are two objections to
this argument. In the first place, if this was the
intention, the section might
well
have provided
that where machinery, plant or furniture are inseparable from a building and both are let etc. etc.
The language however is not that the two must be
820
SUPREME COURT REPORTS
[1964]
.:. ..
1963
inseparably connected when let but that the letting
of one is to be inseparable from the letting of the
Sultan Brothers other. The next objection is that there can be no
(!'.)Ltd.
case in which one cannot be separated from the other.
v.
In every case that we can conceive of, it may be possiCommissioner ble to dismantle the machinery or plant or fixtures
of Income-tax from where it was implanted or fixed and set it up
in a new building. As regards furniture, of course,
Sarkar J.
they simply rest on the floor of the building in which
it lies and the two indeed a.re always separable. We
are unable, therefore, to accept the contention that
'inseparable in the sub-section means that the plant,
machinery or furniture are affixed to a building.
It seems to us that the inseparability referred
to in sub-s. (4) is an inseparability arising from the
intention of the parties. That intention may be
ascertained by framing the following
questions:
Was it the intention in making the lease-and it
matters not whether there is one lease or two, that is,
se:parate leases in respect of the furniture and the
building-that the two should be enjoyed together?
Was it the intention to make the letting of the two
practically one letting? \Vould one have been let
alone a lease of it accepted without the other? If
the answers to the first two questions are in the affirmative, and the last in the negative then, in our view,
it has to be held that it was intended that the lettings
would be inseparable.
This view also provides a
justification for taking the case of the income from
the lease of a building out of s. 9 and putting it under
s. 12 as a residuary head of income . It then becomes
a new kind of income, not covered by s. 9, that
is, income not from the ownership of the building
alone but an income which though arising from a
building would not have arisen if the plant, machinery
and furniture had not also been let along with it.
That takes us to the question, was the letting
in the present case of the building and the furniture
and fixtures inseparable in the sense contemplated
in the sub-section as we have found that sense to be?
·,.,(
'
~
5 S.C.R.
SUPREME COURT REPORTS
821
".>
I
•
It is true that the rent for the building and the hire
1963
for the furniture were separately reserved in the lease
--
but that does not, in our view, make the two lettings Sultan Brothers
separable. We may point out that the Tribunal
(P)Ltd.
has taken the same view and the High
Court
v.
has not dissented from it. In spite of the sums payCommissioner
able for the enjoyment of two things being fixed of Income-tax
separately, the intention may still be that the two
shall be enjoyed together.
We will now refer to the
Sarkar J.
provisions in the lease to see whether the parties intended that the furniture, fixtures and the
building
shall all be enjoyed together. Clause 1 of the lessee's
covenant, in our opinion, puts the matter beyond
doubt and it is as follows:-
!. (a) To use the demised premises and the said
furniture and fixtures for the purpose of running
hotel, boarding and lodging house, restaurant,
confectionary and such other ancillary businesses
as are usually or otherwise can be conveniently
carried on with the said
business in the said
premises such as providing show-cases showwindows, newspaper stall, dancing and other
exhibition of arts, meeting rooms etc., and not
for any other purpose without the previous permission in writing of the Lessors.
It is clear from this clause that the building and the
fixtures and furniture were to be used for one purpose,
namely, for the purpose of running a hotel with them
all together. Again cl. 1 (h) of the lessee's covenant
provided that the lessee is not to remove any article
or thing from the premises except for the purposes
of and in the course of the hotel business which latter
would be for effecting repairs to them or for replacing them where it was the duty of the lessee to do so
under the lease. We th.ink, therefore, that the lease
clearly establishes that it was the intention of the
parties to it that the furniture and fixture and the
building should be enjoyed all together and not one
separately from the other.
Before we conclude we think we should refer
to two other covenants. First, there is a lessor's
822
SUPREME COURT REPORTS
( 1964)
1963
covenant No. II (b) to renew the lease of the demised
-
premises which term, it may be conceded, means
Sultan Brothers the building only, for a further term of six years.
(P)Ltd.
This clause says nothing about the renewal of any
v.
lease in respect of furniture or fixtures.
Likewise,
Commissioner cl. 111(2) provides that if the demised premises, that
0! Income-tax is to say, the building, be destroyed or damaged by
fire it shall be the option of the lessee to determine
Sarkar J.
the lease and in any event the rent shall be suspended
until the premises shall again be rendered fit for occupation and use. Here also there is no mention of the
furniture. It was said on behalf of the respondent
that these two clauses indicate that the building and
the furniture were being treated separately and therefore the lettings of them were not inseparable. We
are unable to accept this contention. As regards
renewal of the lease of the building, there is cl. (Il)d
making substantially a similar provision in respect
of the. furniture and fixtures. It requires the lessor
to provide at all times during the continuance of the
lease and the renewal thereof, the furniture and fixtures
mentioned in the lease. Therefore, though the renewal
clause in cl. Il(b) does not mention the lease of furniture or fixtures being renewed, cl. II(d) makes it
incumbent on the lessor to supply and maintain them
during the renewed term of the lease of the building.
Clause Il(d) would also cover a case where by fire the.
furniture was destroyed. In such a case the lessee
could under that clause require the lessor to provide
and if necessary to replace, the destroyed furniture.
To the same effect is cl. I(e) which says that the major
repair to or replacement of the furniture, shall be
made by the lessor. Such repair or replacement
may, of course, be necessitated in a case where the
furniture or fixtures are damaged by fire.
We, therefore, think that the clauses in the lease on which the
respondent relies do not indicate that the letting of
the building was separable from the letting of the
furniture and fixtures.
We think that the
lease
satisfies all the conditions for the applicability of s. 12(4)
and is covered by it.
I
'
..
I
S S.C.R.
SUPREME COURT REPORTS
823
In the result we answer the question framed
1963
thus: The rent from the building will be computed
separately from the income from the furniture and Sultan Brothers
fixtures and in the case of rent from the building the
(P) Ltd.
appellant will be entitled to the allowances mentioned
v.
in sub-sec. (4) of s. 12 and in the case of income from Commissioner
the furniture and fixtures, to those mentioned in sub-s. of Income-tax
(3), and that no part of the income can be assessed
under s. 9 or under s. 10. The judgment of the High
Sarkar J.
Court is set aside. The appellant will be entitled to
the costs here and below.
Appeal allowed .
BURN AND COMPANY LTD.
v.
ITS WORKMEN
(P.B. GAJENDRAGADKAR AND K.C. DAS GUPTA, ]J.)
Industrial
Dispute-Bonus-Rehabilitation
charges-Assessment on insufficient evidence, if binding-Salaries, rates and taxes
for previous years-If proper expenses for year in question-Auditor's
findings-If binding on Tribunal-Development rebate statutory
reserve-Money paid into-If expenditure on revenue accountProvident Fund, contribution-If qin be added to net profit for
calculating gross profits-Preference & ordinary -Dividend rate.
Dispute arose between the company and its workmen over
the profit bonus for the year 1960. The company was prepared
to pay bonus at 3-l; months' wages, but the workmen demanded
more. Applying the principles laid down by this Court, the Tribunal worked out, the net available surplus after making deductions
for income-tax return on working capital and rehabilitation charges
from the gross profit. It appears that the Tribunal calculated
the annual rehabilitation charge mainly on the basis of what had
been decided on the question of rehabilitation charge in the bonus
dispute in a previous year. The evidence. adduced by t~~ c~mpany,
in the present Reference, on the ques!Ion of rehab1bta!Ion was
rejected by the Tribunal. In calculating the gross profits the
\'
1963
December 6