# KARNANI PROPERTIES LTD v. COMMISSIONER QF INCOME TAX, WEST BENGAL

- **Citation:** [1972] 1 S.C.R. 457
- **Court:** Supreme Court of India
- **Decided:** 1971-08-27
- **Case number:** ·: Civil Appeals Nos. 1874 and 1875 of 1968
- **Bench:** K. S. Hegde, A. N. Grover
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/karnani-properties-ltd-v-commissioner-qf-income-tax-west-bengal-5376
- **Pages:** 8

## Headnote

Income Tax Act, 1922, ss. 9, 10, 12, 66-Company owning /lats and
shops and letting th•m out on rent-A/so supplying electricity, water and
other <ervices to tenants-Income from latter source whether falls under
r. 10, or s. 12 of Act-High ,Court in reference cannot go behind the facts
io11nd by the Tribunal as mentioned in rtatement of case.
The assessee company owned houses and fiats in Calcutta which it had.
Jet out on rent. The company purchased from the Calcutta Electric Supply
Corporation high voltage A. C. current in bulk, converted it into
low
voltage A.C. current in the company's own power house with the premises.
and supplied the power to the tenants.. It also maintained a separate
water pump-house and a boiler for the supply of hot and cold water to the
tenants. It further provided for the benefit of tenants electric lifts working day ancl night. For all these purposes a large permanent staff was
maintatned. The monthly payments by the tenants consisted apart from
rent, of charges _in respect ot these services.
In proceedings before the
Income-tax Officer for the assessment years
1956-57 and
1957-58 the
assess~e company claimed that the entire receipts from the tenants should
be treated as income fron1 bGsiness in as much as the company had been
formed for carrying on the business of letting out flats and shops. The
Income-tax Officer split the receipts into two parts; one part of the receipts
he treated as rent received by the assessce and the remaining part he
treated as income fro1n other sources taxable under s. 12 of the
Income~
rax Act, 1922.
The Appellate Tribunal accepted the contention of the
assessee that the income taxed by the Income-tax Officer as income from
other sources should be treated as income from business.
Thereafter at
the instance of the Department the Tribunal referred to the High Court
the question whether "on the facts and
circumstances of the case"
the
Tribunal was justified in holding that the services supplied to the tenants
constituted a business activity of the assessee taxable under s. 10.
The
High Court opined after a reappraisal of the evidence that some of the
facts found by the Tribunal were not correct. It came to the conclusion
that the income.in question was taxable neither under s., 12 nor under s. JO
but un.der s. 9 though this was not the contention of the Department at
any stage,
By certificate appeals were filed in this Court.
HELD : (1) The jurisdiction of the High Court in dealing with a reference under s. 66 is a verv limited one. It must take the facts as stated
in the stamement of the case unless the question whether the findings of
the Tribunal are vitiated for one or the other of the reasons recognised by
the Jaw is before it. The High Court thought that the Income-tax Officer,
the Appellate Assistant Commissioner as well as the Tribunal erred in
holding that the income of the assessee company came from two different
sources but that question was foreign to the proceedings before the High
Court. Neither the High Court nor this C~urt has jurisdiction to go behind
or to question the facts found by the Tnbunal. [461 A-CJ
Kshetra Mohan Sannyasi Charan Sudhukhan v. Commissioner of Excess
Profits Tax, West Bengal, 24. I. T. R. 488, relied on.
458
SUPREME COURT REPORTS
[1972] l S.C.R.
(ii) On the facts found by the Tribunal in the present case it was clear
that the assessee had two different sources of income and not one source
as found by the High Court.. [C-D]
[This however, should nGt be understoocl to mean that in assessing the
profits and gains from the several activities ; of a business, the profits and
gains arising from the several activities of that business can be separately
computed or separately brought to tax.] [463 B-C]
The services rendered by the assessee !<1 its tenants were the result of
its activities carried on continuously, in an organised manner and with a
\iew to earn profits.
Hence, those activities had to be considered as business activities taxabl

## Text

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KARNANI PROPERTIES LTD.
v.
COMMISSIONER QF INCOME TAX, WEST BENGAL
August 27, 1971
[K. S. HEGDE AND A. N. GROVER, JJ.]
Income Tax Act, 1922, ss. 9, 10, 12, 66-Company owning /lats and
shops and letting th•m out on rent-A/so supplying electricity, water and
other <ervices to tenants-Income from latter source whether falls under
r. 10, or s. 12 of Act-High ,Court in reference cannot go behind the facts
io11nd by the Tribunal as mentioned in rtatement of case.
The assessee company owned houses and fiats in Calcutta which it had.
Jet out on rent. The company purchased from the Calcutta Electric Supply
Corporation high voltage A. C. current in bulk, converted it into
low
voltage A.C. current in the company's own power house with the premises.
and supplied the power to the tenants.. It also maintained a separate
water pump-house and a boiler for the supply of hot and cold water to the
tenants. It further provided for the benefit of tenants electric lifts working day ancl night. For all these purposes a large permanent staff was
maintatned. The monthly payments by the tenants consisted apart from
rent, of charges _in respect ot these services.
In proceedings before the
Income-tax Officer for the assessment years
1956-57 and
1957-58 the
assess~e company claimed that the entire receipts from the tenants should
be treated as income fron1 bGsiness in as much as the company had been
formed for carrying on the business of letting out flats and shops. The
Income-tax Officer split the receipts into two parts; one part of the receipts
he treated as rent received by the assessce and the remaining part he
treated as income fro1n other sources taxable under s. 12 of the
Income~
rax Act, 1922.
The Appellate Tribunal accepted the contention of the
assessee that the income taxed by the Income-tax Officer as income from
other sources should be treated as income from business.
Thereafter at
the instance of the Department the Tribunal referred to the High Court
the question whether "on the facts and
circumstances of the case"
the
Tribunal was justified in holding that the services supplied to the tenants
constituted a business activity of the assessee taxable under s. 10.
The
High Court opined after a reappraisal of the evidence that some of the
facts found by the Tribunal were not correct. It came to the conclusion
that the income.in question was taxable neither under s., 12 nor under s. JO
but un.der s. 9 though this was not the contention of the Department at
any stage,
By certificate appeals were filed in this Court.
HELD : (1) The jurisdiction of the High Court in dealing with a reference under s. 66 is a verv limited one. It must take the facts as stated
in the stamement of the case unless the question whether the findings of
the Tribunal are vitiated for one or the other of the reasons recognised by
the Jaw is before it. The High Court thought that the Income-tax Officer,
the Appellate Assistant Commissioner as well as the Tribunal erred in
holding that the income of the assessee company came from two different
sources but that question was foreign to the proceedings before the High
Court. Neither the High Court nor this C~urt has jurisdiction to go behind
or to question the facts found by the Tnbunal. [461 A-CJ
Kshetra Mohan Sannyasi Charan Sudhukhan v. Commissioner of Excess
Profits Tax, West Bengal, 24. I. T. R. 488, relied on.
458
SUPREME COURT REPORTS
[1972] l S.C.R.
(ii) On the facts found by the Tribunal in the present case it was clear
that the assessee had two different sources of income and not one source
as found by the High Court.. [C-D]
[This however, should nGt be understoocl to mean that in assessing the
profits and gains from the several activities ; of a business, the profits and
gains arising from the several activities of that business can be separately
computed or separately brought to tax.] [463 B-C]
The services rendered by the assessee !<1 its tenants were the result of
its activities carried on continuously, in an organised manner and with a
\iew to earn profits.
Hence, those activities had to be considered as business activities taxable under s. JO of the Act, [461 DJ
Salisbury House Estate Ltd. v. Fry, 15 Tax Cases 266, applied.
Commissioner of lnco1ne-tax, Bonibay City v. National Storage
Private Ltd., 66 I. T. R. 596 and Sultan Brothers Pvt, Ltd. v. Commissioner
of Iricome-tax, Bombay City-/1, 51 I.T.R. 353, referred to.
(iii) Generally speaking the rule of res judicata does not apply to
taxation proceedings.
This Court in the preoent case had not gone into
the correctness of the findings of fact reachecl by the Tribunal. Therefore whether those facts and circumstances were correctly found or not
may still be a matter for consideration in any future assessment. [464 F-GJ
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).
·
The Judgment of the Court was delivered by
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
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KARNAN! PROPERTIES v. C.l.T. (Hegde, J.)
459
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 supply 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 supplies 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 finding 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 submitted 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 accounting 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
460
SUPREME COURT REPORTS
(1972] 1 S.C.R.
into two parts; one part of the receipt be treated as the rent
received by the assessee and the remaining part he treated as income 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 according 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 Incometax Officer as income from other source should have been held
to be income from business .. Neither the Revenue nor the assesses 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 Commissioner, the assessee took up the matter in appeal to the Income--
tax Appellate Tribunal, challenging the finding of ·the Incometax 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 assessed under s. 10 and tjle Department's case was that the Incometax 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 entitled 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 quesA
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KARNANI PROPERTIES v. C.I.T. (Hegde, J.)
461
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 Tribunal erred in holding that the income with which we are concerned 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 services rendered by the assessee to its tenants were the result of
its activities carried on continuously,
in an organized manner;.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 liability 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 computing 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 properties 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!
•
462
SUPJU!MB COURT JU!PORTS
[1972] 1 S.C.R.
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 income-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 further 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 liability under Sch. D.
In the course of the judgment, Lord Macmillan (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 property 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 services 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.
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KARNANI PROPERTIES v. C.l.T. (Hegde, /.)
483
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 separately brought to tax. If the facts are as found by the Tribunalwe 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 contended 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 Commissioner 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 properly 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 evidence 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
(1) 66 I.T.R. 596.
<2) 51. l.T.R. 353.
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SUPREME COURT REPO.RTS
( 19 72] l S.C.R.
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 circumstances 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 jurisdiction. 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 Tribunal 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 considering 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, Appellate 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 any future
assessment. We do not wish to say anything more on this 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.
G. C.
Appeal allowed.
(I) 24 l.T.R. 488.
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