Income from the letting of vaults for the storage of films is taxable under Section 10 of the Income-tax Act, 1922, if the assessee is carrying on a business.

Judgment

SIKRI, J. :- These appeals by certificate granted by the Bombay High Court under Section .66A (2) of the Indian Income-tax Act, 1922, hereinafter referred to as the Act-are directed against its judgment in Income-tax Reference No. 45 of 1960 by which it answered the first question of law referred to it by the Income-tax Appellate Tribunal in favour of the National Storage Lt., Bombay, hereinafter referred to as the assessee. The following questions were referred to the High Court by the Appellate Tribunal at the instance of the Commissioner of Income-tax, Bombay City I, Bombay :

"1. whether on the facts and circumstances of the case, the vaults were used for the purposes of the business and income arising therefrom is assessable under Section 10 ?

2. If the answer to question 1 is in the negative, whether the income is assessable under Section 9 or Section 12?"

2. The relevant facts and circumstances are as follows: The assessee was promoted because the Government of India promulgated the Cinematograph Film Rules, 1948, hereinafter referred to as the Film Rules according to which the distributors were required to store films only in godowns constructed strictly in conformity with the specifications laid down in the Film Rules and in a place to be approved by the Chief Inspector of Explosives, Government of India. A place at Mahim was approved and the assessee, after purchasing a plot of land there constructed 13 units thereon, 12 units meant for the Members of the Indian Motion Picture Distributors Association who had floated the Company, and one unit for Foreign Film Distributors in Bombay, who were not members of the Association. Each unit was divided into four vaults, having a ground floor for rewinding of films and an upper floor for storage of films. These units were constructed in conformity with the requirements of and the specifications laid down in the Film Rules. The walls and ceilings were of a particular width and automatic fire proof door was installed in one wall which would close immediately on the outbreak of fire in the vault. Other walls had no opening or window and one ventilation was provided in the ceiling. The units were built at a distance of 50 feet from one another. The assessee entered into agreements with the film distributors. There were two types of agreements, one was classified as A Licence and the other as B Licence. The agreements were more or less in identical terms with minor variations here and there. One agreement has been annexed to the statement of the case as annexure A and some of the relevant clauses are as under :

3. Clause 2 provides that the licensee shall not use the vault for any other purpose except for storing cinema films and shall use the ground floor (examination room) only for the purpose of examination, repairs, cleaning, waxing and rewinding of the films. According to clause 9, the licensee could not transfer, assign, sublet, underlet or grant any licence in respect of or part with the possession of the vault or any part thereof without the written permission of the assessee. According to clause 12, the assessees were entitled to revoke, determine and put an end to the licence by giving the licensee at any time seventy days previous notice in writing. Further, the licensee was not entitled to terminate the licence for a period of five years except with the consent in writing of the assessee. According to Cl. 13, the assessee was entitled to terminate the licence by giving two days notice in writing to the licensee and allocate to the licensee alternative space in another vault of the said property. Clause 16 makes it clear that nothing contained in the agreement shall be construed to create any right other than the revocable permission granted by the assessee in favour of the licensee of the licensed vault nor as conferring any right to quiet enjoyment or other right except so far as the assessee has power to grant the same and the assessee may of its mere moti