S. G. Mercantile Corporation Private LTD. vs C. I. T. , Calcutta

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

1972 Supreme(SC) 2

SUPREME COURT OF INDIA
J.M. SHELAT, I.D. DUA, H.R. KHANNA AND G.K. MITTER, JJ.
M/s. S. G. Mercantile Corporation (P) Ltd. (In all the Appeals), Appellant
Versus
The Commissioner of Income-tax, Calcutta (In all the Appeals), Respondent.
Civil Appeals Nos. 1748 to 1750 of 1968, D/- 4-1-1972.
Advocates appeared
Mr. M. C. Chagla, Sr. Advocate, (Mr. D. N. Mukherjee, Advocate, with him), for Appellant (In al Appeals); Mr. S. C. Manchanda, Sr. Advocate, (M/s. R. N. Sachthey and B. D. Sharma, Advocates, with him), for Respondent (In all Appeals).

Headnote:
Indian Income-tax Act 1922 - Sections 2(4),6,9,10,12,66(1) - Private limited company was incorporated on January - Objects for which Company was established were given in clauses of Paragraph of Memorandum of Association - A number of business activities were mentioned in those clauses - Clauses of that paragraph were as under - To purchase take on lease or otherwise acquire and to hold cultivate improve lease sell exchange mortgage or otherwise dispose of land houses mines minerals mining and other real and personal property and to deal with same commercially - To develop resources of same property by building reclaiming clearing draining and otherwise improving framing and planting on any terms or system that may be considered advisable - Whether under facts and in circumstances of case income from subletting stalls of was assessable under S. 10 or S. 12 of Income-tax Act? whether income realised from tenants of shops and stalls was liable to be taxed as business income under section 10of Act or income from property under section 9 - Whether acquisition of property on lease and letting out of shops and stalls was in course of investment whether it was essentially a part of the business and trading operation of assessee - Whether acquisition of property was by way of investment whether property was let out because of assessee having a title in same whether acquisition and letting out of property constituted business and trading activity of assessee - Whether above activity is being carried on by an individual or a company whether carrying on of said activity was object of incorporation of company as given in Memorandum of Association would also have some relevance - Whether doing that is carrying on a business or not - Whether amount received by assessee as salami for granting sub-lease constituted trading receipts and profits therefrom was assessable - Whether it is one or other must necessarily depend upon object with which act is done - Whether by itself or by giving use of it to another on rent - Held, Assessee had taken lease of a market or Bazar - After having reconstructed or renovated buildings it is letting out shops and stalls to shopkeepers and stall holders - This is a normal activity of an owner or a lessee of such a market or Bazar - It could not be said that by letting out shops and stalls to shopkeepers and stallholders assessee was carrying on any activity in nature of trade and was utilising or exploiting real estate in best possible way or in other words was dealing with it commercially - Ratio of SC decision in East India Housing case in fully applicable to case before us and it must be that Tribunal was in error in its conclusion that income of assessee from subletting stalls of was assessable under section 10 of Indian income-tax Act - In premises question referred to this Court in answered in following manner that is to say that income from subletting stalls of was not assessable under Section 10 - Court have heard on behalf of appellant and on behalf of respondent and are of view that judgment of High Court cannot be sustained Section 6 of Act enumerates various heads of income profits and gains chargeable to income-tax - Those heads are Salaries Interest on securities Income from property Profits and gains of business professions or vocation Income from other sources and Capital gains - Appeal allowed

Judgment

KHANNA, J. :- This judgment would dispose of Civil Appeals Nos. 1748 to 1750 of 1968 filed by special leave against the judgment of the Calcutta High Court whereby the question referred to that Court under Section 66 (1) of the Indian Income-tax Act 1922, hereinafter referred to as the Act, was answered in favour of the revenue and against the appellant company.

2. The appellant, a private limited company, was incorporated on January 25, 1955. The objects for which the Company was established were given in the clauses of Paragraph 3 of the Memorandum of Association. A number of business activities were mentioned in those clauses. Clauses 6 and 7 of that paragraph were as under :

"6. To purchase take on lease or otherwise acquire and to hold, cultivate, improve, lease, sell, exchange, mortgage, or otherwise, dispose of land, houses, mines, minerals, mining and other real and personal property and to deal with the same commercially.

7. To develop the resources of the same property by building, reclaiming clearing, draining, and otherwise improving framing and planting on any terms or system that may be considered advisable."

3. With effect from February 5, 1955, the appellant company took on lease a market place known as Taltalla Bazar in the city of Calcutta from Shrimati Sujata Tagore and her sons on a monthly rent of Rupees 3,000 for a term of 50 years, with option to the lessee to renew the lease for the further period of 40 years. The deed of lease in this connection was executed on September 5, 1956. Clauses 4, 5 and 13 of the lease deed were as under:

"4 The lessee shall have the option to erect, rebuild, remodel and reconstruct and repair the existing structures upon the demised premises from time to time during the term of these presents at its own costs in a substantial and workmanlike manner with good material of the several kinds in accordance with the plans elevations sanctions and specifications according to the choice of the Lessee (and whenever necessary to get such plans sanctioned by the Corporation of Calcutta) under the supervision of a first class Engineer to be elected by the Lessee on notice to the Lessors and shall spend upon such works such sum or sums as the Lessee may in its absolute discretion think fit and proper but the entire total sum or sums so to be expended by the lessee as aforesaid shall not be less than Rupees Five Lacs and the same shall be spent within the period of five years from date of these presents. The lessors shall be at liberty to appoint at their own costs a valuer and Surveyor to verify such expenditure if required for their satisfaction after the completion of the said work.

5. If the Lessee constructs any new structures and/or buildings as mentioned in the preceding clauses the said structures and/or buildings or erections together with all alterations renovation remodelling reconstruction thereto shall belong absolutely to the Lessors on the expiration or sooner determination of the term hereby granted and/or the renewed period thereof as hereinafter mentioned.

13. That the Lessee shall not assign this lease without first obtaining the permission in writing of the Lessors but such consent shall not be unreasonably withheld. The lessee shall prior to any such assignment of this demise give notice thereof to the Lessors in writing containing the name of the assignee and furnish other necessary particulars concerning such assignment. Notwithstanding anything hereinbefore contained the Lessee shall subject to the conditions and convents herein contained be entitled to sublet or underlet the demised premises or any part or portion thereof and/or grant sub-lease or sub-lease in respect of the demised premises or any portion or portions thereof for a term not exceeding or beyond the term hereby granted including the renewed and/or optional period in case of renewal subject to the terms and conditions of these presents."

4. The appellant Company s activity during the period covered

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1972 Supreme(SC) 2

Cases Referred (1)