COMMISSIONER OF INCOME-TAX, BOMBAY CITY-1, BOMBAY vs. NATIONAL STORAGE PVT. LTD., BOMBAY

CIVIL APPEAL No. 1048/1966Supreme Court[1967] 3 S.C.R. 81326 April 1967Bench: 3 JudgesAuthor: J.C. SHAH, S.M. SIKRI, V. RAMASWAMI COMMISSIONER8 pages
AI SummaryDismissed

What were the facts?

The assessee, National Storage Pvt. Ltd., was promoted to construct and operate film storage vaults in compliance with Cinematograph Rules, 1948. These vaults were of special design with specific fittings. The assessee entered into agreements with film distributors (vault-holders) for the use of these vaults. While vault-holders retained the key to their individual vaults, the assessee retained the key to the main entrance, providing access. The assessee also provided services like fire alarms, railway booking offices, and employed staff. The dispute arose concerning the assessment of income under Section 9 or Section 10 of the Income-tax Act, 1922, for assessment years 1950-51 to 1954-55. The High Court had ruled in favour of the assessee.

What did the Supreme Court hold?

The Tribunal held that the assessee was carrying on an adventure or concern in the nature of trade, and therefore, the income was assessable under Section 10 of the Income-tax Act, 1922, and not under Section 9. The reasoning was that the assessee not only constructed specialized vaults but also provided significant additional services to the vault-holders, including fire alarms, railway booking offices, and maintenance of regular staff. The agreements were deemed to be licenses, not leases, and the assessee remained in occupation of the premises for its own concern of hiring out vaults and providing services. The Tribunal rejected the revenue's argument that the Act contemplates separate assessments for rental income and business income when the assessee is in occupation for business purposes, citing that the scheme of the Act does not differentiate in such a manner if the property is occupied for business. The ratio is that income derived from a complex subject hired out with significant services, constituting an adventure in the nature of trade, is assessable under Section 10, even if it involves property, and the assessee's occupation for such business purpose is key.

What were the issues?

1. Whether, on the facts and circumstances, the vaults were used for the purposes of business and the income arising therefrom is assessable under Section 10 of the Income-tax Act, 1922? - Assessee's contention: The assessee argued that its activities constituted an adventure or concern in the nature of trade, making the income assessable under Section 10. They relied on the case of The Governors of the Rotunda Hospital, Dublin v. Coman, highlighting that the subject hired out was complex and involved services beyond mere property rights. - Revenue's contention: The revenue contended that Section 9 applied, arguing that the assessee was not in occupation of the premises for the purpose of any concern of its own and that the licensees were in possession as lessees, not merely licensees. They also argued that the Act contemplates separate assessments for rental income under Section 9 and business income under Section 10.

Which sections of the Income-tax Act were involved?

Section 9,Section 10,Section 12,Section 66A(2)

AI-generated summary — verify with the full judgment below

A COMMISSIONER Of<' INCOME-1AX, BOMBAY CITY-1, BOMBAY B c D E F G H v. NATIONAL STORAGE PVT. LTD., BOMBAY April 26, 1967 (J. C. SHAH, S. M. SIKRI AND V. RAMASWAM), JJ.J /ndiGn Income-tax Act (11 of 1922), ss. 9 & 10-Assessce's premises hired out--Not an ordinary lease but ,for purposes of its 01t.•n business- Assessment under which head.

The assessee-Company was promoted because the Government of India promulgated the Cinematograph Rules, 1948, according to which distri- butars of films were required to store films in godowns constructed in conformity with the specifications laid down in the Rules. The assessee constructed vaults of special design with special doors and electrical fit· tings as required and entered into agreements with several distributors who became vault-holders paying certain amounts for the use of the vaults. The key to each vault was retained by the vault-holder, but the kev to the entrance which permitted access to the vaults was kept in the exCiusive possession of the assessee. The assessee rendered valuable ser- vice to the vault-holders by installing a fire alarm, by opening Railway Booking Offices in the premises and by employin

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