SULTAN BROTHERS (P) LTD. vs. COMMISSIONER OF INCOME-TAX

CIVIL APPEAL No. 63/1961Supreme Court[1964] 5 S.C.R. 80706 December 1963Bench: 5 JudgesAuthor: BHUVNESHWAR PRASAD SINHA, A.K. SARKAR, M. HIDAYATULLAH, K.C. DAS GUPTA, N. RAJAGOPALA AYYANGAR17 pages
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What were the facts?

The appellant, Sultan Brothers (P) Ltd., owned a building in Bombay, which it leased out fully equipped and furnished for running a hotel. The lease, dated August 30, 1949, was for six years from December 9, 1946, with a monthly rent of Rs. 5,950 for the building and Rs. 5,000 for furniture and fixtures. The dispute concerned how this income should be assessed under the Income-tax Act, 1922. The Income-tax Officer assessed the building income under Section 9 and furniture hire under Section 12. The Appellate Assistant Commissioner held building rent assessable under Section 12(4) only if furniture letting was indispensable. The Income-tax Appellate Tribunal confirmed the authorities below, disallowing Section 12(4) allowances as building letting was not incidental to furniture letting. The appellant's contention that the entire income was from business under Section 10 was rejected.

What did the Supreme Court hold?

The Supreme Court held that the letting of the building and furniture was inseparable, satisfying the conditions for Section 12(4) of the Income-tax Act, 1922. The Court found that the lease agreement clearly indicated the intention of the parties for the building and furniture to be enjoyed together, citing clause 1(a) of the lessee's covenant which stipulated their use for running a hotel. While certain clauses regarding renewal and damage to the building did not explicitly mention furniture, other clauses like 11(d) and 1(e) demonstrated the lessor's obligation to provide and maintain furniture during the lease term, including renewals and replacements. Therefore, the income from the building should be computed separately and the appellant is entitled to allowances under Section 12(4), while income from furniture and fixtures is subject to allowances under Section 12(3). No part of the income is assessable under Section 9 or Section 10. The High Court's judgment was set aside.

What were the issues?

1. Whether the income derived from the letting of the building is properly to be computed under Section 9, 10, or 12 of the Income-tax Act, 1922. Assessee's contentions: - The entire income should be assessed under Section 10 as income from business, as the letting out of the totality of the assets constituted the assessee's business. - Alternatively, the income should be assessed under Section 12 as income from a residuary source, with allowances under sub-sections (3) and (4). Revenue's contentions: - The income from the building should be assessed under Section 9 as it is the specific section covering property income. - The Appellate Assistant Commissioner held that Section 12(4) allowances were applicable only if letting the building was indispensable for letting the furniture and fixtures, which was not the case. - The Tribunal held that Section 12(4) allowances were permissible only when building letting was incidental to furniture letting, which was not the case here.

Which sections of the Income-tax Act were involved?

Section 9,Section 10,Section 12,Section 12(3),Section 12(4),Section 66(1)

AI-generated summary — verify with the full judgment below

. 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 res- pondent 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 Ta

The order continues below.

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