1947 (2) TMI 21 - HC - Income Tax

Upper India Chamber of Commerce assessed under Income-tax Act, granted exemption for property used for vocation.

Upper India Chamber of Commerce, Cawnpore Versus Commissioner of Income-Tax, C.P. & U.P.

Upper India Chamber of Commerce, Cawnpore Versus Commissioner of Income-Tax, C.P. & U.P. - [1947] 15 ITR 263 Issues Involved:1. Whether the Upper India Chamber of Commerce, Cawnpore, was rightly treated as a company within the meaning of Section 2(6) of the Income-tax Act and assessed as such to income-tax for the assessment years 1938-39 and 1939-40.2. Whether in respect of the annual value of one half portion of the house property used as the premises of the Chamber, the Chamber is entitled under Section 9(1) to exemption from income-tax as for a portion of the property occupied by the assessee for the purpose of the vocation carried on by it.Detailed Analysis:Issue 1: Company Status Under Section 2(6) of the Income-tax ActThe primary question was whether the Upper India Chamber of Commerce, Cawnpore, should be considered a company under Section 2(6) of the Indian Income-tax Act, 1922, and thus be assessed as such for the years 1938-39 and 1939-40.- Argument Against Company Status: The assessee argued that it should not be treated as a company for tax purposes because it did not engage in business with a profit-making motive, which is typically associated with limited liability companies.- Judgment: The court found that the definition of a company under Section 2(6) of the Indian Income-tax Act includes any entity registered under the Indian Companies Act, regardless of its profit-making motives. The court stated, 'I can find no reason for supposing that a company registered under Section 26 of the Indian Companies Act is not a company for all purposes, including that of taxation.' Thus, the court affirmed that the Upper India Chamber of Commerce was rightly treated as a company and assessed accordingly.Issue 2: Exemption Under Section 9(1) for Property Occupied for VocationThe second question involved whether the Chamber was entitled to an exemption from income tax under Section 9(1) of the Act for the portion of its property used as its premises, on the grounds that it was occupied for the purpose of a vocation carried on by it.- Initial Findings: The Income-tax Officer assessed the Chamber's income from interest on securities, deposits, and property without apportioning for any business, profession, or vocation. The Chamber argued that it was carrying on a 'vocation' and should be entitled to the benefit of Section 9(1).- Tribunal's Decision: The Appellate Tribunal did not concede this, stating that the Chamber was not carrying on a business as defined in Section 2(4) of the Act.- Legal Question: The court had to determine whether the Chamber's activities constituted a 'business' or 'vocation' whose profits were assessable to tax, thus qualifying for the exemption under Section 9(1).Analysis by Judges:- Braund, J.:- Question of Law: Braund, J. opined that the question of whether the Chamber's activities constituted a 'business' or 'vocation' involved a question of law.- Business or Vocation: He concluded that the Chamber's activities did not amount to a 'business' or 'vocation' as they were not substantive or systematic enough to be considered as such under the Income-tax Act. He stated, 'In my view, upon a proper construction of the words 'business' and 'vocation' in the context of the Indian Income-tax Act, there must be some real, substantive and systematic course of business or conduct.'- Conclusion: He proposed that the second question should be answered in the negative, indicating that the Chamber was not entitled to the exemption.- Iqbal Ahmad, C.J.:- Agreement on Law: Agreed with Braund, J. on the legal questions but differed on the application.- Exemption Entitlement: He argued that the Chamber's activities, such as managing affairs of other associations and registering trademarks, did amount to a 'business' or 'vocation.' He stated, 'The activity in question of the assessee does, in my judgment, amount either to business, or to vocation within the meaning of Section 9(1) of the Act.'- Conclusion: He proposed that the second question should be answered in the affirmative, granting the exemption.Final Judgment by Verma, J.:- Resolution: Verma, J. agreed with Iqbal Ahmad, C.J., concluding that the Chamber's activities did amount to a 'vocation' within the meaning of the Income-tax Act. He stated, 'The very fact that items of this nature appear in the books of both the years in question... prima facie conveys a certain idea of regularity and continuity.'- Final Decision: The second question was answered in the affirmative, granting the exemption under Section 9(1).Conclusion:Both questions referred to the court were answered in the affirmative. The Upper India Chamber of Commerce was rightly treated as a company for tax purposes, and it was entitled to an exemption for the portion of its property used for its vocation. The parties were directed to bear their own costs, and the fee for the counsel of the Income-tax Department was assessed at Rs. 250.