Supreme Court: Sub-letting income taxable as business, not other sources

SG Mercantile Corporation Pvt. Limited Versus Commissioner of Income-Tax, Calcutta

SG Mercantile Corporation Pvt. Limited Versus Commissioner of Income-Tax, Calcutta - [1972] 83 ITR 700 (SC), AIR 1972 SC 732 Issues Involved:
1. Whether the income from sub-letting the stalls of Taltolla Bazar was assessable under section 10 or section 12 of the Indian Income-tax Act, 1922.

Issue-Wise Detailed Analysis:

1. Assessability of Income from Sub-letting Stalls:
Background:
The appellant, a private limited company, was incorporated on January 25, 1955, with objects including the acquisition and commercial dealing of real property. The company took a lease of Taltalla Bazar in Calcutta and engaged in developing the premises and sub-letting portions as shops, stalls, and ground spaces.

Tribunal's Decision:
The Tribunal concluded that the activities of the appellant in taking the lease and sub-letting the demised premises were undertaken with the object of doing business. Therefore, the income from sub-letting the stalls was considered business income taxable under section 10 of the Act.

High Court's Decision:
The High Court held that the income from sub-letting the stalls was not assessable under section 10. It observed that letting out shops and stalls to shopkeepers and stallholders was a normal activity of an owner or lessee of such a market and did not constitute a trading activity. The High Court referenced the Supreme Court decision in East India Housing Estate case, concluding that the income should be assessed under section 12 as income from other sources.

Supreme Court's Analysis:
The Supreme Court disagreed with the High Court's judgment, emphasizing the following points:

- Section 9 and Ownership: Section 9 deals with income from property and applies to the owner of the buildings or lands appurtenant thereto. Since the appellant was not the owner but a lessee, section 9 was not applicable.

- Section 10 and Business Income: Section 10 deals with income from business. The definition of 'business' under section 2(4) includes any trade, commerce, or manufacture. The court noted that the appellant's activities of taking a property on lease, setting up a market, and letting out shops and stalls could fall within this definition if done as part of trading operations.

- Investment vs. Trading Activity: The court highlighted that the crucial factor is whether the acquisition and letting out of the property were part of the business and trading activity of the appellant. It referenced the Karanpura Development Co. Ltd. case, where similar activities were considered trading operations.

- Specific vs. Residuary Heads: The court reiterated that section 12, being a residuary head, could only be invoked if none of the specific heads, including section 10, were applicable. Since the appellant's activities could be appropriately classified under section 10 as business income, section 12 was not applicable.

Conclusion:
The Supreme Court concluded that the appellant's activities of taking the property on lease and sub-letting portions were part of its business and trading operations. Therefore, the income from sub-letting the stalls was assessable under section 10 and not under section 12 of the Act. The appeal was allowed, and the judgment of the High Court was set aside.

Final Judgment:
The income in question was assessable under section 10 and not under section 12 of the Act. The appellant was entitled to the costs of the court as well as those of the High Court. Appeals allowed.