Letting of owned property yields property income, while a fort used for estate purposes qualified as agricultural income and stayed exempt.

Income from market properties owned and merely let out by the assessee was held to arise from exploitation of property as owner, not from any trading or commercial activity carried on by the assessee; it was therefore assessable as income from property under section 9 and not as business income under section 10. Income from the building called the fort was held to be agricultural income because its location near the agricultural lands and its use for storing agricultural produce and for estate offices satisfied the statutory condition as to situation and purpose under section 2(1)(c); that income was therefore exempt.

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Issues: (i) Whether the income from the market properties was assessable as business income under section 10 of the Indian Income-tax Act, 1922, or as income from property under section 9; and (ii) whether the income from the building called "fort" was agricultural income within section 2(1)(c) of the Indian Income-tax Act, 1922 and therefore exempt.

Issue (i): Whether the income from the market properties was assessable as business income under section 10 of the Indian Income-tax Act, 1922, or as income from property under section 9.

Analysis: The source and character of the income had to be determined by the nature of the activity from which it arose. The assessee owned the market buildings, shops, godowns and open sites and had merely leased them out. He did not himself carry on any trading or commercial activity in the market. The existence of a municipal licence, staff and amenities did not change the character of the receipts, because the income arose from exploitation of property as owner and not from the conduct of a business. The cases relied on by the assessee concerned assets acquired and used in an existing business or temporarily let out as commercial assets, which was materially different from the present letting of property.

Conclusion: The income from the market properties was not assessable under section 10 and was assessable as income from property under section 9. The answer was against the assessee and in favour of the Revenue.

Issue (ii): Whether the income from the building called "fort" was agricultural income within section 2(1)(c) of the Indian Income-tax Act, 1922 and therefore exempt.

Analysis: Agricultural income depends on the situation and purpose for which the building is occupied within the meaning of the proviso to section 2(1)(c). The Tribunal's earlier view was not supported by adequate evidence, so further particulars were called for. The supplementary material showed that the fort was near the assessee's agricultural lands and that parts of the building were used for storing agricultural produce and for offices connected with the agricultural estate. On that material, the statutory condition as to situation and purpose was satisfied. The earlier exemption granted by the department also supported the conclusion that the income answered the statutory description.

Conclusion: The income from the fort was agricultural income within section 2(1)(c) and was exempt from tax. The answer was in favour of the assessee.

Final Conclusion: The reference was answered by holding that the market income fell under the property head, while the fort income qualified as exempt agricultural income.

Ratio Decidendi: Letting of owned property, without the owner carrying on a business in the relevant activity, yields income from property and not business income; a building falls within agricultural income only when its situation and use satisfy the statutory condition attached to the exemption.

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