1962 (9) TMI 55

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.... meals and use of residential furnished rooms. It is common ground that the rent received by the assessee for rooms let out by it to its members was Rs. 10,062. When the assessment for the year 1955-56 came to be made, the Income-tax Officer treated this amount of rent realised by the assessee from the members as income from property assessable under section 9 of the Indian Income-tax Act. From this he deducted 25% on account of estimated rent of furniture. He computed the annual letting value of the building in the use of the club at Rs. 4,800 and after making allowance for house-tax and water-tax and for repairs computed the income of the assessee at Rs. 9,329. The entire income was computed under section 9 of the Indian Income-tax Act by the Income-tax Officer as income from property. The order passed by the Income-tax Officer is part of the case and is annexure "A". 4. The assessee took up an appeal against the assessment before the Appellate Assistant Commissioner. It was contended that the entire activity of the assessee in providing amenities to both the categories of members mentioned above was a business activity and the realisations made by the assessee were therefore ....

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....income from business, profession or vocation. A copy of the order of the Tribunal is part of the case and is annexure "C". 6. On these facts we refer the following questions of law for the opinion of their Lordships:              "(1) Whether the rent realised by the assessee from its members was income from property liable to be assessed under section 9 of the Indian Income-tax Act? If not,              (2) Whether the principle of mutuality entitling an assessee to exemption from income-tax on his receipts would apply only to receipts assessable under section 10 under the head 'profits and gains of business, profession or vocation' or would apply also to receipts assessable under the head 'income from property' under section 9 of the Indian Income-tax Act?" 7. The statement of the case was placed before the parties. The parties admit that all material facts have been clearly stated in the statement of the case. The assessee made minor suggestions some of which have been accepted. The Commissioner of Income-tax suggested modification o....

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.... (by receiving the rent) and that because there was an identity between the participants and the contributors there was no question of assessing tax. The argument was that no tax can be assessed on what one realizes from one's own self. The Appellate Assistant Commissioner dismissed the appeal, rejecting the assessee's claim that on account of the principle of mutuality it was not liable to pay any tax on the income from the rent. The assessee went up in further appeal to the Tribunal, which by a short judgment set aside the assessment order. The assessee was assessed on the income as income from property under section 9 and not on income from business under section 10. The Tribunal did not set aside the orders of the Income-tax Officer and the Appellate Assistant Commissioner that the income came under the head of income from property and did not hold that it was really income from business assessable under section 10; still it held that the principle of mutuality applied because in its opinion there was an identity between the contributors and the participants. It observed that a person cannot be said to trade with himself, that the rent received by the assessee from the ....

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....ion. The assessee is not carrying on any business or profession in the quarters; therefore, the income from them is not exempted by anything contained in section 9. There is no provision, and there is no law, which exempts from assessment income from house property on the sole ground that the contributor of the income and the recipient are one and the same person. On the other hand the fact that under the law an owner is liable to pay income-tax on the annual letting value even if he himself occupies the house shows that the principle of mutuality does not apply in a case governed by section 9. Naturally, when the basis for assessing tax on income from property is the mere ownership of the property and not the actual realisation of income, the question whether the payer and the recipient are one and the same person cannot arise. It is only when what is assessed is income from business that the principle of mutuality may be applicable; where the basis for assessment is the earning of income, the question may arise whether the recipient of the income and the payer are not one and the same person. In United Service Club, Simla v. Emperor A.I.R. 1921 Lah. 208 it was held that a club....