PAREKH TRADERS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee at whose instance this reference under S. 256(I) of the IT Act, 1961, is made, is a registered firm carrying on business in the manufacture and sale of manure mixtures. It is assessed to income tax at Poona. It constructed a godown outside the limits of the Poona Municipality. From July, 1968, till the middle of November, 1968, it used the godown for storing its raw materials, and finished products. Thereafter, the godown was let out to the State of Maharashtra and the tenancy continued up to January, 1971. Thereafter, the assessee obtained possession of the godown and began using it for its own purposes. In the asst. year 1970 71, with which we are here concerned, the assessee disclosed the figure of Rs. 80,092 as income from house property against the godown rent of Rs. 1,08,300 received from the State. Thereafter, it sought to file revised returns in respect of this income from house property. The ITO held that the rent received for the godown could not be treated as income from house property and assessed it as income from other sources. The AAC, to whom the assessee appealed, held that the godown rent had to be computed as income from house property and that the annual value of the godown was Rs. 1,08,300. Against the order of the AAC, the assessee filed an appeal to the Tribunal and the ITO filed cross objections. The Tribunal placed reliance on the judgment of this Court in CIT vs. National Mills Co. Ltd. (1958) 34 ITR 155 (Bom) : TC12R.164 and held that the godown rent should be treated as income from business and remanded the matter to the ITO to compute it as such after giving fresh opportunity to the assessee of being heard. In the view that they took, it was not necessary to deal with the question relating to the annual value of the godown.

(2.) THE assessee has sought a reference and the question that we have to answer is this :

(3.) IN CIT vs. National Storage Private Ltd. (1963) 48 ITR 577 (Bom) : TC13R.919, this Court was concerned with a case in which the assessee was a company promoted by the film distributors in Bombay to carry on business of storing and preserving films, chemicals, cinema accessories and any articles of merchandise in the cinema industry in suitable vaults specially constructed for the purpose and equipped with all the necessary arrangements and, for that purpose, to build or construct such vaults upon land to be purchased/leased. The assessee purchased a plot and constructed vaults which were permitted to be used by film distributors on payment of a monthly charge. The assessee rendered certain services to the vault holders such as fire service, provision of railway booking offices and a canteen and telephone. It maintained a regular staff for running these services. The ITO took the view that the income which the assessee obtained from these activities was income from house property and not income from business. Before the Tribunal there was a difference of opinion, the majority holding that the income so derived was income from business. A reference was made to this Court and it was held that the majority view of the Tribunal was right. In so holding, this Court considered various applicable decisions and drew seven conclusions therefrom. Conclusions 4 and 5 are material and read thus :