S. G. MERCANTILE CORPN. (P) LTD. versus THE C.I.T., CALCUTTA

Citation: [1972] 2 S.C.R. 980 · Decided: 04-01-1972 · Supreme Court of India · Bench: J.M. SHELAT · Disposal: Appeal(s) allowed

Judgment (excerpt)

·980 
S. G. MERCANTILE CORPN. (P) L1D. 
v. 
TilE C.I.T., CALCUTI' A 
January 4, 1972 
.[J. M. SHELAT, I. D. DuA, H. R. KHANNA AND G: K. MITTER, JJ.] 
Income Tax Act; 1922, ss. 10, 1~ompany formed with the object 
of acquiring or taking on lease laltds buildings et'C. c:nd dealing with them 
.commercially-Company taking on lease market place and letting it out-
Income from the leasehold property whether to be assessed unde s. 10 
or s. 12-..:.Tests for petermtning. 
· 
The appellant company was formed with the object, inter alia, to pur-
.c:hase, take on lease or otherwise acquire and to hold, cultivate, improve, 
lease, sell, exchange, mortgage, or otherwise dispo_e of lands or houses 
. .and other real and personal property and to deal with the same commer-
cially. The company took on lease a market place on a monthly rent with 
the right to sub-let the different pOrtions. The company's aCtivity ,dl¢ng 
the period covered by the assessment years 1956-'56, 1957-'5& '3Ild 195p-'59 
was that of developing the demised premises and letting out the portions 
of the same as shops, stalls and ground space. In assessment proceedings, 
the company claimed that its income from the lease hold property fqr the 
.assessment years had to be assessed under s. 10 of the Income T!!X Act. 
1922 as Jeiting om of properly was its business authorised by the, ¢emo-
randum of association. The b_lcoroe Tax Officer, and the Appellate A,8sis-
tant Commi sioner in appel, rejected the 
company's claim and· made 
assessment under s. 12 of the Act as "income· from other .source." The 
.appellate Tribunal held that the income of the appellant company from 
sub-letting of the stalls was income from business· taxable under s. 10 of 
the Act. 
According to the Tribunal the decision could only tum 1,1pon 
the object for which the company was formed and upon the activities·. of 
the company during the relevant accounting years. 
The High COurt, 
·~n 
reference, answered that the income was not assessaole under s.: 10. · It 
observed that by letting out shops and stalls· the assessee could not bo said 
to be carrying on any activity in the nature of trade or was dealing with 
. them commercially. 
In appeal by ~pecial leave, 
HELD: The income was assesSable under s. 10 and not under s. 12 
·Of the Act. 
(i) There is no finding in the pr~ent case that the appellant company 
is the owner of the property in question or any part thereof. Therefore, 
s. 9 does not apply. The liability under s. 9 of the Act is of the owner 
of the buildings or lands appurtenant thereto. In case the assessee is the 
owner he -would be liable to pay tax under s. 9 even if the object of the 
assessee in purchasing the landed property was to promote and develop 
market thereon. It would also make no difference if the assessee was 
a company which had ~en incorpdrated with the object of buyi1.1.& and 
developing landed properties and promoting and setting up market there-
on. 
The income derived by such a company from_ the tenants .of the 
shops and stalls constructed on the land for the purposes of settmg .up 
market would not be taxed as "business income" under s. 10 of the Act. 
.[985 D-G] 
East India Housing Esta~ case, [1961] 42 J.T.R. 49, referred to. 
; 
i 
A 
I 
c 
D 
E 
F 
G 
H 
{ -
A 
B 
c 
D 
E 
F 
G 
S. G. MERCANTILE CORP. v. C.I.T. (KJumna, /.) 
(ii) Section 12 which deals with the residuary head of income can 
be resorted to only if none of the specific heads is applicable to the income 
in question. Therefore, s. 12 can be invoked in the present case only if 
the applicaoility of s. 10 is excluded by holding that the income of the 
appellant company from the p!'OJX'rty in question is not income from 
J>usiness. [987 D) 
(iii) The dcfinitio:1 of the word "business'' in s. 2(4) embraced with-
in itself dealing in real property as also the activity of taking a property 
on lease, setting up ·a market thereon and letting out the shops and stalls 
in the market. The important question which arises in ~e latter case is 
whether the acquisition of the property on leas<! and lettinl! out of the 
shops and sfalls wa~; in th') course of investm:!nt or whether it was ·~sen· 
tially a part of the business and trading operation of the ass~ssce. The 
paramount consiri•~ration which would weigh is whether the acquisition 
of the property was by way of investment and whether the 
property 
was let out b->..cause of the a sessee having a title in the same, or whether 
the acquisitio

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