M. RAMALAKSHMI REDDI VS COMMISSIONER OF INCOME-TAX, 2000 PTD-MADRAS-HIGH-COURT-INDIA 587 (1997)

(a) Income-tax---

----Other sources---Property---Income from property or from others sources- Meaning of "appurtenant" to building---Sale of water from well- --Subsequent construction of building in adjacent land---Well was not appurtenant to building---Income from sale of water was assessable as income from other sources---Indian Income Tax Act, 1961, Ss.22 & 56.

(b) Income-tax---

----Causal and non-recurring receipt---Sale of water---Water supplied in accounting year relevant to assessment year 1970-71 as a friendly gesture and money obtained for it held to be a casual and non-recurring receipt-- Finding that there had been a sale of water in accounting year relevant to assessment year 1975-76---Income derived from sale of water was not a casual and non-recurring receipt in assessment year 1975-76---Indian Income Tax Act, 1961, S. 10(3).

(c) Words and phrases---

----" Appurtenant" ---Meaning.

What is necessary for the enjoyment of the building is alone covered by the expression "appurtenance". The touchstone of "appurtenance" is dependence of the building on what appertains to it for its use as a building. What is integral is not necessarily appurtenant. A position of subordination, something incidental or ancillary or dependent is implied in appurtenance.

The assessee had a well in-the compound of her dwelling house at Madras, with a perennial spring which provided a copious supply of water. During the drought of 1974, she allowed S and a hotel T to draw water from that well and received Rs.52,690 from them therefore. Her net realisation was Rs.46,731 after meeting the expenses of electricity, repairs to motor, salary to watchman and well-deepening charges from time to time. The assessee claimed the. said amount of Rs.46,731 to be not taxable under the Act. The Income-tax Officer, however, included the same in her total income. The appeal by the assessee was dismissed by the Appellate Assistant Commissioner. In the said appellate order, the Appellate Assistant Commissioner referred to the earlier order of the Tribunal in relation to the same assessee in respect of the earlier assessment year 1970-71. During the previous year in relation to that assessment year also the assessee supplied water from the same welt to the said S as well as another party. There was no building on the site in question where the well was situate since the above said dwelling house was constructed only subsequently. 1n the earlier year, the Tribunal exempted the income realised by way of the said sale under section 10(3) of the Income Tax Act, 1961, holding that the said receipt of sale proceeds was casual and non-recurring in nature. The Appellate Assistant Commissioner held that factually the sale proceeds in relation to the assessment year 1975-76 could not be termed casual and non recurring in nature, since the source of income, viz., the well, had become an established and permanent one and a valuable asset and the assessee had exploited the said source employing power and machinery (viz., pump). The Appellate Assistant Commissioner also negatived the contention of the assessee that the above said proceeds realised from the well-water could not be charged to tax since they would fall only under the head "Income from house property" under section 22. of the Act in the assessment year 1975-76. On further appeal, the Tribunal referred to the argument in relation to section 22 of the Act. The Tribunal also negatived the said argument. However, it held that the receipt was casual and non-recurring in nature and exempted it under section 10(3) of the Act to the extent of Rs.1,000 only. On a reference:

Held, (i) that though the portion of the vacant land in which the well was situate could have been earlier appurtenant land to the adjoining dwelling house, which was put up subsequent to assessment year 1970-71 (when the entire vacant land was without any superstructure therein) it (the above said portion) ceased to be an appurtenant land to the said dwelling house and became primarily an independent source of income got from the water from the above said well therein, despite the fact that the well water might have also been utilised by the assessee for her domestic purposes. Hence, the income realised from the water from the well during the relevant previous year could not come under the head "Income from house property".

(ii) That water was initially supplied as a friendly gesture without seeking to make any gain. The assessee came to know that S were utilising the water drawn from the well in their aerated water factory also. Thereupon, the appellant expressed the desire that some payment should be made for the water drawn from the well. That was the reason for holding that the income derived from the well in the assessment year 1970-71 was a casual and non recurring receipt. In the present assessment year, that is, about five years later, not only to the above said S but also to another, viz., a hotel T, water was supplied from the above said well and the payment was received froth the same, right from the beginning and that too after taking into account the quantity of water supplied. In the light of all the above said features, the position had changed in the assessment year 1975-76. The income was assessable under the head "other sources." in the assessment year 1975-76.

CIT v. Ramalakshmi Reddy (1981) 131 ITR 415 (Mad.) distinguished.

CIT v. Karthikeyan (G.R.) 1980) 124 ITR 85 (Mad.); Larsen and Toubro Ltd. v. Trustees of Dharmamurthy Rao Bahadur Calavala Cunnan Chetty's Charites (1988) 4 SCC 260; Maharaj Singh v. State of U.P. AIR 1976 SC 2602 and Nalinikant Ambalal Mody v. Narayan Row (S.A.L.) CIT (1966) 61 ITR 428 (SC) ref.

Uttam Reddy for the Assessee

S.V. Subramanian for the Commissioner

JUDGMENT

ABDUL HADI, J.---At the instance of the assessee, the Tribunal has referred to this Court the following four questions of law with reference to the assessment year 1975-76 under section 256(2) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"):

(1) Whether the Tribunal was right in holding that the receipt of Rs.46,731 is income liable to tax within the definition in the Income-tax Act?

(2) Whether the Tribunal was right in holding that after the amendment of section 10(3), all receipts of a casual and non-recurring nature are exempt only to the extent of Rs.1,000 in the light of the judgment of the High Court, in the case of CIT v. G. R. Karthikeyan (1980) 124 ITR 85 (Mad) exempting the total receipts?

(3) Whether the Tribunal was right in holding that the receipts, although of a casual and non-recurring nature, were income assessable under the head 'other sources'?

(4) Whether the Tribunal was right in holding that there could be an assessment on any amount higher than the bona fide annual letting value of the house property for the assessment year 1975-76 for the reason that there were receipts from the land appurtenant to the building?"

Of the above said four questions, learned counsel for the assessee has represented that he is not pressing for our opinion on the first two questions. Hence, we return the said two questions to the Tribunal unanswered.

With reference to the other two questions, we feel that they could be dealt with together in the light of the only argument advanced by learned counsel for the assessee, though the assessee was taking up different contentions before the Tribunal below. Before actually setting out the said only argument, a few relevant facts may be stated thus: The assessee has a well in the compound of her dwelling house at Madras, with a perennial spring which provides a copious supply of water. During the drought of 1974, she has allowed Spencer & Co. and Hotel Taj Coromandel to draw water from that well and has received. Rs.52,690 from them there for. Her net realisation is Rs.46,731 after meeting the expenses of electricity, repairs to motor, salary to watchman and well deepening charges from time to time. The assessee-claimed that said amount of RsA6,731 to be not taxable under the Act. The Income-tax Officer, however, included the same in her total income. The appeal by the assessee was dismissed by the Appellate Assistant Commissioner. In the said appellate order, the Appellate Assistant Commissioner referred to the earlier order of the Tribunal in relation to the same assessee in respect of the earlier assessment year 1970-71. During the previous year in relation to that assessment year also the assessee supplied water from the same well to the above said Spencer & Co., as well as another party, the First National City Bank. No doubt at that time there was no building on the site in question where the well is situate since the above said dwelling house was constructed only subsequently. In the said earlier year, the income-tax Officer held that the assessee must be taken to have sold the water to the above said two persons. However, the Tribunal, with reference to the said earlier year, exempted the income realised by way of the said sale under section 10(3) of the Act, holding that the said receipt of sale proceeds was casual and non-recurring in nature. The Appellate Assistant Commissioner, in his present appellate order, after stating that in the year 1975-76 exemption under section 10(3) of the Act, cannot be claimed beyond Rs.1,000, factually holds that the same proceeds in relation to the assessment year 1975-76 cannot be termed casual and non-recurring in nature, since the source of income, viz., the well, had become an established and permanent one and a valuable asset and the assessee has exploited the said source employing power and machinery (viz., pump). The Appellate Assistant Commissioner also negatived the contention of the assessee that the above said proceeds realised from the well-water could not be charged to tax since it would fall only under the head "Income from house property" under section 22 of the Act in the assessment year 1975-76, when the abovesaid house building has come into existence, in the land in question together with the appurtenant vacant land therein, where the above said well is situate. The said contention which was negatived was advanced in view of the fact that for the assessment year 1975-76 (though not for later assessment years), in computing the income under the head "Income from house property" the annual letting value of the house property which includes the appurtenant land also, alone could be charged to tax and that having been already charged to tax, nothing further could be included in it, either by way of the above said proceeds realised from the supply of water or otherwise. The Appellate Assistant Commissioner negatived the said contention on the ground that the above said proceeds realised from the well water were not by letting out the well, but it was income from the sale of the appellant's produce from the well, computed with reference to the quantity of water drawn there from. Before the Tribunal also, among other arguments, the above referred to argument in relation to section 22 of the Act was advanced. The Tribunal also negatived the said argument, observing thus:

. . . there was no question of the lease of the well. The assessee was deriving income by giving away the water from the well just as the assessee might derive income by selling the fruits on the trees in a property without letting out the property, it could not be treated as forming part of the annual value so as to assume any double assessment. "

However, after observing that the receipt in question may not be a mere windfall in the present assessment year unlike the earlier assessment year 1970-71, a different view cannot be taken in the present assessment. year since "the facts of this assessment year were substantiality the same. On that footing, the Tribunal sought to follow the order of the High Court, dated July 10, 1980, in T.C. No. 680 of 1976 CIT v. M. Ramalakshmi Reddy (1981) 131 ITR 415 (Mad), arising out of the above referred to earlier order of the Tribunal in relation. to the assessment year 1970-71 and held that the receipt was casual and non-recurring in nature and exempted it under section 10(3) of the Act to the above said extent of Rs.1,000 only.

Before us, learned counsel for the assessee restricted his argument only in relation to the above said contention based on section 22 of the Act. He also relies on the above referred 'to CIT v. M. Ramalakshmi Reddy (1981) 131 ITR 415 (Mad). Further, according to the said learned counsel, the supply of water from the above said well was only in the form of a friendly gesture to the above said Spencer & Ca., and the other party (to whom only a very small quantity of water was supplied) and the proceeds realised cannot be characterised as proceeds of sale of water. He also relies on Nalinikant Ambalal Mody v. S. A. L. Narayan Row, CIT (1966) 61 ITR 428 (SC) and contends that once the above said receipts for the supply of water could be brought only under the head "Income from house property", it could not be brought under any other head, viz., "Profits and gains of business or profession" or "Income from other sources".

On the other hand, learned counsel for the Revenue reiterates the reasoning of the authorities below in relation, to the above said contention based on section 22 and agues that charging the above said sale proceeds to tax under the heal "Income from other sources" is correct. He submitted that the reasoning of CIT v. M. Ramalakshmi Reddy (1981) 131 ITR 415 (Mad) in relation to the assessment year 1970-71 would not apply to the present facts in. relation to the present assessment year.

We have considered -the rival submissions. In our view, the above said only argument of learned counsel for the assessee cannot be accepted for the following reasons: Though the portion of the vacant land in which the well is situate could have been earlier appurtenant land to the adjoining dwelling house, which was put up subsequent to the above referred to earlier assessment year 1970-71 (when the entire vacant land was without any superstructure therein) it (the above said portion) ceased to be an appurtenant land to the said dwelling house and became primarily a source for an independent income got from the water from the above said well in, despite the fact that the well water might have been utilised by the assessee for her domestic purposes. The transformation of the character of the said portion could be implied from the following factual findings in the order of the Appellate Assistant Commissioner:

"As far as 1975-76 is concerned, the source of income has become an established and permanent one, a valuable asset of the appellant. The well has become a perennial source of a produce, viz., water. which is capable of being sold for cash in years of drought which occurs periodically in the city of Madras. And the appellant has shrewdly exploited this source, employing power and machinery (viz., pump)." (Emphasis supplied)

Simply because the same water was also used by the assessee who is living in the above said dwelling house for her ordinary household requirement, it cannot be said 'that the above said portion of the land is appurtenant to the adjoining dwelling house, The present case where a potable water-spring has struck, which becomes a perennial source of potable water, which could be independently commercially exploited easily in order to make considerable gain to the owner thereof and when the above said portion of land has become such a valuable asset, it cannot continue to remain as an appurtenant land. In our view, this is something akin to unearthing or extracting some minerals of some value from an erstwhile appurtenant land and exploiting the same to make a gain.

Once such a thing takes place, even assuming the portion of the land in question was originally appurtenant land, it would cease to be so. Another such illustration may also be given. It may be found that a particular portion of the erstwhile appurtenant land contains soil which is suitable for making bricks. The owner of the property may exploit it and may make a gain. In such a situation also, the said portion of the land cannot be said to continue to remain as appurtenant land. In other words, it will then cease to be an appurtenant land.

We also find that the Supreme Court has observed in Maharj Singh v. State of U, P., AIR 1976 SC 2602, thus (page 2610):

"The key to the solution of the dispute lies in, ascertaining whether land on which the cattle fair was being held was appurtenant to the buildings or not on the strength of its use for the Hat... The heated debate at the Bar on this and allied aspects need not detain us further also because of our concurrence with the second contention of the Solicitor-General that the large open spaces cannot be regarded as appurtenant to the terraces, stands and structures. What is integral is not necessarily appurtenant. A position of subordination, something incidental or ancillary or dependent is implied in appurtenance. Can we say that the large spaces are subsidiary or ancillary to or inevitably implied in the enjoyment of the buildings qua buildings? That much of space required for the use of the structures as such has been excluded by the High Court itself. Beyond that may or may not be necessary for the hat or mela but not for the enjoyment of the chabutras as such. A hundred acres may spread out in front of a club house for various games like golf. But all these abundant acres are un-necessary for nor incidental to the enjoyment of the house in any reasonable manner... Therefore, what is necessary for the enjoyment of the building is alone covered by the expression appurtenance'. If some other purpose was being fulfilled by the building and the lands, it is not possible to contend that those lands are covered by the expression 'appurtenances' . . . In short, the touchstone of 'appurtenance' is dependence of the building on what appertains to it for its use as a building. Obviously, the hat, bazar or mela is not an appurtenance to the building. The law, thus, leads to the clear conclusion that even if the buildings were used and enjoyed in the past with the whole stretch of vacant space for a hat or mela, the land is not appurtenant to the principal subject granted by section 9, -viz., buildings." (emphasis supplied)

Further in Larsen and Toubro Ltd. v. Trustees of Dharmamurthy Rao Bahadur Calavala Cunnan Chetty's Charities (1988) 4 SCC 260, the Relevant observation is as follows (page 269):

"Whether the land is to be treated as appurtenant or not would depend upon the extent and nature of the land and its situation vis-a -vis the building thereon. . ." (Emphasis supplied)

In the light of these observations, we are unable to hold that the portion of the land in which the above referred to well is situate in the previous year in relation to the assessment year 1975-76, can be said to be appurtenant land.

If that is so, there is no scope at all for applying section 22 of the Act. In other words, the income realised from the above said water from the well during the relevant previous year cannot come under the head "Income from house property" as contended by learned counsel for the assessee. If that is so, Nalinikant Ambalal Mody v. S. A. L. Narayan Row, CIT (1966) 61 ITR 428 (SC) has no application at all to the present case. No doubt, learned counsel points out the observation therein that the heads of income were mutually exclusive and the receipts that could be brought under any one of the first five specific heads cannot be brought under the sixth head "Income from other sources". In other words, if only it is held that income in question falls under the head "Income from house property". it could be argued that it cannot fall under the sixth head of income, viz., income from other sources. But, in our view, the income in question does not fall under the head "Income from the house property".

No doubt, learned counsel for the assessee very much relies on CIT v. M. Ramalakshmi Reddy (1981) 131 ITR 415 (Mad), a decision rendered in the case of the same assessee in the above referred to assessment year 1970-71 in relation to the water taken from the above said same well. But, first of all, it must be pointed out that the question of applicability of section 22 was not considered in the above said case. There, the only question was whether the receipts got in supplying the above said water were casual in nature. The more important distinguishing feature therein can be seen from the following observation (page 418):

"What the Courts have laid down is that a receipt cannot be treated as income where no characteristic of income can be detected in it. Where a person gets some receipt of money where he does not angle for it, or where it is not the product of an organized seeking after emoluments, or where it is merely a chance encounter with a venture, which while enriching him, does not form part of any scheme of profit-making, the idea of income is absent. The real basis for this conception of non-taxable casual receipt is that the transaction in question which produces it does not constitute any trade or an adventure in the nature of trade."

Such an observation has been made in that case because in that year, water was initially supplied as a friendly gesture without seeking to make any gain. That is why in the present first appellate order, it is said in relation to the above referred to earlier assessment year thus:

"At one of the rotary meetings. . . the Secretary of Spencer & Co. Ltd., happened to discuss with the appellant's husband about the serious shortage of water in Connemara Hotel. To tide over the difficulty on account of the water scarcity, the appellant's husband suggested that the Spencer & Co. Ltd., could draw water from the well. The drought continued and the appellant came to know that Spencers were utilising the water drawn from the well in their aerated water factory also. Thereupon, the appellant expressed the desire that some payment should be made for the water drawn from the well." (Emphasis supplied)

While so, coming back to the present assessment year, that is, about five years later, not only to the above said Spencer & Co., but also to another, viz., Hotel Taj Coromandal, water was supplied from the above said well and the payment was received for the same right from the beginning and that too after taking into account the quantity of water supplied. In the light of all the above said features, the position has changed in the assessment year 1975-76. Therefore, the decision in CIT v. M. Ramalakshmi Reddy (1981) 131 ITR 415 (Mad) cannot be applied to the present case.

Learned counsel for the assessee also argues that the assessee exploited the above said well water, only in the assessment years 1970-71 and 1975-76 and not in the years in between and that, therefore, even for the assessment year 1975-76, it cannot be considered that the supply of the said water was a commercial activity. But, we cannot countenance this argument since there is no such factual finding by the Tribunal or any of the authorities below.

For all these reasons, we answer the above referred to third and fourth questions in the affirmative and against the assessee. In the circumstances of the case, there will be no order as to costs.

M.B.A./3229/FC Reference answered