At the instance of the assessee, the following question has been referred to for opinion of the Court by the Tribunal, Cochin Bench in terms of Section 256(1) of the IT Act, 1961 (in short 'the Act') : 

"Whether the Tribunal was correct in their finding that the rental income received by the appellant is assessable under
the head 'Other sources' ?" 

2. Background of the facts are undisputed, and as set out in the statement of case, stand essentially as follows :

Assessee completed construction of his property in the previous year relating to the asst. yr. 1983-84, and the same was in existence for a period of 10 months in the said previous year. It was let out on a monthly rent of Rs. 3,000 and in the said previous year, the total rent received was Rs. 30,000 for a period of two months. On the basis that "annual value" represents rent for one year, it was contended by the assessee that the property should exist for a whole year to be liable to tax. As the property existed for less than a year, assessee claimed the income as non-taxable. The AO did not accept the plea; but the Commissioner of Income Tax (Appeals) (in short, the CIT'A') allowed claim of the assessee. Revenue preferred second appeal before the Tribunal. By order dt. 7th October, 1993, the Tribunal held that it is "income from property", but since it is not covered by the term "annual value", such income from property cannot be assessed under that head.

However, since all incomes are to be subjected to tax under the scheme of the Act, said income is chargeable under the head "other sources". While directing so, the Tribunal directed the AO to consider the question relating to allowability of expenses by way of municipal taxes or otherwise against the rental income from the property.Though three questions were proposed by the assessee for reference, only one question as referred to above has been referred. 

3. Learned counsel for the assessee submitted that taking into account the definition of "total income" as contained in
Section 2(45) of the Act, view of the Tribunal is not sustainable. It is not a case where the income was not "chargeable" or "assessable". It is a case of income being not "computable". Therefore, the Revenue could not have fallen upon the residuary clause. It is stated that Section 56 deals inter alia, with income from "other sources". The said provision is applicable only where the income is not chargeable under any other head in Section 14 i.e.; items A to E. Reliance is placed on a decision of the apex Court in Nalinikant Ambalal Mody vs. CIT (1966) 61 ITR 428 (SC) : AIR 1967 SC 193 and a decision of the Bombay High Court in CIT vs. T. P. Sidhwa (1981) 21 CTR (Bom) 146 : (1982) 133 ITR 840 (Bom) : TC 40R.335 in support of the stand. Learned counsel for the Revenue, on the other hand, submitted that income of every description is subjected to tax and only where it is excluded by the specific provision under the statute, it can be excluded from the scope of computation and levy of income-tax. Reference is made to Section 2(24) of the Act defining "income". The nature of income earned by the assessee is not one which is excluded from the scope of levy and, therefore, the view of the Tribunal was justified.

4. At this juncture, it is necessary to take note of the various provisions referred by the parties. Section 2(24), Section 2(45), Section 14 and 56 are relevant for the purpose of adjudication of the dispute. They read as follows : 

"Section 2(24) 'income' includes :

(i) profits and gains; 

(ii) dividend; 

(iia) voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes or by an association or institution referred to in cl. (21) or cl. (23), or by a fund or trust or institution referred to in sub-cl. (iv) or sub-cl. (v) of cl. (23C) of  Section 10.

Explanation - For the purposes of this sub-clause, 'trust' includes any other legal obligation; 

(iii) the value of any perquisite or profit in lieu of salary taxable under cls. (2) and (3) of Section 17.

(iiia) any special allowance or benefit, other than perquisite included under sub-cl. (iii) specifically granted to the assessee to meet expenses wholly, necessarily and exclusively for the performance of the duties of an office or employment of profit; 

(iiib) any allowance granted to the assessee to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at a place where he ordinarily resides or to compensate him for the increased cost of living; 

(iv) the value of any benefit or perquisite, whether convertible into money or not, obtained from a company either by a director or by a person who has a substantial interest in the company, or by a relative of the director or such person, and any sum paid by any such company in respect of any obligation which, but for such payment, would have been payable by the director or other person aforesaid; 

(iva) the value of any benefit or perquisite, whether convertible into money or not, obtained by any representative assessee mentioned in cl. (iii) or cl. (iv) of sub-section (1) of Section 160 or by any person on whose behalf or for whose benefit any income is receivable by the representative assessee (such person being hereafter in this sub-clause referred to as the "beneficiary") and any sum paid by the representative assessee in respect of any obligation which, but for such payment, would have been payable by the beneficiary; 

(v) any sum chargeable to income-tax under cls. (ii) and (iii) of section Section 28 or section 41 or section 59 ;

(va) any sum chargeable to income-tax under cl. (iiia) of section 28.

(vb) any sum chargeable to income-tax under cl. (iiib) of section 28.

(vc) any sum chargeable to income-tax under cl. (iiic) of section 28.

(vd) the value of any benefit or perquisite taxable under cl. (iv) of section section 28.

(ve) any sum chargeable to income-tax under cl. (v) of section 28.

(vi) any capital gains chargeable under section 45 or section 41.

(vii) the profits and gains of any business of insurance carried on by a mutual insurance company or by a co-operative society, computed in accordance with section 44 or any surplus taken to be such profits and gains by virtue of provisions contained in the First Schedule:or section 41

(viii) [Omitted by the Finance Act, 1988 w.e.f. 1st April, 1988. Original sub-cl. (viii) was inserted by the Finance Act, 1964, w.e.f. 1st April, 1964.] 

(ix) any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever; 

(x) any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees' State Insurance Act, 1948 (34 of 1948), or any other fund for the welfare of such employees; 

(xi) any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy or section 41

Explanation - For the purposes of this clause, the expression 'Keyman insurance policy' shall have the meaning assigned to it in the Explanation to cl. (10D) of section 10.

"Section 2(45) 'total income' means the total amount of income referred to in section 5, computed in the manner laid down in this Act;" 

"Section 14.Save as otherwise provided by this Act, all income shall, for the purposes of charge of income-tax and computation of total income, be classified under the following heads of income :

A. Salaries.  ........... 

C. Income from house property. 

D. Profits and gains of business or profession. 

E. Capital gains. 

F. Income from other sources." 

"Section 56. (1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head 'Income from other sources', if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E.

(2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head "Income from other sources", namely : 

(i) dividends; 

(ia) income referred to in sub-cl. (viii) of cl. (24) of section section 2.

 (ib) income referred to sub-cl. (ix) of cl. (24) of section section 2.

(ic) income referred to in sub-cl. (x) of cl. (24) of section 2, if such income is not chargeable to income-tax under the head Profits and gains of business or profession'; or section 41

(id) income by way of interest on securities, if the income is not chargeable to income-tax under the head 'Profits and gains of business or profession'; 

(ii) income from machinery, plant or furniture belonging to the assessee and let on hire, if the income is not chargeable to income-tax under the head 'Profits and gains of business or profession'. 

(iii) where an assessee lets on hire machinery, plant or furniture belonging to him and also buildings, and the letting of the buildings, is inseparable from the letting of the said machinery, plant or furniture, the income from such letting, if it is not chargeable to income-tax under the head 'Profits and gains of business or profession'; 

(iv) income referred to in sub-cl. (xi) of cl. (24) of section 2, if such income is not chargeable to income-tax under the head 'Profits and gains of business or profession' or under the head 'Salaries'." 

5. In the case of Emil Webber vs. CIT (1993) 110 CTR (SC) 257 : (1993) 200 ITR 483 (SC) : TC 41R.421, the apex Court was dealing with a situation akin to the present one. There, the decision of the Bombay High Court in T. P. Sidhwa's case (supra) and the decision of the apex Court in Mody's case (supra) were taken note of. With reference to the income chargeable under the head "income from other sources", it was observed as follows : 

"........... it cannot be brought within the purview of section 17 of the Act. It must necessarily be placed under sub-section (1) of
section 56, "Income from other sources". According to the said sub-section, income of every kind which is not to be excluded from the total income under the Act shall be chargeable to income-tax under the head "income from other sources", if it is not chargeable to income-tax under any of the other heads specified in section 14, items A to E. It is not the case of the assessee that any provision of the Act exempts the said income from the liability to tax."

or section 41 In CIT vs. G. R. Karthikeyan (1993) 112 CTR (SC) 302 : (1993) 201 ITR 866 (SC) : TC 38R.306, the apex Court dealt with the meaning of word 'income'. It was observed that the expression 'income' as defined in the statute is inclusive and not exclusive. It was further observed that it is not easy to define income and definition given in the Act is an inclusive one. It was further observed as follows : 

"........ The definition in the Act is an inclusive one. As said by Lord Wright in Raja Bahadur Kamakshya Narain Singh of Ramgarh vs. CIT (1943) 11 ITR 513 (PC) : TC 38R.293, 'Income ........... is a word difficult and perhaps impossible to define in any precise general formula. It is a word of the broadest connotation'. In Maharajkumar Gopal Saran Narain Singh vs. CIT (1935) 3 ITR 237 (PC) : TC 38R.289, the Privy Council pointed out that "anything which can properly be described as income, is taxable under the Act unless expressly exempted". This Court had to deal with the ambit of the expression 'income' in Navinchandra Mafatlal vs. CIT (1954) 26 ITR 758 (SC) : TC 20R.121. The Indian IT and EPT (Amendment) Act, 1947, had inserted section 12B in the Indian IT Act, 1922. Section 12B imposed a tax on capital gains. The validity of the said Amendment was questioned on the ground that tax on capital gains is not a tax on "income" within the meaning of entry 54 of List I, nor is it a tax on the capital value of the assets of individuals and companies within the meaning of entry 55 of List I of the Seventh Schedule to the Government of India Act, 1935. The Bombay High Court repelled the attack. The matter was brought to this Court. After rejecting the argument on behalf of the assessee that the word "income" has acquired, by legislative practice, a restricted meaning and after affirming that the entries in the Seventh Schedule should receive the most liberal construction - the Court observed that "What, then, is the ordinary, natural and grammatical meaning of the word 'income'? According to the dictionary it means 'as thing that comes in'. (See Oxford Dictionary, Vol. V, p. 162; Stroud, Vol II, pp. 14-16).

In the United States of America and in Australia both of which also are English speaking countries the word 'income' is understood in a wide sense so as to include a capital gain.

Reference may be made to Eisner vs. Macomber (1919) 252 US 189; Merchants' Loan and Trust Co. vs. Smietanka (1920) 255 US 509 and United States of America vs. Stewart (1940) 311 US 60 and Resch vs. Federal Commissioner of Taxation (1943) 66 CLR 198. In each of these cases a very wide meaning was ascribed to the word 'income' as its natural meaning.

The relevant observations of the learned Judges deciding those cases which have been quoted in the judgment of Tendolkar, J., quite clearly indicate that such wide meaning was put upon the word 'income' not because of any particular legislative practice either in the Unites States or in the Commonwealth of Australia but because such was the normal concept and connotation of the ordinary English word 'income'. Its natural meaning embraces any profit or gain which is actually received. This is in consonance with the observations of Lord Wright to which reference has already been made ....... The argument founded on an assumed legislative practice being thus out of the way, there can be no difficulty in applying its natural and grammatical meaning to the ordinary English word 'income'. As already observed, the word should be given its widest connotation in view of the fact that it occurs in a legislative head conferring legislative power."

"Since the definition of 'income' in section 2(24) is an inclusive one, its ambit, in our opinion, should be the same as that of the word 'income' occurring in entry 82 of List I of the Seventh Schedule to the Constitution (corresponding to entry 54 of List I of the Seventh Schedule to the Government of India Act)." 

 It was also observed that when there is a receipt it is considered to be an income as the expression must be construed in its widest sense. It was further observed as follows :

"......... Even if a receipt does not fall within the ambit of any of the sub-clauses in section 2(24), it may still be income if it partakes of the nature of the income. The idea behind providing an inclusive definition in section 2(24) is not to limit its meaning but to widen its net. This Court has repeatedly said that the word 'income' is of the widest amplitude, and that it must be given its natural and grammatical meaning. Judging from the above stand-point, the receipt concerned herein is also income." 

6. Since the income in question has not been exempted, it is to be brought to the net of tax. That being the position, the Tribunal was justified in its conclusion that the income has to be assessed under the heading 'other sources'. The answer to the question referred to is in the affirmative, in favour of the Revenue and against the assessee. 

The IT Reference is disposd of as above.