TMI Blog1965 (2) TMI 110X X X X Extracts X X X X X X X X Extracts X X X X ..... years 1948-49 and 1949-50 (account years ending June, 1947, and June, 1948, respectively), the department proceeded to assess its rental income from employees as income from property under section 9 of the Indian Income-tax Act (hereinafter referred to as the Act). The assessee's contention before the department was that the premises were let out to the employees for the purposes of its business and the rental income fell to be computed under section 10 of the Act. This contention of the assessee was rejected by the Income-tax Officer, and in appeal, by the Appellate Assistant Commissioner. On further appeal, the assessee succeeded in his contention; but here too, members constituting the Bench hearing the assessee's appeal differed. Mr. K.N. Rajagopal Sastri, Judicial Member, affirmed the order of the Appellate Assistant Commissioner to the effect that the rental income in question was income from property and, thus, had to be assessed under section 9 of the Act, whereas the Accountant Member, Mr. P.C. Malhotra, took the view that the aforesaid income was not income from property but was income from business and, therefore, was assessable under section 10 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are that the buildings in question are owned by the assessee. The bulk of the buildings is occupied by the employees and only a small fraction of the buildings is occupied by non-employees. The annual rent recovered from employees is ₹ 1,03,964 and from the non-employees ₹ 8,163. There is a post office, some shops and stalls, which according to annexure A are essential for the benefit of the employees. The remaining buildings are chawls, single quarters, double quarters, upper-storey rooms and are occupied by the employees of the assessee for residence. The rent of the residential accommodation is fixed rent and is deducted out of the pay or wages paid to the employees. It was pointed out to us that the matter in dispute has been set at rest by a circular issued by the Central Board of Revenue, containing the following instructions to all the Commissioners of Income-tax. This communication is in these terms: Doubts have recently been expressed regarding the admissibility of the depreciation allowance on the quarters built by employers for the accommodation of their employees. In this connection, attention is invited to the instructions already issued and printe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in these businesses. The premises where the employees are housed and for which they pay rental to the company are in the near vicinity of the mills. The rental of these premises is fixed and does not change with the change of the occupant. The rental is deducted from the wages of the employee or employees occupying the premises. These employees are engaged in the main business of the company and their residence in the buildings in dispute is incidental to their main occupation, that is, the carrying on of the business of the company. In true perspective, these buildings are part of the business equipment of the owner, or, in other words, it is the business asset of the owner. It is also now well- established that in a welfare State, it is the duty of the employer to provide residential accommodation to the employees. Not only that, certain facilities, such as, canteen, clubs for the recreation of the employees and baths, lavatories and dispensaries have also to be provided for them. All this is done not because the company is trying to earn or is engaged in the business of earning rental income from the employees but for the purpose that the employees carry on efficiently the bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stration: A company like the respondent's company constructs a club house for the recreation of its employees and gives it on rent to the association of the employees, would the rental income from this club house be income from business or income from property ? The learned counsel for the department conceded that in this illustration, the income would be treated as income from business and not income from property . This illustration is, more or less, analogous to the question in dispute in the present reference. It will be appropriate at this stage to mention that Mr. Rajagopal Sastri decided against the assessee's contention on the basis that the word occupy in section 9 means physical occupation or, in other words, actual occupation and not legal occupation. In law, whenever premises are let out to a tenant, it is the tenant who is in physical occupation of the premises; but against the entire world, the landlord is in occupation of the premises, for the tenant's occupation is treated as landlords occupation. The landlord's occupation through his tenant would only come to an end, when the tenant sets up a hostile title to the landlord; othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contrary that such income fell to be assessed under section 9 was repelled. The learned counsel for the department relied upon the decisions in Queen v. Assessment Committee of St. Pancras [1877] 2 Q.B.D. 581, Peglere v. Cravan [1952] 1 All E.R. 685 and Brown v. Ministry of Housing and Local Government: Ford v. Same [1953] 2 All E.R. 1385 for his contention that the word occupy must be restricted to actual physical occupation. These decisions are clearly distinguishable and have no application to the facts of the present case. The word occupy has various shades of meaning and that meaning is to be assigned to it which fits in with the context in which the word is used. We are clearly of the opinion that in the context of sections 9 and 10 of the Act, it would be wrong to give a limited and restricted meaning to the word occupy. For the reasons give above, we answer the first question against the department and hold that the income of the assessee from the buildings or lands appurtenant thereto rented out to its employees is income from business and falls for assessment under section 10 and not under section 9 of the Income-tax Act, 1922. In view of the answer to t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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