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TMI Blog1963 (9) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... ding that the proportionate remuneration payable to the managing agents in respect of their rendering services in relation to the aforesaid property was not allowable under section 9 of the Income-tax Act? (4) Whether, in the assessment years 1953-54 and 1954-55, the interest payable to Greaves Cotton & Co. Ltd. has been justifiably disallowed as a deduction under section 9(1)(iv) of the Indian Income-tax Act? (5) Whether, on the facts and in the circumstances of the case, in the assessment year 1955-56 a part of the interest paid to Karamchand Thapar & Bros. Ltd. for the borrowal of the sum of ₹ 13,00,000 was justifiably disallowed as inadmissible under section 10(2)(iii) of the Indian Income-tax Act?" In this statement of the case the purpose of the business of the assessee- company has been set out with reference to the memorandum of association, which are stated as follows: "(1) To acquire, purchase, lease, exchange or otherwise, land, buildings and hereditaments of any tenure or description. (ii) To develop and turn to account any land acquired by or in which the company is interested, and in particular by laying out and preparing the same for building ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving rent income upon the letting out of its properties, the receiving of such rent should be held to be the income from some business assessable under section 10 of the Indian Income-tax Act inasmuch as such buildings were the stock-in-trade of the business. The main contention in this regard was that depreciation allowance under section 10(2)(vi) in respect of such buildings should be allowed. The Tribunal negatived the contention of the assessee holding that such buildings from which rent income was derived should not be considered as the stock-in-trade as under section 10(2)(vi) of the Act allowance is admissible in respect of such buildings, machinery, plant or furniture being the property of the assessee, as were used for the purpose of the business. Apart from this consideration the Tribunal held that as there was no revaluation of the stocks, assuming that the buildings were stock-in-trade, the contention of the assessee as to the claim of depreciation allowance was not admissible. In support of this finding the Tribunal has held that the heads given in the balance-sheet "Fixed Capital Expenditure" and "Building Erection Suspense" were also sufficient t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and, in computing the total income, the Income-tax Officer is required to adjust the income according to law. In so doing he was required to consider that the allowances under the head of property will be limited to the provisions under section 9. If the managing agents get anything for supervising the collection of rents or for maintaining the property that portion of the remuneration received by them should be considered under section 9 and not under section 10. In the present case it is not the case of the assessee that the managing agents did not render services to the company in respect of the property and, therefore, the remuneration received by the managing agents included the proportionate remuneration payable to the managing agents in respect of their rendering services in relation to the property. In such circumstances, the Income-tax Officer should, according to law, make an estimate of the remuneration received by the managing agents with respect to the services rendered for the property of the company. For the assessment years 1953-54 and 1954-55, the assessee paid interest to Greaves Cotton & Co. Ltd. and claimed deduction for the same. Money was borrowed from this f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the amount that was utilised for the purpose of the business of the assessee should be considered as capital borrowed for the assessee's business and interest thereon should be allowed. In the aforesaid year of account the assessee's expenditure on properties was about ₹ 13,00,000. A sum of ₹ 3,00,000 were expended for the business of the company. Accordingly, it was held that the interest on the borrowal of ₹ 3,00,000 was admissible under section 10(2)(iii) and the interest referable to the borrowal of ₹ 13,00,000 was not admissible under that section. Question No. 1: The total income of an assessee is chargeable under section 3. Section 6 of the Act enumerates six heads under which the income of an assessee has to be charged. Item No. (iii) provides that income from property shall be charged to income-tax. It is now the established principle of law that income which is specifically made chargeable under a distinct head cannot be brought to charge under a different head in lieu of, or in addition to, being charged under its specific head. Income from properties is a specific head of charge and the tax is payable under section 9 in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erty, rents or other income from the ownership of house property cannot be brought to tax under any other head. Assessment under this head is not only proper but obligatory. It makes no difference that the property is let out in the course of business and the income derived from such property forms part of the profits of a trading concern; the income so derived cannot be taxed under section 10 as business income." In this connection reference may be made to the Supreme Court decision reported in United Commercial Bank Ltd. v. Commissioner of Income-tax [1957] 32 I.T.R. 688 (S.C.). This decision was cited before us by Mr. Choudhury, the learned counsel appearing for the assessee, for the purpose of showing that under the Income-tax Act, 1922, the income of an assessee is one and sections 7 to 12 of the Act direct the modes in which the income-tax is to be levied. By virtue of that decision, according to Mr. Choudhury, the income of the assessee in this case should be taken up together for the purpose of computation of income-tax. The decision, inter alia, runs as follows: "No one of those sections can be treated to be general or specific for the purpose of any one parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s question should, therefore, be answered against the assessee. Question No. 2.--In view of our decision that the income derived from rents of house property does not come within the ambit of section 10 no depreciation allowance as provided for therein can be allowed and this question also should be answered against the assessee. Question Nos. 4 and 5.--These questions are taken up together and need be considered before dealing with question No. 3. It will appear from the order of the Income-tax Officer at page 37 of the paper-book that the assessee had a building at Bombay and the same was let out to Greaves Cotton and Company Limited. Greaves Cotton required more accommodation and it was agreed upon between Greaves Cotton and the assessee that the former would construct a second storey on the building. The costs of the new construction was to be charged to the assessee's account and on this interest at 6 per cent. per annum was payable by the assessee-company. For the additional accommodation the company was to receive additional rent of ₹ 3,000 per month. Exemption in respect of ₹ 36,000 under section 4(3)(xii) was claimed and allowed by the Income-tax Officer. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), as the newly constructed buildings for which the borrowal was made comes within the ambit of section 4(3)(xii). Now as contended by Mr. Choudhury such a decision is incorrect on the ground that this ought to have been deducted from the total income of the assessee. We do not think that the contention under the existing law is correct, as where several distinct businesses are carried on, the profits of each business must be computed separately and the allowance under this clause can be claimed in computing the profits of only that business for which the capital was borrowed. Interest on money borrowed for the purposes of non-assessable business (as in the instant case) cannot be allowed against the profit of another separate business which is assessable: vide the observation in Commissioner of Income-tax v. Somasundaram Chettiar A.I.R. 1928 Mad. 487 (F.B.) and Conville v. Commissioner of Income-tax [1936] 4 I.T.R. 137. In view of this, it appears to us that the interest on money borrowed from Greaves Cotton and Company Limited could not be allowed as a deduction and the decision of the Tribunal in this respect appears to be correct. Mr. Choudhury has in this connection referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 4 should also be answered against the assessee. Regarding question No. 5 it will appear that in the assessment year 1955-56 the assessee made a payment of interest of ₹ 51,885 to Messrs. Karamchand Thapar Brothers Limited. This has been disallowed by the Income-tax Officer on the ground that interest was payable on capital borrowed for the purpose of buildings under construction and, therefore, as there was no income from the said uncompleted buildings the interest charges cannot be allowed as a deduction. This is a finding of fact which cannot be disturbed by this court. The contention of the assessee was that there was no borrowing for properties to be assessed under section 9 and the borrowals were for the purposes of business of the company, on the footing that the activities in respect of buildings and lands were a part of the business. It has already been found under question No. 1 that the assessee had several activities, one of which was of receiving rent from property and that part of income was not income from business. Accordingly, this part of the assessee's argument cannot be tenable. The second contention before the Tribunal as also before us is that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er considering the income from properties and income from business and the net income is the combined result of both these two sources of income. The Tribunal found that allocation of the managing agency commission and remuneration should be made as the allowance under the head "property" was limited to the provision under section 9 of the Act. In the instant case, it is not the case of the assessee that the managing agents did not render service to the company in respect of the property and therefore the remuneration received by the managing agents included the proportionate remuneration payable to the managing agent in respect of their rendering services in relation to property. This is an important question for decision whether the commission paid to the managing agent should be split up, some portion being allocated to income from property and some to business. We have already decided question No. 1 in the affirmative. It is not disputed that Messrs. Karam Chand Thapar Brothers Limited are the managing agents of the company and they shall be entitled to remain and continue in the office for a period of 20 years from the 2nd December, 1946, and that they shall be entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsequently, the assessees could deduct the whole of the remuneration paid to the directors and the income-tax authorities could not disallow a proportion attributable to earning the income in Gwalior. On the basis of this decision it was argued by Mr. Choudhury that the conclusion arrived at by the Tribunal in the instant case was based purely on guess as there is nothing to show that any portion of the commission was paid out of the income from house property alone. Furthermore, the terms of agreement between the assessee-company and the managing agents do not specifically confer any duty to look after the property and the managing agents have been doing their job generally. In other words, the remuneration was being paid for the entire business. Two other cases, viz., C. Parekh & Co. (India) Ltd. v. Commissioner of Income-tax [1953] 24 I.T.R. 24 and the case of Central Distillery and Chemical Works Ltd. v. Commissioner of Income-tax [1955] 27 I.T.R. 100 were cited before the Tribunal. It distinguished these decisions and found that they did not apply to the instant case as the assessee had distinct sources of income, one from the property and the other from the business. We co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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