TMI Blog1957 (3) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... (2)(xv) of the Income-tax Act. The claim was rejected by the Income-tax Officer on the ground that the amount realised by the company for the occupation of these residential quarters was assessable to Income-tax as rent under section 9, and the company was entitled to claim a sum equivalent to one-sixth of the rent realised on account of the cost of maintenance. The Income-tax Officer accordingly allowed a deduction of one-sixth of the amount realised by the company from the employees under section 9 of the Income-tax Act. The company took an appeal to the, Appellate Assistant Commissioner from the decision of the Income-tax Officer. The appeal was dismissed by the Appellate Assistant Commissioner, who expressed the same view as the Income-tax Officer with regard to the claim made by the company. The company then preferred an appeal to the Income-tax Appellate Tribunal, but the appeal was unsuccessful. In these circumstances, the Appellate Tribunal was directed by the High Court to state a case on the following questions of law: 1. Whether in the circumstances of the case, the expenditure of ₹ 6,005 incurred by the assessee in repairing quarters should be allowed as b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , whether the guards and sweepers employed by the assessee were entitled to free quarters. The relevant portion of the award dated the 16th September, 1947, is to the following effect: Question No. 12(a): What is called Babu line contains 12-A type quarters each of which consists of 2 living rooms, a kitchen and a latrine. About one furlong to the east there is what is called Mistry line containing 40 quarters. There is no approach road leading from the factory or the Babu line to the Mistry line. The intervening ground is very uneven. In between the Babu line and the Mistry line there is a tank which had dirty water but in which people were found bathing at the time of my visit. Each quarter in the Mistry line consists of one living room, one store room and a small verandah which is used as a kitchen. To the east of the Mistry line there are one three-seated latrine for women and another three-seated latrine for men. There is no light in the latrines. Plaster of the walls of the quarters was very old and was falling off. There is one rotary boiler in which there were 4 taps of which two were working. It was stated on behalf of the employees that water is supplied from 5 to 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er better service if they are accommodated on the company's premises. I would, therefore, recommend that the company should provide houses for them as early as possible but in the meantime it should pay them house rent allowance at the rate of ₹ 2-8-0 each, as it is usual to provide rent-free house to the sweepers. The standing order (Exhibit D), dated the 22nd October, 1947, is also relevant in this connection. Paragraph 22 of the standing order states as follows: 22. Housing: Various types of quarters are provided. These are allotted at the entire discretion of the management. In allotting quarters the management shall take into consideration the length of service, salary and priority of application of the candidate. The employees shall observe all the rules and conditions made by the company for occupation of the quarters as per rules in the prescribed form to be signed by the employee at the time of allotment and shall live in hygienic conditions under the control of the medical officer. Counsel on behalf of the assessee referred also to the Government letter (Exhibit A), dated the 28th February, 1950, on the question of the Industrial Housing Programme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f capital expenditure or personal expenses of the assessee laid out or expended wholly and exclusively for the purpose of such business, profession or vocation. The view that we have expressed is borne out by two English authorities: Russell (Surveyor of Taxes) v. Aberdeen Town and County Bank [1888] 2 Tax Cas. 331 and Usher's Wiltshire Brewery Ltd. v. Bruce (Surveyor of Taxes) [1914] 6 Tax Cas 399. In the first case, Russell (Surveyor of Taxes) y. Aberdeen Town and County Bank [1888] 2 Tax Cas. 331, the assessee bank owned buildings in which the business of the bank was carried on and portions of the buildings were occupied as residences by the bank managers and agents. It was held, in these circumstances, by the House of Lords, that the assessee was entitled to deduct the annual value of the whole premises in calculating the profits under Schedule D. The same principle was applied in the later case. Usher's Wiltshire Brewery Ltd. v. Bruce (Surveyor of Taxes) [1914] 6 Tax Cas 399. The question which was debated in that case was whether a brewery company, who were the owners or occupiers or lessees of a number of licensed premises, were entitled to claim deduction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rves is the same, the mere fact that to some extent the expenditure enures to a third party's benefit, say that of the publican, or that the brewer incidentally obtains some advantage, say in his character of landlord, cannot in law defeat the effect of the finding as to the whole and exclusive purpose, A similar answer may be made to the contention that this deduction is expressly prohibited by the words 'nor for the rent...of any dwelling house......except such parts thereof as may be used for the purposes of such trade'. On the findings here the brewer is a brewer first and a landlord only afterwards. His role as landlord is subsidiary, an incident of his trade as brewer. If the 'dwelling-house' here is the taxpayer's own dwelling-house, cadit quaestio. It is not this case. If the deduction is a proper one in arriving at the 'balance of profits or gains' as it clearly is, and is not prohibited by any construction of the words 'expenses, not being money wholly and exclusively laid out......for the purposes of such trade,' as I think it equally clearly is not, there is nothing to prohibit it in the words in question. The prohibition does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ental to the main business of the assessee, namely, the business of manufacture and sale of agricultural implements. In such a case we are of opinion that the proper section to be applied for assessment is not section 9 but section 10(2)(xv) of the Income-tax Act. In the other case, Salisbury House Estate Ltd. v. Fry (H.M. Inspector of Taxes) [1930] 15 Tax Cas. 266 also the business of the assessee was the letting out and management of house property and the assessee had no other business. It was, therefore, held by the House of Lords in that case that the company was not assessable under Schedule D, but the liability to tax was covered by Schedule A assessments. The argument of the Crown that the company was carrying on a trade, namely, the letting of accommodation and provision of various services, was rejected. We are of opinion that the ratio decidendi of these cases, namely, Ballygunge Bank Ltd. v. Commissioner of Income-tax, Bengal [1946] 14 I.T.R. 409 and Salisbury House Estate Ltd. v. Fry (H.M. Inspector of Taxes) [1930] 15 Tax Cas. 266 has no application to the present case. For these reasons we hold that the expenditure of ₹ 6,005 and ₹ 5,542 incurred by th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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