TMI Blog1994 (4) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... n in respect of Modi Bhawan are deductible as business expenses?" Income-tax Reference No. 70 of 1982: "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in directing that depreciation be allowed on a sum of Rs. 1,09,876 spent on Modi Bhawan ?" Since the questions referred to us in both the references are materially identical, we intend to dispose of both the references by this common judgment. The Division Bench before which the case originally came up for hearing was of the view that : (1) the issue raised should be considered by a Full Bench as it was felt that in the decision of this court in New Bank of India Ltd. v. CIT [1983] 140 ITR 132, some aspects, viz., the Supreme Court's decision in East India Housing and Land Development Trust Ltd. v. CIT [1961] 42 ITR 49 and the Andhra Pradesh High Court's decision in P. V. G. Raju v. CIT [ 1967] 66 ITR 122 had not been considered; (2) while interpreting sections 22 and 23 of the Act, the provisions of section 38 had to be kept in mind which was not done ; (3) the Revenue's counsel's contention regarding non-applicability of the exception in section 22 had not been dealt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Mal Modi and K. N. Modi previously as employees of and for the purposes of the assessee-company's business which was also clear from the fact that the assessee had throughout treated this property as its business asset and that the Income-tax Officer had not only allowed depreciation but also repairs carried out to the building. The Appellate Assistant Commissioner found no difference in the situation simply because the property had been given over to the managing agents. According to him, this did not change the purpose for which the house had been built and that it remained in physical possession of the same persons who were managing the affairs of the assessee-company earlier as its employees and later on behalf of the managing agents of the assesseecompany. The Appellate Assistant Commissioner, therefore, held that the said property should be treated as the business asset of the assesseecompany and its income should be assessed under the head "Profits and gains of business or profession" and not under the head "Income from house property". Aggrieved, the Revenue preferred an appeal to the Tribunal but the appeal was unsuccessful. The Tribunal came to the conclusion that the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head 'Income from house property'." From a plain reading of section 22, it is clear that the annual value of the property, consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, is chargeable to income-tax under the head "Income from house property" except such portions of such property which the assessee may occupy for the purposes of any business or profession carried on by him, profits whereof are chargeable to income tax. In other words, when an owner occupies the whole or any portion of house property for the purposes of his business carried on by him, the profits of which are chargeable to income-tax, the annual value of the whole or that portion of the property, as the case may be, will not be chargeable to tax under the head "Income from house property". The exception in section 22 itself takes the bottom out of the first con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as deducted from the wages of the employees concerned. A question arose whether the income to the assessee from the quarters rented out to its employees was income from business and fell for assessment under section 10 (profits and gains of business, profession or vocation) of the Indian Income-tax Act, 1922, and not under section 9 (income from property) of the said Act. The Circuit Bench of the Punjab High Court at Delhi observed that, in each case, where there is a conflict as to whether income from property has to be assessed under section 9 or section 10, what has to be determined is whether such income does or does not arise from property occupied by the assessee for purposes of his business. The question is essentially a question of fact and what has to be discovered is whether the occupation of the property by its employees is subservient to the main business of the assessee. The point for decision was : is the provision of residential quarters to its employees a part of the business of the company ? The Bench pointed out that the employees in that case were engaged in the main business of the company and their residence in the building in question was incidental to their m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e e property acquired by the bank to utilise it for accommodating its employees, on payment of rent, could be said to be property which was occupied or used by the assessee-bank for the purposes of its business. A Division Bench of this court pointed out that the assessee-bank was forced to purchase this property in somewhat special circumstances. It was a consequence of migration forced on the bank and its employees at the time of partition of the country that necessitated the purchase. They further pointed out that although the bank did not occupy the premises for running its business, in the extraordinary situation following the partition, the bank considered it necessary that its employees who had had to flee their homes in Pakistan should be provided with residential accommodation in order to enable them to function efficiently for the purposes of the business of the assessee-bank. The Bench, thus, observed that the purchase of the property and its allotment to the employees were made not with a view to derive the rental income from the property but on grounds of commercial expediency for carrying on the business of the bank more efficiently and fruitfully and accordingly held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nefit of the assessee to run its business management and activity efficiently to improve its profitability, which is charged to tax as such. In all the three cases, properties were used for residential purposes of its employees/workers/directors. Herein, the property is occupied as a residence for persons comparatively much higher in status, who are not employees of the assessee-company but nominee directors of the assessee's managing agents, Messrs. R. B. Multani Mal and Sons P. Ltd., which company is distinct from the assessee-company, and the contention of the Revenue is that the analogy of occupation of a worker-employee cannot be stretched to affluent persons like nominee directors of another company only having managing agency charge. At first blush, the argument appears to be attractive but does not survive on closer scrutiny. It is true that the status in life of persons in occupation of the property, who as such are not employees of the assesseecompany and the posh premises in their occupation bear no comparison with the humble quarters provided for living by the assessee-company to its workers or employees in the three cases, but what is relevant, and indeed the pith an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts managing agent or the latter's nominees. Occupation of the property by them for the purpose of effectual discharge of their duties vis-a-vis the business of the company, in our view, is tantamount to occupation by the assessee-company for the purposes of its business. Applying the ratio of the said decisions on the facts found by the Tribunal in the instant case, we are of the view that the answers to the questions proposed have to be in favour of the assessee. Adverting to the points raised by the Division Bench, it is true that East India Housing and Land Development Trust Ltd.'s case [1961] 42 ITR 49 (SC) and P.V.G. Raju's case [1967] 66 ITR 122 (AP) are not referred to in the decisions rendered in Delhi Cloth and General Mills Co. Ltd.'s case [1966] 59 ITR 152 (Delhi) and New Bank of India's case [1983] 140 ITR 132 (Delhi). The ratio decidendi of these decisions is that the distinct heads specified in section 14 of the Act indicating the sources are mutually exclusive and income derived from different sources falling under specific heads has to be computed for the purpose of taxation in the manner provided by the appropriate section. There is no quarrel with the proposit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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