TMI Blog1983 (1) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... n determining its business profits to proportionate depreciation in respect of that portion of the building which was let out to tenants and income from which was determined under section 9 of the Indian Income-tax Act, 1922 ? 2. Whether, on the facts and in the circumstances of the case, the assessee was entitled to proportionate depreciation in respect of lifts and air-conditioning plant in so far as they related to the portion of the property which was let out to tenants and income from which was chargeable u/s. 9 of the Indian Income-tax Act, 1922 ? 3. Whether, on the facts and in the circumstances of the case, the assessee was entitled to development rebate in respect of lifts and air, conditioning plants fixed in the building a portion of which was let out to tenants and income from which portion was chargeable to tax u/s. 9 of the Indian Income-tax Act, 1922 ?" The three questions have arisen in relation to the property of the bank situated in Parliament Street, New Delhi. Five out of six floors in this building were used in the year under consideration by the assessee for its own business, but one floor was let out to a client. We understand that this was the head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he bank. There is a provision in the Banking Companies Act that if a bank holds immovable property and uses the same otherwise than for its business, then the same has to be sold. Nevertheless , when a bank does not hold property for business purposes and a portion of the same is unused, i.e., lying idle, we do not think that this provision prevents a bank from letting out that portion. A bank may have a very large building of which a portion may be lying quite free and not required, and it would not be right to say that the bank cannot let out that portion and if it does let it out, then has it to sell the building ? A reasonable construction of the section would be that the building is used for business purposes, but the extra portion can be let out. The relevant portion of section 9 is as follows : " 9. Disposal of non-banking assets.-Notwithstanding anything contained in section 6, no banking company shall hold any immovable Property howsoever acquired, except such as is required for its own use, for any period exceeding seven years from the acquisition thereof or from the commencement of this Act, whichever is later or any extension of such period as in this section provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed under s. 10 which is the provision relating to tax under the head " Profits and gains "of business, profession or vocation ". Under sub-s. (2) of s. IO, a number of allowances are permitted: one of these is depreciation by virtue of sub-cl. (vi). Such depreciation is allowed in the following terms: " (vi) In respect of depreciation of such buildings, machinery, plant or furniture being the property of the assessee... to such percentage on the original cost thereof to the assessee as may in any case or class of cases be prescribed..." Thus, depreciation is allowed on machinery, plant or furniture which are the property of the assessee. The provision relates to such buildings, machinery, plant or furniture. The word " such " brings us to sub-cl. (iv), where it is stated as follows : " (iv) In respect of insurance against risk of damage or destruction of buildings, machinery, plant, furniture, stocks or stores, used for the purposes of the business, profession or vocation, the amount of any premium paid. " The subsequent provisions, (v) and (vi), etc., refer to the same building, machinery, plant, etc., which is referred to in sub-cl. (iv). Such buildings, plant, mach ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by the assessee, it was let out for use by another to get business income. This was a commercial exploitation in the circumstances of the case., We, therefore, hold without dealing extensively with the case law, that this line of case is not applicable to the facts of the present case. The letting out of single floor of the head office is not a commercial exploitation of that floor. It is just like any other letting out of an office by the owner to a tenant. Having reached this conclusion, it follows that only five-sixths of the building is being used for business purposes and the remaining one-sixth is not being used for business. The next question arising was whether it was permissible to divide an asset into portions. Though no case law has been brought to our notice for the purposes of applying the depreciation provision, it seems to follow, in our opinion, from the language of ss. 9 and 10. The provisions of s. 9, which have been referred to earlier, show that for the purpose of ascertaining income from property, the notional value of that portion of that building has to be determined which is not used for business by the assessee himself. This virtually means that such a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir-conditioning plant. The provision in this respect is s. 10(2)(vib) of the I.T. Act, 1922. The development rebate in such cases is available in respect of new machinery or plant, etc., installed after 3lst March, 1954, which is wholly used for the purpose of the business carried on by the assessee. The controversy in this case is whether the lifts and air-conditioning plant are wholly used for the purpose of the business. It is contended before us that the case is covered by the decision of the Madras High Court in CIT v. Pandyan Bank Ltd. [1969] 71 ITR 707. That is also the case of a bank and the facts are practically identical because the bank in question had an air-conditioned building and had claimed depreciation and development rebate in respect of the air-conditioning plant. There were two tenants in the building, so it had been held by the ITO and the AAC that development rebate could not be allowed. The Tribunal had reversed this order, but the High Court held that the requirement was that the expression " wholly used " meant used in their entirety. It was held that the words " wholly used " must be given full scope. It was observed (p. 712): "'Wholly' has no reference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. The air-conditioning plant cannot, therefore, be said to be used by anybody else. The mere fact that somebody may enjoy the lifts or the air-conditioning plant does not mean that the assessee is not using it wholly and exclusively for the business. The expression " wholly used " for the purpose of the business refers to the manner of user. If you are the owner of machinery and you are using it yourself and you have full control over it, then you are using it yourself and nobody else is using it. As already mentioned, the lift fitted in a building is likely to be used not only by the bank, its officials, but also by complete strangers which may include clients of the bank and others. Similarly, the air-conditioning plant is likely to cool or heat, as the case may be, not only the employees of the bank, its customers, but also anybody else who happens to visit the bank premises. Such persons need not be clients of the bank properly speaking. The question to be asked in such cases, is: Is this machinery being used by anybody else ? Plant or machinery can be said to be used by somebody else if some other person has control over the same. If you drive your own motor car a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on on the manner in which a building can be used by a bank. Therefore, the building is being used by the bank for business purpose. Moreover, the letting out of one of the floors is not non-business purpose. It is a mere matter of chance that the taxability of this portion of income is covered by s. 9 of the Act. The heads of income described in the I.T. Act, such as " income from salary ", " income from property ", " Income from business, profession or vocation',, " Income from other sources ", or " interest income " are purely artificial for the purpose of determining the taxable income under each head. Interest income or income from dividend or income from investments can also be business income. For instance, in the case of a bank, a particular amount has to be placed in deposit by law. Interest income so derived will still be business income. It was so held by the Supreme Court in United Commercial Bank Ltd. v. CIT [1957] 32 ITR 688. Thus, in the case of this particular assessee, there can be little doubt that one of its important business assets, i.e., the building in which the head office of the bank is situated is being used for business purpose in spite of the fact that a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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