TMI Blog2003 (11) TMI 284X X X X Extracts X X X X X X X X Extracts X X X X ..... a rent of Rs. 60,000 and claimed in the return of income that the same should be assessed under the head "Business" so that it can claim allowance of Rs. 67,563 as depreciation under section 32 of the Income-tax Act. The Assessing Officer took the view that even though the company was formed for the purpose of carrying on the business of constructing and letting out properties, since there is a specific head under which the rental income from property is to be assessed, viz., 'Income from house property', the rent received from Godrej Soaps has to be assessed only under that head. He therefore brought the rental income to tax under this head, and since there was no provision in the computation sections relating to the income under this head to allow depreciation, disallowed the claim. 2. On appeal, the CIT(A) accepted the assessee's claim and held that since it is the business of the assessee-company to construct and let out properties, the rental income shall be assessed under the head "Business". He therefore directed the Assessing Officer to allow the claim of depreciation also. 3. The Department is in appeal to contend that the CIT(A) is wrong in holding that the rental i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) CIT v. National Grindlays Bank Ltd. [1993] 202 ITR 559(Cal.) (4) CIT v. Jardine Henderson Ltd. [1994] 210 ITR 981 (Cal.) (5) CIT v. Shaan Finance (P.) Ltd. [1998] 231 ITR 308 at 314 (SC) It is contended on behalf of the assessee that the proposition laid down in these cases is that even though the income is computed under a particular head, expenditure can be allowed under a different head. This contention is contested on behalf of the Department by submitting that it is opposed to the very scheme of Income-tax Act, under which the computation of income under a particular head must be made strictly in accordance with the provisions relating thereto under that head and there cannot be any crossing over of one computation provision under one head to another head. 4. We have carefully considered the issue in the light of the rival contentions and the authorities cited. As regards the head of income under which the rental income is to be assessed, we may refer to a few decisions. In United Commercial Bank Ltd. v. CIT [1957] 32 ITR 688 (SC), the assessee was a bank and it claimed that the interest on securities held by it should be assessed under the head "business" and no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come is not altered because it is received by a company formed with the object of developing and setting up markets." In Parekh Traders v. CIT [1984] 150 ITR 310, the above observations were applied by the Hon'ble Bombay High Court to a case arising under the Income-tax Act, 1961, and it was held that the heads of income enumerated in section 14 of the 1961 Act are mutually exclusive and each specific head covers items of income arising from the specific source. Income derived as rent from property must be computed under that specific head regardless of the fact that the property had at one time been utilized by the assessee for business purposes. It was held that such property cannot be treated as a business asset to assess the rent as business income. 5. The above judgments of the Supreme Court and the Bombay High Court are sufficient to dispose of both the appeal as well as point raised by the assessee in ground No. 1 of its Cross Objection. If the principle laid down is that the heads of income are mutually exclusive and that a particular item of income which falls under a particular head shall be computed only in accordance with the provisions relating to that head, we sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... controversy centred around the question whether the income was assessable as "business income" or under the head "other sources", the Supreme Court referred to the provisions of section 9 of the 1922 Act which dealt with income from property, as is done by section 22 of the 1961 Act. The following observations are relevant:- "Section 6 of the Act enumerates the various heads of income, profits and gains chargeable to income-tax. Those heads are (i) Salaries; (ii) Interest on securities; (iii) Income from property; (iv) Profits and gains of business, profession or vocation; (v) Income from other sources; and (vi) Capital gains. Section 9 of the Act deals with income from property. According to that section, the tax shall be payable by an assessee under the head "Income from property" in respect of bona fide annual value of property consisting of any buildings or lands appurtenant thereto of which he is the owner, other than such portions of such property as he may occupy for the purposes of any business, profession or vocation carried on by him the profits of which are assessable to tax, subject to certain allowances which are mentioned in that section but with which we are n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are unable to give effect to the argument. It seems to us that the judgments of the Supreme Court to which we have referred earlier have not been placed before the Gujarat High Court for consideration. Further, the attention of the court does not appear to have been drawn to the provisions of section 29 of the Income-tax Act, 1961 which says that the income referred to in section 28 shall be computed in accordance with the provisions contained in sections 30 to 43D. Section 28(i) says that the profits and gains of any business carried on by the assessee at any time during the previous year shall be chargeable to income-tax under the head "profits and gains of business or profession". Reading these two provisions together, it is seen that the provisions of sections 30 to 43D come into play only where the income is charged under the head "business". By implication, where the income is not charged to tax under the head "business", it follows that the provisions of sections 30 to 43D are not attracted. Each head of income mentioned in section 14 of the Act is to be computed in the manner provided in the computation provisions under that head. The heads of income have been held to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to be assessed in the manner provided in the machinery provisions of the Act for the purpose of computation and recovery of tax. One such provision made to compute the income is section 37 of the Act. Section 37 has relation, by the language employed, to the "income of profits and gains from business or profession". Whereas, at the relevant time, computation of income and assessment of income from interest on securities was under sections 18, 19 and 20 of the Act, section 20 permitted certain allowances which alone was admissible in respect of income by way of interest on securities and not available to other incomes under other heads. Therefore, if an assessee has income from more than one source, each of his income from different sources has to be assessed having regard to the provisions which govern the computation of that income and allowances permissible to the source of that income. It is not unusual that an assessee may derive income by way of salary, by way of house property, by way of private lands, by way of business, by way of profession and capital gains, etc. Viewed thus, it would not be open to the bank to claim the benefit of classification of its income under two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication and computation of the various types of income, on the other. At page 309-310 (of 57 ITR), the Supreme Court observed that section 6 of the old Act (section 14 of the new Act) "classifies the taxable income under different heads for the purpose of computation of the net income of the assessee. Though for the purpose of computation of income, interest on securities is separately classified, income by way of interest from securities does not cease to be part of the income from business if the securities are part of the trading assets. Whether a particular income is part of the income from a business falls to be decided not on the basis of the provisions of section 6 but on commercial principles." The quoted observations show that what was held by the Supreme Court in this judgment, for which reliance was placed on the earlier judgment in CIT v. Chugandas Co. [1965] 55 ITR 17 (SC), was that the section providing for classification of the income derived by the assessee into various heads of income is not decisive of the nature of the income and if a question arises as to whether a particular income is income from business, regard must be had to commercial principles and on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on the basis of the later judgment of the Supreme Court in Bengal Assam Investors Ltd.'s case that for purposes of computation of income as such, the distinction pointed out by section 14 and the deductions specified in the other provisions following it in respect of each head will have to be borne in mind and applied. In CIT v. Dr. Rameshwar Lal Pahwa [1980] 123 ITR 681 (Delhi), at page 690, Hon'ble Justice S. Ranganathan (as His Lordship then was) has observed that "it is well-settled that where income falls in a particular head its computation has also to be made under the same head." 9. It is now necessary to refer to the judgment of the Bombay High Court in Great Eastern Shipping Co. Ltd. v. CIT [1994] 206 ITR 505. One of the questions posed before the High Court was whether on the facts and in the circumstances of the case, the amount of deduction under section 33 by way of development rebate could be set off against the income from capital gains in the first instance. The High Court held that the classification under section 14 of the income of the assessee into different heads has been done for the purposes of charge of income-tax and computation of the total income. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the judgment of the Gujarat High Court in Laxmi Agents (P.) Ltd.'s case that the assessee should be allowed depreciation under section 32 in respect of the properties, the rental income from which is assessed under the head "income from house property". The judgments of the Calcutta High Court cited by him are all on the question of computing the deduction under section 80-M. In National Grindlays Bank Ltd's case, the ITO restricted the deduction by apportioning a part of the expenditure incurred by the assessee towards earning of the dividend income. The High Court noted that the entire business of the assessee was to deal in shares and the dividends were earned in the course of such business and though because of the provisions of section 56 the dividend is assessed under the head "other sources" the expenditure does not cease to be related to the business of the assessee as a whole and therefore no part of the same can be apportioned towards the earning of dividend income. The view taken by the other judgments of the Calcutta High Court, cited by the assessee, is the same. This principle is quite different from what we are considering in the present case. Accordingly, the firs ..... X X X X Extracts X X X X X X X X Extracts X X X X
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