JUDGMENT
D.R. Dhanuka, J.
1. At the instance of the assessee, the Tribunal ‘E’ Bench, Bombay has made this reference to this Court under s. 256(1) of the IT Act, 1961 referring the following questions of law for opinion of this Court :
1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in concluding that the income from the building the construction whereof had been found to be the basic adjunct of the assessee’s business would not be assessable as business income ?
2. Whether, on the facts and in the circumstances of the case, assessee’s claim for depreciation of Rs. 12,500 on the building was properly by the Tribunal ?
This reference raises interesting questions of law concerning interpretation and application of s. 22 of IT Act, 1961.
2. The relevant facts having bearing on the subject-matter of this reference are briefly summarised hereinafter.
3. The assessee acquired a plot of land at Mahim, Bombay on lease for 98 years on rent of Rs. 8,400 per month. It was stipulated as one of the conditions of the lease that the assessee would use the premises for purpose of cinema theatre and/or residential and other purposes as may be permitted by Govt. Ministry or any other relevant authority. When the plot was acquired by the assessee, it was not a fully vacant plot and the part of the plot was occupied by structures used by tenants for purpose of residence. The construction of cinema theatre on the said plot was not possible without shifting of pre – existing tenants of various structures standing on different portions of land. The assessee obtained lease of the said plot with full knowledge of the above referred facts. The assessee proposed to the Deputy Town Planning Officer of the Town Planning Department, Bombay through its architect that the assessee would rehabilitate the existing enants by constructing a separate residential building on the western part of the plot. The Deputy Town Planning Officer permitted the assessee to construct the proposed residential building on western part of the plot thereby making remaining portion available for construction of the proposed cinema theatre duly separated by the required open spaces in between. The assessee constructed new residential building on the western part of the land in order to house the existing tenants therein. The assessee is receiving rental income from the residential building occupied by the tenants. The assessee constructed a cinema theatre on the remaining part of the land. The assessing authorities have treated the rental income of the assessee from the said residential buildings as income from house property. Factually speaking, the assessee is not in occupation of the said residential buildings for its cinema business or otherwise.
4. The question which arises for consideration of this Court in substance is as to whether the assessing authorities were justified in treating the rental income received by the assessee from tenants of the residential building as income from house property. The assessee contended before the authorities below that the above referred income of the assessee from the above referred residential building should be assessed as business income and not as income from house property. The ITO, the AAC and the Tribunal negatived the contention of the assessee.
5. Miss V. B. Patel, the learned counsel for the applicant, has invited the attention of the Court to s. 22 of IT Act, 1961. Sec. 22 of the said Act reads as under :
“The annual value of property consisting of any building or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purpose of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income under the head “Income from house property”.”
Having regard to facts found by the Tribunal, it is obvious to us that the assessee is not in occupation of the above referred residential building or any part thereof for its business. The residential building in question is not used by the assessee for its business or otherwise. The said building is occupied by residential tenants of the assessee.
5A. The learned counsel for the assessee has submitted that the assessee would not have constructed the said residential building and let out the same to tenants of its own choice. The learned counsel has submitted that the dominant motive of the assessee was to construct a cinema theatre on the said plot and the assessee was required to construct the said residential building to house the existing tenants in order to enable itself to construct the said cinema theatre. The learned counsel submitted that having regard to the peculiar facts and circumstances, it should be held that the occupation of the above referred residential building by the tenants amounts in law to occupation of the said building by the assessee itself for purpose of its own business. The learned counsel has submitted that if the said residential building would not have been constructed, it would not have been possible for the assessee to construct the cinema theatre. The learned counsel has submitted that there is a nexus between the business of the assessee and the rental income received by the assessee from the tenants of the residential building. Having regard to facts of this case and the plain language of s. 22 of the Act, we are not convinced with the submission made by the learned counsel for the assessee. We are not prepared to assume that the said residential building is adjunct to the business of the company. The above referred residential building stand by itself and is used by the tenants. No part of the residential building is used or occupied by the company. The assessee has rental income from the said residential buildings. The above referred rental income cannot be considered as business income. Merely because the said residential building is one of the asset of the assessee-company, s. 22 of the Act does not cease to apply. ‘Income from house property’ is a separate specific head. Rental income from the residential building is rightly classified as income from house property. It cannot be forgotten that the said plot was not leased for purpose of construction of cinema theatre only. The leased plot could be used by the assessee for purpose of construction of cinema theatre, residential building or any other purposes as may be permitted by the relevant authority.
6. Sec. 14 of IT Act, 1961 specified that all income shall be classified under the heads of income enumerated therein. Income from house property is a separate head of income. Income from the house property cannot be classified under the head ‘profits and gains of business’. It is well settled by judgments of the Hon’ble Supreme Court that income which is specifically made chargeable under a distinct head cannot be brought to charge under a different head. In the reference before us, rental income from residential property used and occupied by tenants squarely falls under the head of ‘income from house property’. The said income cannot be, therefore, classified under the head of profits and gains of business. It is irrelevant that the assessee is a business company and the assessee would not have constructed separate residential buildings on the said plot to house its tenants but for purpose of facilitating construction of cinema theatre.
7. The learned counsel for the assessee relied upon the judgment of the Karnataka High Court in the case of Addl. CIT, vs. Hindustan Machine Tools Ltd. 1980 121 ITR 798 (Kar). In this case, the assessee used to carry on business as manufacturer of heavy machinery. In this case, the assessee had leased out industrial sheds situated in its industrial complex to various ‘ancillary units’ for manufacture of components required by the assessee for its own factory. In this view of the matter, the High Court held that the dominant object of the assessee in letting out industrial sheds was to have a ready source of supply of components to keep up its own production. Having regard to this finding, the High Court of Karnataka took the view that income derived by the assessee from letting out of industrial sheds was liable to be assessed as income of the assessee from business. In the reference under consideration, the assessee could use the premises for purpose of cinema theatre and/or residential or other purposes as may be permissible by the authorities. At the time of obtaining the lease of the land, the assessee knew it well that the plot was not fully vacant and the part of the said plot was already occupied by tenants, for residential purpose. Having regard to the facts of this case, we have reached the conclusion that the Tribunal has rightly taken the view that the rental income of the said property was liable to be assessed as income from the house property. The above referred case cited by the learned counsel for the assessee is clearly distinguishable. The learned counsel for the assessee relied on the judgment of the High Court of Delhi in the case of New Bank of India Ltd. vs. CIT (1983) 140 ITR 132 (Del). In this case the assessee bank had shifted its operation from Lahore to India on partition. In this situation the assessee bank was required to provide residential accommodation to its employees. Ranganathan, J. (as his Lordship then was) speaking for the Bench observed that having regard to the facts of the case, it must be held that the residential property was acquired by the bank for carrying on the business of the bank more efficiently and fruitfully. The said case has no bearing on the reference under consideration. The case where residential premises are provided to the employees of a business concern stands on a different footing. The learned counsel for the assessee relied on the ratio of the judgment of the High Court of Madhya Pradesh in the case of CIT vs. National Newsprint & Paper Mills Ltd. (1978) 114 ITR 388 (MP). In this case the assessee had let out part of the premises to the Government with a view to obtain various facilities in aid of its own business carried on in the industrial complex. This case is also clearly distinguishable.
8. In our opinion, having regard to the facts found in this case, the Tribunal was right in upholding the decision of the assessing authorities to the effect that income from the above referred building was liable to be classified as income from house property and not as business income.
9. In view of our conclusion on question No. 1, it is obvious that no depreciation could have been allowed to the assessee by the assessing authority in respect of the above referred residential building. In our case, the residential building in question is not used for business of the assessee.
10. In view of the above discussion, we have no hesitation in answering both the questions referred to this Court in the affirmative and in favour of the Revenue. We accordingly answer both the questions in affirmative and in favour of the Revenue.
11. Having regard to the facts and circumstances of the case, there shall be no order as to costs.