ORDER
1. In this case the assessee is Rohtas Industries Ltd., which is a public limited company carrying on the business of manufacture and sale of cement, sugar, paper and pulp and certain chemical products. The assessee owns certain buildings and quarters around its factories, most of which are let out to its employees and some to outsiders. The rents are fixed according to the types of buildings and quarters let out. The type of premise allotted to any of the Company’s employees depended upon his status as an employee. The Company collected rents from its employees, and in its turn the Company granted rent allowance to its employees. The rent charged from them was see off against house rent allowance. In case the employee was allotted quarters carrying lower rent than the house allowance granted to him, the difference-between the two amounts was paid to the employee in cash. It is also admitted that there is no compulsion upon the employees to stay in the buildings owned by the Company.
2. For the assessment year 1948-49 the Company realised a rental income of Rs. 52,479/- which included a sura of Rs. 7,979/- representing rent) from buildings constructed during the accounting year. The total amount of rent also included rent realised from outsiders occupying the buildings owned by the Company. The Income-tax Officer assessed the income under Section 9 of the Income-tax Act after making the statutory allowance for repairs. It was argued on behalf of the assesses that the income should be taxed under Section 10 of the Income-tax Act. The argument was rejected by the Income-tax Officer and the claim of the assessee for repairs and depreciation was disallowed. The assessee took the matter in appeal before the Appellate Assistant Commissioner.
It wag pointed out on behalf of the assessee that the rent realised from the employees amounted to Rs. 42,322/- and the rent realised from outsiders was Rs. 10,157/-. With regard to the rent realised from outsiders, the assessee conceded that the amount of rent should be assessed under Section 9 of the Income-tax Act. But with regard to the amount realised from employees, the contention of the assessee was that the assessment should be made under Section 10 of the Income-tax Act.
The Appellate Assistant Commissioner accepted the argument of the assessee with regard to the amount of rent realised from the employees and allowed the claim for repairs and depreciation under Section 10 of the Income-tax Act. The Income-tax Department took the matter in appeal to the Appellate Tribunal. The contention of the Department was that the rent realised from the employees also should be assessed as income from property under Section 9 of the Income-tax Act. The Tribunal accepted the contention of the Income-tax Department and held that the assessment should be made under Section 9 of the Income-tax Act even with regard to
the rent realised by the assessee from the employees.
3. Under Section 66(1) of the Income-tax Act the Appellate Tribunal has submitted the following question of law for the opinion of the High Court:
“Whether on the facts and in the circumstances of the case the rents realised by the Company from the buildings of which it is the owner and which had been let out to its employees is assessable under Section 9 or Section 10 of the Indian Income-tax Act?”
Section 9(1) of the Income-tax Act reads as follows:
”9(1). The tax shall be payable by an assessee under the head “Income from Property” in respect of the bona fide annual, value of property
consisting of any buildings or lands appurtenant thereto of which he is the owner, other than such portion 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 the following allowance, namely:
* * * * 4. In our opinion the letting out of residential quarters by the assessee to its employees in the
circumstances of this case is subservient to and incidental to the main business of the assessee and, therefore, the case comes within the exception of Section 9(1) of the Income-tax Act tO put it differently, the letting out of residential quarters to the employees was incidental to and subservient to the business of the assessee and so it is manifest that the residential quarters were occupied by the assessee for the purpose of the business carried on by it. It follows, therefore, that the rent derived by the assessee from the letting but of the residential quarters to its employees is assessable not under Section 9(1) of the Income-tax Act but under Section 10(1) of the Income-tax Act.
A precisely similar question arose for consideration in Jamshedpur Engineering and Machine Mfg., Co., Ltd. v. Commr. of Income-tax, B and O, 32 ITR 41 : (AIR 1957 Pat 703). In that case the assessee Company, which carried on the business of manufacturing and selling of agricultural implements, had constructed residential quarters for its employees and let out the quarters to its employees as incidental to its main business. The assessee incurred expenditure for the repairs and maintenance of the residential quarters and claimed that the expenditure incurred for the repairs and maintenance should be deducted from the profits of the business under Section 10(2) (xv) of the statute.
It was held by the Division Bench that letting out of the residential quarters was subservient to and incidental to the main business of the assessee and therefore, Section 9 of the Income-tax Act did not apply to the case, and the expenditure incurred by the assessee for the repairs and maintenance of the residential quarters was allowable as deduction from; the profit’s of the business of the assessee under Section 10(2)(xv). It was argued by Mr. R. J. Bahadur for the Income-tax Department that in the, present case the residential quarters were let out by the assessee not only to its employees but also to outsiders who had no connection with the business and so the principle laid down by this High Court in 32 ITR 41; (AIR 1957 Pat 703), cannot be applied to the present case.
We do not accept this argument as correct.
The amount of rent realised by the assessee for
the occupation of the residential quarters has been
bifurcated in this case, and the statement of the
case shows that the rent realised from the employees was Rs. 42,322/- and the rent realised from
outsiders was Rs. 10,157/-. It is, therefore, clear,
that the amount realised from the employees is
severable and can be separately calculated from the
rent realised from outsiders. So far as the residential quarters occupied by the employees are concerned, it is manifest that the letting out of these
evidential quarters by the assesses is incidental to
the main business of the assessee and so the assessment should be made under Section 10 of the Indian Income-tax Act.
It is not disputed by learned counsel for the assessee that as regards the rent realised from outsiders the assessment should be made under Section 9 of the Indian Income-tax Act. In our opinion, the principle laid down by this High Court in 32 ITR 41: (AIR 1957 Pat 703), governs the present case Applying the principle laid down in the case we hold that in the facts and circumstances of the present case the rent realised by the assessee company from the buildings of which it is the owner and which have been let out to its employees is assessable under Section 10 of the Indian Income-tax Act and not under Section 9 of the Indian Income-tax Act. ‘We accordingly allow the application and answer the question of law referred to the High Court in favour of the assessee and, against the Income-tax Department. The assessee is entitled to the costs of this reference. Hearing fee Rupees 250/-.
