Business use of directors' residences kept property out of house-property taxation and allowed related deductions.

Properties provided by a company to its directors as residential accommodation were treated as part of the business asset base because the use formed an incident of carrying on business. On that footing, the related income was not assessable separately under the head "income from house property". Once the properties were characterised as business assets used in the course of business, depreciation and other expenses attributable to them were allowable as business deductions. The questions were therefore answered in favour of the assessee and against the Revenue.

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Issues: (i) Whether the properties occupied by the directors as residence formed part of the assessee's business assets so that income therefrom could not be assessed under the head "income from house property". (ii) Whether depreciation and other expenses relatable to those properties were allowable as business deductions.

Issue (i): Whether the properties occupied by the directors as residence formed part of the assessee's business assets so that income therefrom could not be assessed under the head "income from house property".

Analysis: A company providing residential accommodation to its directors in the course of carrying on its business treats the property as part of its business apparatus. Where the property is used as an incident of business and is found to be part of the business assets, its notional treatment as a separate source under the head "income from house property" is unwarranted.

Conclusion: The properties were business assets of the assessee and the income therefrom could not be assessed separately as income from house property.

Issue (ii): Whether depreciation and other expenses relatable to those properties were allowable as business deductions.

Analysis: Once the properties are treated as business assets used in the course of business, expenditure and depreciation attributable to their business use follow the character of business outgoings and are deductible accordingly.

Conclusion: The depreciation and other related expenses were allowable as deductions under the head "business".

Final Conclusion: The questions referred were answered in favour of the assessee and against the Revenue.

Ratio Decidendi: Property provided to directors as residence in the course of business and treated as part of the business asset base is to be assessed as business property, not as a separate source of house property income, and the related business expenditure is deductible.

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