Property income must be taxed under its own head, with deductions limited to those expressly allowed under that head.

Rental receipts from buildings owned by the assessee were held assessable under the property head, because income falling within a specific statutory head must be taxed under that head and not as business income merely due to the assessee's wider trading activities. On that basis, depreciation on the buildings was disallowed as a business deduction, and the portion of managing agency commission attributable to property services was also not deductible against rental income, since no such allowance existed under the property head. Interest on borrowings linked to an exempt building property was likewise disallowed. Only the part of interest on mixed borrowings shown, on facts, to relate to business expenditure remained allowable.

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Issues: (i) Whether rent derived from buildings owned by the assessee was assessable under the head income from property and not under the head business; (ii) whether depreciation on such buildings was allowable as a business deduction; (iii) whether managing agency commission relatable to services in connection with the property was deductible in computing property income; (iv) whether interest paid to Greaves Cotton & Co. Ltd. for borrowings used in relation to the exempt building property was allowable as a deduction; and (v) whether interest paid to Karamchand Thapar & Bros. Ltd. on borrowings used partly for property expenditure and partly for business expenditure was allowable to the extent attributable to business.

Issue (i): Whether rent derived from buildings owned by the assessee was assessable under the head income from property and not under the head business.

Analysis: Income specifically falling under a distinct head must be charged under that head alone. The ownership of house property is separately dealt with under the statutory scheme, and rents from such property cannot be brought to tax as business income merely because the assessee also carried on trading or property-dealing activities. The buildings in question were shown in the balance-sheet as fixed capital expenditure and not as stock-in-trade. The assessment, therefore, had to be made under the head property.

Conclusion: The issue was decided against the assessee and in favour of Revenue.

Issue (ii): Whether depreciation on such buildings was allowable as a business deduction.

Analysis: Depreciation under the business provision is available only where the asset is used for the purposes of business and the income is assessable under that head. Since the rental receipts were held to be property income, the buildings did not qualify for depreciation under the business depreciation provision.

Conclusion: The issue was decided against the assessee and in favour of Revenue.

Issue (iii): Whether managing agency commission relatable to services in connection with the property was deductible in computing property income.

Analysis: The managing agents rendered services not only for the business side but also in relation to the properties yielding rent. The commission payable under the articles was a composite remuneration, but the portion attributable to property management was referable to the head property. As the property head contained no provision allowing such deduction, the apportioned amount could not be deducted against rental income.

Conclusion: The issue was decided against the assessee and in favour of Revenue.

Issue (iv): Whether interest paid to Greaves Cotton & Co. Ltd. for borrowings used in relation to the exempt building property was allowable as a deduction.

Analysis: The borrowing was connected with the construction of a building whose income enjoyed exemption for the relevant period. Where the expenditure relates to a distinct exempt property, the associated interest cannot be shifted to or deducted from the income of another property or from total property income. The disallowance was therefore justified.

Conclusion: The issue was decided against the assessee and in favour of Revenue.

Issue (v): Whether interest paid to Karamchand Thapar & Bros. Ltd. on borrowings used partly for property expenditure and partly for business expenditure was allowable to the extent attributable to business.

Analysis: The Tribunal found, on facts, that a part of the borrowed funds was used for business purposes and the remainder for property expenditure. Interest attributable to the business portion alone was allowable under the business borrowing provision, while the portion referable to property expenditure was not. The factual apportionment made by the Tribunal was warranted.

Conclusion: The issue was decided partly against the assessee and in favour of Revenue.

Final Conclusion: The decisive legal effect is that the rental receipts were assessable under the property head, with corresponding limits on depreciation and related deductions, while only the business-linked portion of borrowing interest remained admissible.

Ratio Decidendi: Income falling under a specific statutory head must be assessed under that head alone, and deductions are confined to those expressly permitted for that head; where expenditure or remuneration is attributable to property income, it cannot be deducted under the business head unless the statute so allows.

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