Hotel leasing qualifies for depreciation allowance under Indian Income-tax Act, 1922. Assessee awarded costs and refund.

The court held in favor of the assessee, ruling that the leasing of the hotel was part of its business activities, making it eligible for a depreciation allowance under Section 10(2)(vi) of the Indian Income-tax Act, 1922. The court determined that leasing business assets, as per the company's memorandum of association, constitutes a business activity, allowing for depreciation. The assessee was granted costs of Rs. 250 and a refund of its deposit of Rs. 100.

---

---

Issues Involved:
1. Entitlement to depreciation allowance under Section 10(2)(vi) of the Indian Income-tax Act, 1922.
2. Applicability of Section 9 versus Section 10 of the Indian Income-tax Act, 1922.
3. Interpretation of "business" under Section 10 of the Indian Income-tax Act, 1922.
4. The impact of leasing on the classification of business assets.

Issue-wise Detailed Analysis:

1. Entitlement to Depreciation Allowance under Section 10(2)(vi):
The primary issue was whether the assessee, a company that leased its Ootacamund hotel to Messrs. Davis & Co., was entitled to a depreciation allowance under Section 10(2)(vi) of the Indian Income-tax Act, 1922. The assessee argued that the hotel, although leased out, was part of its business, and thus, it should be eligible for depreciation. The Income-tax Officer, Assistant Commissioner, and Commissioner disagreed, treating the hotel as property assessable under Section 9, not as a business asset eligible for depreciation under Section 10.

2. Applicability of Section 9 versus Section 10:
The court had to determine whether the income from the leased hotel should be assessed under Section 9 (income from property) or Section 10 (income from business) of the Indian Income-tax Act, 1922. The assessee contended that leasing the hotel was part of its business activities, as allowed by its memorandum of association, and thus, the income should be assessed under Section 10, making it eligible for depreciation.

3. Interpretation of "Business" under Section 10:
The court examined whether leasing the hotel constituted a business activity under Section 10. The Full Bench decision in Mangalagiri Rice Factory v. Commissioner of Income-tax was pivotal. It established that leasing out business assets, like a rice mill, was considered a business activity. The court found no difference in principle between leasing a rice mill and leasing a hotel, thus considering both as business activities under Section 10. Therefore, the assessee's leasing of the hotel was part of its business, making it eligible for depreciation.

4. The Impact of Leasing on the Classification of Business Assets:
The court also addressed whether leasing a single hotel, while operating another, affected the classification of the asset. The judgment clarified that the assessee's power to lease parts of its undertaking, as per its memorandum of association, meant that leasing any part of its business assets, including the hotel, was still a business activity. Thus, even if only one hotel was leased out, it did not change the classification of the asset from a business asset to property.

Separate Judgments:

Leach, C.J.:
Leach, C.J., emphasized that the leasing of the hotel was part of the company's business activities, as allowed by its memorandum of association. He cited the Full Bench decision in Mangalagiri Rice Factory, concluding that leasing business assets is a business activity, making the assessee eligible for depreciation under Section 10(2)(vi).

Mockett, J.:
Mockett, J., concurred, highlighting that the nature of the business (whether a rice mill or a hotel) did not change the principle that leasing business assets is a business activity. He rejected the Income-tax authorities' distinction between leasing one or multiple undertakings, affirming that the leasing of the hotel was a business activity under Section 10.

Krishnaswami Ayyangar, J.:
Krishnaswami Ayyangar, J., expressed some hesitation but ultimately agreed, bound by the Full Bench decision in Mangalagiri Rice Factory. He elaborated that the business of leasing the hotel was part of the assessee's business activities, as per its memorandum of association, making it eligible for depreciation under Section 10(2)(vi).

Conclusion:
The court answered the reference in the affirmative, confirming that the assessee was entitled to a depreciation allowance under Section 10(2)(vi) for the leased Ootacamund hotel. The assessee was awarded costs of Rs. 250 and a refund of its deposit of Rs. 100. The judgment clarified that leasing business assets, as per the company's memorandum of association, constitutes a business activity, making such assets eligible for depreciation under Section 10.

---