Depreciation on leased hotel building allowed where letting formed part of the company's business objects

Depreciation was allowable on the Ootacamund hotel building because it had been constructed and fitted for the assessee's hotel business, and the memorandum of association authorised the company to let out its undertaking or parts of it. The letting of the hotel premises was treated as an activity within the company's business objects, so the premises did not cease to be a business asset merely because another party used them under lease. Applying the earlier Full Bench principle on leasing of an undertaking, the court treated the business of letting as part of the assessee's business and held that the income was not confined to treatment under the property income provision.

---

---

Issues: Whether depreciation under Section 10(2)(vi) of the Indian Income-tax Act, 1922 was allowable in respect of the Ootacamund hotel building let out by the assessee, or whether the income from the property fell only under Section 9.

Analysis: The building had been constructed and fitted for the assessee's hotel business, and the memorandum of association empowered the company to let out its undertaking or any part of it. The letting of the hotel premises was therefore treated as an activity within the company's business objects. The earlier Full Bench ruling on a company leasing out its mill and plant was applied on the footing that the business of letting the undertaking was itself a business of the assessee. On that basis, the property did not cease to be part of the business merely because it was leased out for use by another.

Conclusion: Depreciation under Section 10(2)(vi) was allowable, and the reference was answered in favour of the assessee.

---