Corporate status and house-property exemption under income tax turn on statutory definition and a real, systematic vocation.

A company registered under Section 26 of the Indian Companies Act, 1913 was treated as a company for income-tax purposes because it retained corporate character and fell within the wide statutory definition in the Income-tax Act, 1922; it was therefore assessable as such. However, exemption under Section 9(1) for the occupied portion of premises was denied because that relief applies only where the property is used for a real, systematic business, profession or vocation whose profits are assessable as such. The assessee's receipts from managing other bodies and registering trade marks were incidental and insubstantial, and were treated as income from other sources, not vocational profits.

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Issues: (i) Whether a company registered under Section 26 of the Indian Companies Act, 1913 is a company within the meaning of Section 2(6) of the Indian Income-tax Act, 1922 and liable to be assessed as such. (ii) Whether the assessee was entitled under Section 9(1) of the Indian Income-tax Act, 1922 to exemption in respect of the annual value of the portion of its premises occupied by it for the purposes of its vocation.

Issue (i): Whether a company registered under Section 26 of the Indian Companies Act, 1913 is a company within the meaning of Section 2(6) of the Indian Income-tax Act, 1922 and liable to be assessed as such.

Analysis: A company registered under Section 26 of the Indian Companies Act retains corporate character for all legal purposes, including taxation. The definition of "company" under the income-tax statute was treated as wide enough to include such an entity, and the fiscal consequences follow from the status chosen by the incorporators.

Conclusion: Yes. The assessee was rightly treated as a company and assessed as such.

Issue (ii): Whether the assessee was entitled under Section 9(1) of the Indian Income-tax Act, 1922 to exemption in respect of the annual value of the portion of its premises occupied by it for the purposes of its vocation.

Analysis: The exemption under Section 9(1) applies only where the occupied portion of property is used for a business, profession or vocation carried on by the assessee, the profits of which are assessable to tax as such. On the facts found, the assessee's receipts from managing the affairs of other bodies and from registration of trade marks were isolated and insubstantial, and did not amount to a real, substantive and systematic vocation carried on by it. The activities were assessed as income from other sources and not as profits of a vocation within the statutory sense.

Conclusion: No. The assessee was not entitled to the exemption claimed under Section 9(1).

Final Conclusion: The reference was answered on the footing that the assessee was a company for income-tax purposes, but it was not entitled to exemption for the occupied portion of its premises under the house-property provision.

Ratio Decidendi: For purposes of house-property exemption, the occupied portion must be used for a real and systematic business or vocation carried on by the assessee, the profits of which are assessable as such under the Act; incidental or isolated receipts taxed as income from other sources do not qualify.

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