1960 (4) TMI 80 - HC - Income Tax

High Court: Rental income from employee-leased buildings assessed under Income-tax Act. Separability principle applied.

Rohtas Industries Ltd. Versus Commissioner of Income-Tax, Bihar & Orissa

The High Court ruled that rental income from buildings owned by a company and let out to its employees should be assessed under section 10 of the ... - Issues:Assessment of rental income from buildings owned by a company and let out to employees under section 9 or section 10 of the Income-tax Act.Analysis:The case involved the assessment of rental income derived by a company from buildings owned by it and let out to its employees. The company, engaged in various businesses, including cement and sugar manufacturing, owned buildings and quarters rented out to employees and some outsiders. The rents collected were set off against house rent allowances, with any excess amount paid to employees in cash. The Income-tax Officer initially assessed the income under section 9 of the Income-tax Act, disallowing claims for repairs and depreciation. The company contended that the income should be taxed under section 10 of the Act. The Appellate Assistant Commissioner agreed with the company's argument regarding rents from employees but not from outsiders. The Income-tax Department appealed to the Appellate Tribunal, which held that all rental income should be assessed under section 9.The matter was referred to the High Court, which analyzed the provisions of section 9(1) of the Income-tax Act. The Court held that the letting out of residential quarters to employees was incidental to the company's main business, falling under the exception of section 9(1). Citing a similar case precedent, the Court emphasized that the rental income derived from employees should be assessed under section 10, not section 9. The Court rejected the Department's argument that the principle applied only to employees and not outsiders, noting that the rental amounts were distinct. Consequently, the Court ruled in favor of the company, allowing the application and answering the legal question in favor of the assessee.In conclusion, the High Court determined that the rental income from buildings owned by the company and let out to its employees should be assessed under section 10 of the Income-tax Act, considering it incidental to the main business. The Court applied established principles from previous judgments to support its decision, emphasizing the separability of rental amounts from employees and outsiders. The ruling favored the company, granting costs and a hearing fee.