Residential property for directors' use deemed as business purpose under Income-tax Act

The High Court of Madras ruled that a residential property owned by an assessee-company, utilized by directors for residence, should be considered as used for business purposes under section 22 of the Income-tax Act, 1961. The property's use for directors' residence falls under business use, exempting the notional income from assessment under section 22. The Court held that when a company provides a house for its director's residence, it is part of its business activities, and income from such property should be treated as business income. The income from the property was included in the total income of the assessee, contrary to the Revenue's position.

---

---

Issues Involved:
The issue involves determining whether a residential property owned by an assessee-company, used by directors for residence, should be treated as used for business purposes under section 22 of the Income-tax Act, 1961, thereby exempting it from assessment under the head 'Property' for the assessment year 1971-72.

Judgment Details:
The High Court of Madras, in the case at hand, addressed the question of whether the property in question, situated at 1-C, Nungambakkam High Road, Madras, and utilized by the directors of the assessee-company for residential purposes, should be considered as being used for business within the scope of section 22 of the Income-tax Act, 1961. The Appellate Tribunal had ruled that the property's use for directors' residence falls under business use, hence exempting the notional income from assessment under section 22. The Revenue contended that such use should not be considered, and the income from the property should be assessed as "income from the house property" due to the company's ownership.

The Court noted a similar case where the Andhra Pradesh High Court rejected a comparable contention in CIT v. Vazir Sultan Tobacco Co. Ltd. [1988] 173 ITR 290. It was established that when a company provides a house for its director's residence, it does so as part of its business activities. The principle applied is that if a property owner conducts business using their property, the income from that property should be treated as business income. In this instance, since the Appellate Tribunal determined that the house property was used by the company as part of its business operations, the income from the property could not be separately assessed as house property income but should be included in the total income of the assessee. Consequently, the Court answered the question in the affirmative, against the Revenue's position, with no costs awarded.

---