COMMISSIONER OF INCOME TAX Vs. BOSOTTO BROTHERS LIMITED

JUDGEMENT

(1.) The assessee is a company carrying on a hotel business. It was formed in 1928 and took over a hotel in Madras. Subsequently, the assessee built a hotel in Ootacamund and carried on a hotel business there until 1934. There facts do not appear in the statement of the case, but they have been mentioned in argument, and they are not in dispute. The assessee found that its business in Ootacamund was not profitable, and in 1934 leased the premises and its furniture and fittings to a firm named Davis Company for the purpose, to quote from the order of the Income-tax Officer, of running a hotel.Messrs. Davis Company have since then carried on this hotel business. For the assessment year 1937-38, the assessee desired to deduct from its income the sum of Rs. 2,450 as a depreciation on the building and furniture at the Ootacamund hotel, the assessee companys contention being that it was entitled to this deduction under the provisions of Section 10 (2) (vi) of the Indian Income-tax Act, 1922. The Income-tax Officer refused to allow the deduction and held that the hotel in Ootacamund must be regarded as property and as such was assessable in by the Assistant Commissioner and the Commissioner. The assessee being dissatisfied asked the commissioner to refer the matter to this Court as it involved a point of law and the Commissioner has in consequence framed this question :-

(2.) Whether in this case the petitioner is entitled to an allowance for depreciation under Section 10 (2) (vi) of the Act in respect of their Ootacamund building let out to Messrs. Davis Co.

(3.) Mr. Sesha Ayyangar has very properly conceded that when the assessee was running the hotel it was entitled to be assessed under Section 10 of the Act, and therefore entitled to the deduction allowed by sub-section 2, clause (vi); but he says, inasmuch as the assessee has ceased to utilise the building itself for the purpose of a hotel business the building must be regard as property and not part of the assessees business. In this connection, I would point out that clause (3) (j) of its memorandum of association gives the assessee power to let on rent the undertaking or any part of it, and therefore the letting of the Ootacamund hotel was part of the companys business. In my opinion the cases governed by the Full Bench decision of this Court in Mangalagiri Rice Factory v. Commissioner of Income-tax (51 M.L.J. 360) which was followed by the Calcutta High Court in S. Roy Chowdhury and others v. Commissioner of Income-tax, Bengal (62 Cal. 804). In Mangalagiri Rice Factory v. Commissioner of Income-tax (51 M.L.J. 360) Sir Coutts Trotter, C.J., and Krishnan and Beasley, JJ., had to consider the case of a company incorporated for the purpose of milling rice. The companys articles of association gave it power to lease out its buildings and there was a clause which stated that if it is deemed beneficial to the company with reference to circumstances it might lease or give its factory for contract.Therefore, the powers of the company were powers which the assessee in the present cases possesses. The company let its mill, and the question was whether it was entitled to the deductions allowed by Section 10 (2) (vi). It was held that it was. In his judgment Beasley, J., observed : The company could either work the mill itself or could let it out to others to do so. One is the business of milling and the other is the business of letting out the mill for others to do so. Both, in my view, are equally a business, and my answer, therefore, to the reference would to that the company is entitled to a deduction for depreciation of the buildings, machinery and plant.