COMMISSIONER OF INCOME TAX Vs. LONDON HOTEL

JUDGEMENT

(1.) THE following question of law has been referred for our decision at the instance of the Commissioner of Income-tax, Bombay City II :

(2.) THE question has arisen with reference to the assessment year 1957-58, and upon the following facts : Messrs. London Hotel, Bombay, are a firm and they run a hotel called "London Hotel". THE premises in which this hotel was being run were originally purchased by the three partners of Messrs. London Hotel on 7th September, 1945, for a sum of Rs. 1,15,000. THEy contributed to the consideration equally and when the London Hotel was started they treated the premises as being let out to the firm, the proprietary right vesting in the three partners jointly. THE rent paid by the firm to the three individuals was debited in the books of the firm and the firm claimed the amount as a deduction in the years 1946-47 and 1947-48, and the deduction was allowed. Thus the property was treated as the private property of the three persons who had purchased it, although they were partners in that firm.

(3.) WE are concerned in this reference with a claim made by the assessee firm in the respect of the balancing payment due to them under section 10(2) (vii) of the Indian Income-tax Act and that claim was made on the basis of the following facts : The written down value of the building, according to the previous assessment orders, at the beginning of the relevant previous year was Rs. 91,580. When a part of the building was demolished the value realised on the sale of the materials or scrap after demolition was Rs. 12,300. The assessee claimed that out of the written down value two-thirds will have to be allocated to the portion of the building thus demolished and after giving an adjustment for the realisation of the scrap value, namely, Rs. 12,300, the balance would come to Rs. 48,754. They claimed that that amount should be allowed to them as a deduction under section 10(2) (vii).