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. These facts do not appear in the statement of the case, but they have been mentioned in argument, and the 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 and Company for the purpose, to quote from the order of the Income-tax Officer, "of running a hotel". Messrs. Davis and 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 company's 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 only under Section 9 of the Act. His decision was in turn concurred 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: 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 and Company.

(2.) Mr. Sesha Aiyangar has very properly conceded that when the assessee was running a 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 regarded as property and not part of the assessee's 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 company's business. In my opinion the case is governed by the Full Bench decision of this Court in Mangalagiri Rice Factory V/s. Commissioner of Income-tax, Madras , which was followed by the Calcutta High Court in Section Roy Chowdhury V/s. Commissioner of Income- tax, Bengal (1935) I.L.R. 62 Cal. 804 : 8 I.T.C. 177. 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 company's articles of association gave it power to lease out its buildings and there was a clause which stated that: If it was deemed beneficial to the company with reference to circumstances it might lease or give its factory for contract.

(3.) Therefore, the powers of the company were powers which the assessee in the present case 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 be that the company is entitled to a deduction for depreciation of the buildings, machinery and plant.