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Issues Involved:
1. Whether the assessee-company was rightly assessed under section 9 or section 10 of the Indian Income-tax Act, 1922, in respect of income from buildings or lands appurtenant thereto rented to its employees. 2. Whether the assessee is entitled to a deduction of 7% commission on the rental income paid to its managing directors in computing its assessable income for the assessment year 1949-50. Issue-wise Detailed Analysis: 1. Assessment under Section 9 or Section 10: The primary issue was whether the rental income from buildings or lands appurtenant thereto, rented to employees of the assessee-company, should be assessed under section 9 (income from property) or section 10 (profits and gains of business) of the Indian Income-tax Act, 1922. The assessee argued that the rental income should be computed under section 10, as the premises were let out for business purposes. This contention was initially rejected by the Income-tax Officer and the Appellate Assistant Commissioner but was accepted by the majority decision of the Income-tax Appellate Tribunal. The Tribunal's President agreed with the Accountant Member that the rental income should be assessed under section 10. The Court examined the facts: the buildings were owned by the assessee, primarily occupied by employees, and the rent was deducted from their wages. The Court referenced a circular from the Central Board of Revenue, which stated that buildings used to house employees are considered used for business purposes. The Patna High Court's decision in Jamshedpur Engineering and Machine Manufacturing Co. Ltd. v. Commissioner of Income-tax supported this view. The Court concluded that the rental income from buildings occupied by employees should be assessed under section 10, as these buildings were part of the business equipment and necessary for the performance of the employees' duties. 2. Deduction of 7% Commission: The second issue was contingent on the resolution of the first. The question was whether the assessee was entitled to a deduction of 7% commission on the rental income paid to its managing directors for the assessment year 1949-50. Since the Court decided that the rental income should be assessed under section 10, it followed that the assessee was entitled to the deduction. Conclusion: The Court held that the rental income from buildings rented to employees should be assessed under section 10 and not section 9. Consequently, the assessee was entitled to a deduction of 7% commission on the rental income. The Court's decision was based on the interpretation of sections 9 and 10, considering the buildings as part of the business assets used for business purposes. The reference was answered accordingly, with no order as to costs.
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