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Issues Involved:
1. Ownership of buildings constructed by the assessee on leased land. 2. Applicability of Section 9 of the Income-tax Act for assessing rental income. 3. Applicability of Section 10 of the Income-tax Act for assessing rental income as business profits. Issue-wise Detailed Analysis: 1. Ownership of Buildings Constructed by the Assessee on Leased Land: The primary issue was whether the assessee, a public limited company, was the owner of the buildings constructed on the leased land during the currency of the lease. The lease agreement allowed the assessee to construct buildings and specified that the lessors would take possession of the land and buildings after the lease term of 40 years. The legal position in India, governed by Section 108(h) of the Transfer of Property Act, was considered. This section allows a lessee to remove structures they erected, provided there is no contract to the contrary. The lease in question prevented the removal of the buildings, stating that the structures would pass to the lessors only at the end of the lease term. Therefore, it was concluded that the assessee was the owner of the buildings during the lease period. 2. Applicability of Section 9 of the Income-tax Act for Assessing Rental Income: The next issue was whether the rental income derived from the buildings should be assessed under Section 9 of the Income-tax Act. Section 9 specifies that tax is payable on the bona fide annual value of property consisting of buildings or lands of which the assessee is the owner. The court examined the lease clauses, including the requirement for the assessee to pay municipal taxes and the division of compensation in case of land acquisition, which indicated the assessee's ownership of the buildings. The court referred to the precedent set in the Commercial Properties case, which held that income derived from ownership of buildings is chargeable under Section 9, regardless of whether the owner is an individual or a company. Therefore, the court concluded that the rental income should be assessed under Section 9. 3. Applicability of Section 10 of the Income-tax Act for Assessing Rental Income as Business Profits: The assessee contended that the rental income should be assessed under Section 10 as profits and gains of their business, given that their business involved letting out houses. Section 10 pertains to income from business, profession, or vocation. The court referred to the Commercial Properties case, which distinguished between income from property and income from business. It was held that the mere fact that a company's business included letting out properties did not change the nature of the income derived from property ownership. Thus, the rental income was not to be assessed under Section 10 but under Section 9, as the ownership of the property was the criterion for assessment. Conclusion: The court concluded that the assessee was the owner of the buildings during the lease term and that the rental income derived from these buildings should be assessed under Section 9 of the Income-tax Act. The argument that the income should be assessed under Section 10 as business profits was rejected, reaffirming the principle that income derived from property ownership is specifically categorized under Section 9. The reference was answered in the affirmative, upholding the assessment under Section 9.
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