1. By this reference under Section 256(1) of the I.T. Act, 1961 (for short 'the Act'), the Income-tax Appellate Tribunal, Indore Bench, Indore, has referred the following questions of law for the opinion of this court:
'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the rent received by the assessee from the various godowns and factories was chargeable under the head 'Income from property' and not as 'Income from business' as claimed by the assessee?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the disallowance of the claim of losses in the nine branches where no business was carried on by the assessee during the assessment year 1975-76 ?'
2. The material facts giving rise to this reference as set out in the statement of the case are as follows. The assessee is an HUF and carries on various kinds of business at its head office Mandsaur and a number of branches at various places. During the assessment year 1975-76, the assessee claimed that the rental income from various godowns and factories should be assessed under the head ' Income from business ' and not as ' Income from property '. The ITO negatived the contention of the assessee and assessed the rental income from various godowns and factoriesunder the head ' Income from property '. On appeal, the Commissioner (Appeals) and the Appellate Tribunal upheld the order of the ITO.
3. The assessee also claimed deduction on account of expenses incurred by it in maintaining some of its branches which were closed. The ITO disallowed the claim on the ground that no business was carried on in the said branches during the relevant accounting year. The order passed by the ITO was upheld by the Commissioner (Appeals) and the Appellate Tribunal, At the instance of the assessee, the Appellate Tribunal has referred the aforesaid questions for the opinion of this court.
4. As regards question No. 1 the learned counsel for the assessee, placing reliance upon the decisions in CIT v. National Newsprint and Paper Mills Ltd. : 114ITR388(MP) , ClT v. National Storage Pvt. Ltd. : 66ITR596(SC) , Dal Chand and Sons v. CIT and CIT v. Ajmera Industries Pvt. Ltd. : 103ITR245(Cal) , contended that the letting out of the factories, buildings and the godowns by the assessee was exploitation of commercial assets of the assessee and was incidental to the business of the assessee and, therefore, the rental income from the factories and godowns was liable to be assessed under the head ' income from business and profession ' and not under the head ' Income from property '.
5. The contention is not well founded. It was not the case of the assessee before the Revenue and it has not been found by the Tribunal that the lotting out of the factories and godowns was an act of commercial expediency or that it was incidental to the business of the assessee. No material was placed by the assessee before the Revenue in that regard. In the circumstances, the Tribunal did not commit any error of law in assessing the rental income from the factories and godowns received by the assessee under the head 'Income from property'. In view of this it is not necessary to discuss the cases relied upon by the learned counsel for the assessee in detail because they are all distinguishable on facts. We are, therefore, of the opinion that on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the rent received by the assessee from the various godowns and factories was chargeable under the head ' Income from property ' and not as ' income from business '. Question No. 1 is, therefore, answered in the affirmative and against the assessee.
6. As regards question No. 2 it is not disputed that the assessee is being assessed as one unit in respect of its income from all its branches, some of which did not function in the accounting year. The income of the assessee, therefore, has to be assessed after giving deduction of the expenses incurred by the assessee in respect of all its branches including thebranches which did not function in the accounting year because the assessee has to incur expenses in maintaining its assets in such branches. It is a misnomer to call the expenses incurred by the assessee for the maintenance of such branches as losses incurred by the assessee in such branches.
7. In CIT v. C. Parakh and Co. (India) Ltd. : 29ITR661(SC) , the Supreme Court has held that where an assessee carried on one and the same business at a number of places, for the purpose of Section 28 of the Act, there is only one business and the net profits of the business have to be ascertained by pooling together the profits earned in all the branches and deducting therefrom all the expenses.
8. The Tribunal was, therefore, not justified in disallowing the expenses incurred by the assessee in maintaining its branches, which did not function in the accounting year, in assessing the income of the assesses by erroneously calling such expenses as losses of those branches because as held by the Supreme Court the profits earned in all the branches of the assessee have to be pooled together and all the expenses have to be deducted in ascertaining the net profits of the business. Our answer to question No. 2, therefore, is in the negative and in favour of the assessee.
9. The reference is answered accordingly. In the circumstances, there shall be no order as to costs of this reference.