KAPUR, J. - These are two applications made under section 66(2) of the Income-tax Act for the issuing of an order requiring the Appellate Tribunal to state the case and refer it to this Court.
These applications arise out of the assessments of the Delhi Cloth and General Mills Company Limited, for the year 1948-49 and 1949-50. The company owns some chawls, residential quarters and shops near and round about its cloth mill at Delhi as well as at Daurala Sugar Works at Barhani. In portions of these shops and other buildings outsider are residing as tenants, and there is no dispute that the income from those premises falls under section 9 of the Indian Income-tax Act. But in the rest of the houses and they pay what the Revenue claims to be rent, and this amount is in the neighborhood of Rs. 1,00,000. The Income-tax authorities assessed the company on this source of income under section 9. On an appeal being taken to the Income-tax appellate Tribunal it was contended that this income did not fall under section 9 of the Income-tax Act but under section 10, and there wa a subsidiary point in regard to the deduction as revenue debit of 7 per cent. of the rental income of these properties as managing agents commission. By a majority of two to one the Tribunal was of the opinion that this income falls under section 10 and not under section 9.
An application was made to the Tribunal to refer the case under section 66(1) of the Income-tax Act, but the Tribunal was of the opinion that the decision of the Tribunal on the point now sought to be raised was a question of fact and could not be referred and the application was therefore dismissed.
According to section 6 of the Income-tax Act there are six heads of taxable income and No. (iii) is income from property. No. (iv) is profits and gains of business, profession or vocation. The contention of the Revenue is that the income derived from the employees of the company who are in occupation of chawls and quarters and other buildings of the company is income from property and therefore falls under section 9. The company, however, submits that it comes under the fourth head, i.e., 'profits and gains of business, profession or vocation,' and therefore is covered by section 10 and counsel for the petitioner relies on the statement of law at page 435 of Kangas Law and Practice of Income-tax, third edition, where it is stated that when the owner of a property covered by this section grants a licence to other to come upon his property, he is merely exercising his rights of ownership in the property just as much as when he grants a lease, and reliance was also placed on a judgment of the Court of Appeal in Croft v. Sywell Aerodrome Ltd.
In my view the question whether income derived in the manner as is stated in this case falls under section 9 or 10 is a question of law and the Tribunal was in error in not making a reference to this Court under section 66(1).
I would therefore allow this petition and direct the Tribunal to make a reference and state the case under section 66(2) on the following two questions :
1. Whether the assessee company was chargeable to tax under section 9 of the Indian Income-tax Act, 1922, in the assessment for 1948-49 and for 1949-50 in respect of income from buildings or lands upper tenant thereto, of which it is the owner and which had been let to its own employees or wage-earners ?
2. If so, whether the assessee is entitled to a deduction of the 7% commission on the rental income paid to its managing agents in computing its assessable income under the above head. (for assessments for 1949-50 alone).
I would like to add that it is not admitted by the company that there is any letting of the property in dispute. The company will pay the costs of thee proceedings. Counsel fee Rs. 150.
BHANDARI, C.J. - I agree.