1. A number of income-tax references have been heard by us in which the assessed concerned is the Punjab National Bank. In some of the assessment years under consideration, the original assessed was the Punjab National Bank Ltd., before its nationalisation. since many of the points are common, it will be more convenient to deal with the reference in chronological order. There are seven references in all, which relate to the assessment years 1960-61 to 1965-66, i.e., six different assessment years. There are two references relating to the assessment year 1963-64. In this judgment the assessment year 1960-61 is under consideration, the number of the relevant reference being ITR No. 104 of 1972.
2. The following questions have been refereed to us in relation to this year :
'1. Whether, on the facts and in the circumstances of the case, the assessed was entitled in determining its business profits to proportionate depreciation in respect of that portion of the building which was let out to tenants and income from which was determined under section 9 of the Indian Income-tax Act, 1922
2. Whether, on the facts and in the circumstances of the case, the assessed was entitled to proportionate depreciation in respect of lifts and air-conditioning plant in so far as they related to the portion of the property which was let out to tenants and income from which was chargeable u/s. 9 of the Indian Income-tax Act, 1922
3. Whether, on the facts and in the circumstance of the case, the assessed was entitled to development rebate in respect of lifts and air-conditioning plants fixed in the building, portion of which was let out to tenants and income from which portion was chargeable to tax u/s. 9 of the Indian Income-tax Act, 1922
3. The three questions have arisen in relation to the property of the bank situated in Parliament Street, New Delhi. Five out of six floors in this building were used in the year under consideration by the assessed for its own business, but one floor was let out to a client. We understand that this was the head office of the bank and the sixth floor which was let out was occupied by another party whose management had some connection with the management of the bank. This fact does not make any difference to the legal position of this case, but this fact was disclosed by learned counsel for the assessed to explain how it happened that a portion of the head office was let out to some other party.
4. The whole building is fitted with air-conditioning and there are also lifts operating. The questions which have arisen in relation to the building, air-conditioning plant and the lifts in the building are interconnected. The first question referred to us is concerned with the manner in which depreciation on the whole building has to be calculated for the purpose of allowance against business profits of the bank. The claim of the assessed was that the entire depreciation was to be allowed, but the ITO allowed only proportionate depreciation, i.e., five-sixths of the whole depreciation. This view was upheld by the AAC. However, the Tribunal allowed the entire depreciation.
5. As regards the lifts and air-conditioning plant, it was held by the ITO as well as the AAC that only proportionate depreciation could be allowed. The Tribunal, however, allowed the entire claim.
6. As regards the development rebate in respect of the lifts and air-conditioning plant, this was totally disallowed by both the ITO and the AAC. On appeal, the Tribunal allowed this claim and permitted development rebate in toto as claimed by the assessed.
7. It is necessary to deal with each of these questions separately because though the provision of law is more or less the same, there is a slight difference in language and its application to the facts arising in the case of the building itself and to the case of the lifts and the air-conditioning plant for the purpose of depreciation, and a different provision applies in the case of development rebate.
8. In the case of the building, it has been urged before us that the entire depreciation has to be allowed, as held by the Tribunal on the ground that a bank cannot hold any property except business property. Section 9 of the Banking Companies Act, 1949, prohibits a bank from acquiring immovable property otherwise than for the purpose of its own business. The building in question was acquired by the bank for its own business. In fact, it is the head office of the bank. There is a provision in the Banking Companies Act that if a bank holds immovable property and uses the same otherwise than for its business, then the same has to be sold. Nevertheless, when a bank does not hold property for business purposes and a portion of the same is unused, i.e., lying idle, we do not think that this provision prevents a bank from letting out that portion. A bank may have a very large building of which a portion may belying quite free and not required, and it would not be right to say that the bank cannot let out that portion and if it does let it out, then has it to sell the building A reasonable construction of the section would be that the building is used for business purposes, but the extra portion can be let out. The relevant portion of section 9 is as follows :
'9. Disposal of non-banking assets. - Notwithstanding anything contained in section 6, no banking company shall hold any immovable property howsoever acquired, except such as is required for its own use, for any period exceeding seven years from the acquisition thereof or from the commencement of this Act, whichever is later or any extension of such periods in this section provided, and such property shall be disposed of within such period or extended period, as the case may be :......'
9. A reasonable construction of the section would be that a banking company can acquire immovable property for its own use. Having acquired such property, it can be used for its own use, but if there is some extra portion left, however, then the section does not say that that portion cannot be let out. Even if a portion is let out to a tenant, it would be in the bank's own use and no question of selling the same will arise under this provision. The provision actually applies only in cases where a bank acquires a building otherwise than for its own use. This cannot be the case when we are dealing with the head office of the bank, five sixths of which is admittedly being used by the bank itself.
10. Assuming that the bank has to sell off the extra portion, it does not in our view make any difference to the scheme of taxation.
11. The provisions of s. 9 of the Indian I.T. Act, 1922, which was applicable at the relevant time opens with the words!
'The tax shall be payable by an assessed under the head 'Income from property' in respect of the bona fide annual value of property consisting of any buildings or lands appurtenant thereto of which he is the owner, other than such portions of such property as he may occupy for the purposes of any business, profession or vocation......'
12. Thus, if an assessed happens to own a building and uses a part of that for its own business, profession or vocation, then the same is to be taxed only in respect of that portion which is not used for such business, profession or vocation. It cannot be denied that the tax is payable under s. 9 of the Indian I.T. Act, 1922, on the notional value as opposed to the actual rent being received. So, in computing the notional value for the purpose of s. 9, that portion of the building which is being used for business is to be totally excluded. If such portion was not used for business, then the entire building would be taxable on a notional value. Inasmuch as the assessed in the present case occupies five-sixths of the building for business, the income of that portion is totally exempt under s. 9 and tax is payable only in respect of the one-sixth portion which is let out to another.
13. Turning now to the question of depreciation on the building, such depreciation can only be allowed under s. 10 which is the provision relating to tax under the head 'Profits and gains of business, profession or vocation'. Under sub-s. (2) of s. 10, a number of allowances are permitted : one of these is depreciation by virtue of sub-cl. (vi). Such depreciation is allowed in the following terms :
'(vi) In respect of depreciation of such buildings, machinery, plant or furniture which are the property of the assessed... to such percentage on the original cost thereof to the assessed as may in any case or class of cases be prescribed...'
14. Thus, depreciation is allowed on machinery, plant or furniture which are the property of the assessed. The provision relates to such buildings, machinery, plant or furniture. The word 'such' brings us to sub-cl. (iv), where it is stated as follows :
'(iv) In respect of insurance against risk of damage or destruction of buildings, machinery, plant, furniture, stocks or stores, used for the purposes of the business, profession or vocation, the amount of any premium paid.'
15. The subsequent provisions, (v) and (vi), etc., refer to the same building, machinery, plant, etc., which is referred to in sub-cl. (iv). Such buildings, plant, machinery, etc., have, thereforee, to be buildings, plant and machinery, used for the purpose of business. This brings us to the question whether it can be said that the entire building is being used for business or only five-sixths of the same being used for business. It is contended on behalf of the assessed that the whole building is being used for business. The building is held as a business asset; it is being used as the head office. The mere fact that a part of it is used by letting it out does not make it anything but a business asset. A number of cases were cited before us to say what is a commercial asset. It has also been pointed out in those cases that a person is entitled to use a business asset in the most suitable way in which income can be generated. A number of examples of this have been cited before us and there can be no doubt that a commercial asset as such can be used by the assessed himself for carrying on business, or thy can be used by the assessed by hiring the same out to be used by another person for sunning the business. Such cases relate to business assets proper. There are commercially exploitable items, such as factories, machines and so on. A man may run a factory himself or get somebody else to run it. He may operate an income-yielding asset, such as a taxi or a truck or bus himself or hire the same out to somebody else to do business. He may operate a cinema himself or somebody else may do so. We are not concerned with such a case here. The assessed operate a bank; it is not the case of the assessed that the tenant is operating a bank in the bank premises. The tenant is using a portion of the building for his own proposes. It is not different from that of any ordinary letting out of a building. An empty building has, no doubt, a commercial value in the sense that is a place for carrying on business, but it is not a commercial asset in the sense used in the cases we have examined.
16. In CEPT v. shri Lakshmi Silk Mills Ltd. : 20ITR451(SC) , decided by the Supreme Court, what the assessed had let out was a dyeing plant. This was idle due to circumstances set out in the judgment. The letting out of the plant to another for a short period was treated as a business income. The reason being that this was a case of exploitation of a commercial asset by the best means available; as it could not be run by the assessed, it was let out for use by another to get business income. This was a commercial exploitation in the circumstances of the case. We, thereforee, hold without dealing extensively with the case law, that this line of case is not applicable to the facts of the present case. The letting out of a single floor of the head office is not a commercial exploitation of that floor. It is just like any other letting out of an office by the owner to a tenant. Heaving reached this conclusion, it follows that only five-sixths of the building is being used for business purposes and the remaining one-sixth is not being used for business. The next question arising was whether it was permissible to divide an asset into portion. Though no case law has been brought to our purposes of applying the depreciation provision, it seems to follow, in our opinion, from the language of ss. 9 and 10.
17. The provisions of s. 9, which have been referred to earlier, show that for the purpose of ascertaining income from property, the national value of that portion of that building has to be determined which is not used for business by the assessed himself. This virtually means that such a building has to be divided into two portions; one portion which is used by the assessed himself for business and the other portion whether let out or not let out. If a portion is not used for business, it becomes assessable and the national annual value has to be determined for the purpose of taxation, subject to the adjustments allowed in the section. Similarly, it would follow that in applying s. 10 (2) (vi) we have to take into consideration that portion which is used for business. In other words, s. 9 and s. 10 are mutually exclusive. The portion that is let out, or not used for business, has to be taxed under s. 9 and the portion that is used for business is exempt under that section. Depreciation is allowed and other charges are allowed under s. 10 (2) in respect in the business portion. We would, thereforee, hold that the ITO was right in holding that proportionate depreciation was to be allowed in the case of the building on five-sixths of the building and not the entire building.
18. Turning now to the case of the lifts and air-conditioning plant which are involved in the second and the third questions, the provisions of s. 9 have no application at all. This machinery, i.e., lifts and air-conditioning plant, is not building or land appurtenant thereto within the meaning of s. 9 of the Act. thereforee, we have to disregard s. 9 altogether in computing the depreciation in these items. Then the only question to be asked is, whether such air-conditioning plant or lifts are being used for the purpose of the business The answer of this question has to be 'yes'. The lifts and the air-conditioning plant are fitted in the head office of the assessed. The fact that the air-conditioning plant and lifts may also be utilised by somebody who happens to be a tenant of one of the floors of the building does not appear to make any difference. The same air-conditioning plant and lifts are likely to be used by the customers of the bank and any other visitor of the bank. This will happen practically in every case and no assessed can be said to use an air-conditioning plant or lifts only by himself. The result, thereforee, would be that depreciation has to be allowed in full on the lifts and air-conditioning plant and we would, thereforee, agree with the Tribunal in this respect.
19. We now turn to the third question which raises a controversial point in respect of lifts and air-conditioning plant. The provision in this respect is s. 10 (2) (vib) of the I.T. Act, 1922. The development rebate in such cases is available in respect of new machinery of plant, etc., installed after 31st March, 1954, which is wholly used for the purpose of the business carried on by the assessed. The controversy in this case is whether the lifts and air-conditioning plant are wholly used for the purpose of the business.It is contended before us that the case is covered by the decision of the Madras High Court in CIT v. Pandyan Bank Ltd. : 71ITR707(Mad) . That is also the case of a bank and the facts are practically identical because the bank in question had an air-conditioned building and had claimed depreciation and development rebate of the air-conditioning plant. There were two tenants in the building, so it had been held by the ITO and the AAC that development rebate could not be allowed. The Tribunal had reversed this order, but the High Court held that the requirement was that the expression 'wholly used' meant used in their entirety. It was held that the words 'wholly used' must be given full scope. It was observed (p. 712) :
''Wholly' has no reference to the extent or nature of the business but to the extent of the user ; but such user must be with reference to and only for the purpose of the business carried on by the assessed.'
20. It was thus held that the development rebate could not be allowed. We may also observe here that the assessed was not represented and probably some aspects of the matter which have been urged before us were not brought to the notice of the court. The Madras judgment did not approve of the Kerala High Court judgment in CIT v. Ouchterlony Valley Estates (1938) Ltd.  58 ITR 618, in which case it had been held that 'wholly used' does not mean exclusively used. In that particular case, machinery and plant had been set up by the assessed for the purpose of cultivation of tea and coffee. Under r. 24 of the Indian I.T. Rules, 1922, income from the sale of tea was treated to the extent of 40 per cent. As income liable to tax, while in the case of coffee, it was considered as agricultural income exempt from taxation. Inasmuch as the machinery and plant could be used both for tea and coffee, if was contended that the assets were not being wholly used for the purpose of business. The Tribunal had held that the mere fact that only proportionate use was made of the assets for the purpose of taxation did not mean that development rebate was to be disallowed.
21. It may be seen on a close analysis of the two judgment that the difference between the two High Courts arose out of the interpretation of the words 'Wholly used' for the purpose of the business. The Madras High Court held that 'Wholly used' meant that the machinery and plant should not be used for anything else, whereas the Kerala High Court held that 'wholly used' meant that all the machinery or plant in question should be used for the purpose of business and not only a portion. The difference between the decision cuff the two High Courts is, thereforee, whether the word 'wholly' is to be attached to the 'machinery' or to the 'user' of the machinery.
22. We have examined the question in a different light. The question before us is, as to who is using the air conditioning plant and the lifts It is nobody's case that this air-conditioning plant or lifts have been hired out to any one. They are in the exclusive possession of the assessed itself. The plant and machinery belong to the assessed and is under the control of the assessed. The air-conditioning plant cannot, thereforee, be said to be used by anybody else. The mere fact that somebody may enjoy the lifts or the air-conditioning plant does not mean that the assessed is not using it wholly and exclusively for the business. The expression 'wholly used' for the purpose of the business refers to the manner of user. If you are the owner of machinery and you are using it yourself and you have full control over it, then you are using it yourself and nobody else is using it. As already mentioned, the lift fitted in a building is likely to be used not only by the bank, its officials, but also by complete strangers which may include clients of the bank and others. Similarly, the air conditioning plant is likely to cool or heat, as the case may be, not only the employee of the bank, its customers, but also anybody else who happens to visit the bank premises. Such persons need not be clients of the bank properly speaking. The question to be asked in such cases is : Is this machinery being used by anybody else Plant or machinery can be said to be used by somebody else if some other person has control over the same. If you drive your own motor car and have a passenger in it, then you are wholly using the motor car even it the passenger may also be using it. It is the control which determines who is using it. It seems to us that the question whether anybody else gets the benefit from the air-conditioning plant or lifts should not lead to the inference that such person is using the machinery or plant. 'User' means not only getting benefits, but also controlling, running, stopping, repairing, replacing, etc. It clearly appears from the facts of this case that the tenant of one of the floors is certainly not using the machinery in the sense that any portion of the lifts or air-conditioning plant have been let out to him. The tenant and the other users of the building cannot possibly stop the lifts or air-conditioning plant, nor can the lifts and air-conditioning plant be switched off or parted with in any way by such other persons. It clearly appears that the user is exclusively and wholly of the bank itself. This is one way of looking at the problem.
23. The next way, which is also appropriate in the present case, is to view it from the angle as to whether the air-conditioning plant or lifts are being used for a non-business purpose by the bank. The provision of law can be viewed from two angles as was done by the Kerala High Court referred to earlier. We can ask the question whether all the lifts and the entire air-conditioning plant is being used for business, or we can ask the question whether a portion of the user is for non-business purpose. If we view the problem from the angle taken by the Kerala High Court, then obviously the entire machinery and plant is being used for a business purpose. If we view the case from the angle taken by the Madras High Court, we will have to ask the question whether any part of the user is of a non-business character. As already observed above, it does not appear to us that the bank is using the air-conditioning plant or the lifts for any one, but for the use of the bank itself. But, even if we ask the question whether the user by the tenant is not of a non-business character, we will have to reach the conclusion that is so.
24. The reason for this is that the entire building is a business asset of the bank. It is the head office of the bank. A bank cannot use a building except for business purposes as already analysed above. The Banking Companies Act puts a restriction on the manner in which a building can be used by a bank. thereforee, the building is being used by the bank for business purpose. Moreover, the letting out of one of the floors is not a non-business purpose. It is mere matter of chance that the taxability of this portion of income is covered by s. 9 of the Act. The heads of income described in the I.T Act, such as 'income from salary', 'income from property', 'Income from business, profession or vocation', 'Income from other sources', or 'interest income' are purely artificial for the purpose of determining the taxable income under each head. Interest income or income from dividend or income from investments can also be business income. For instance, in the case of a bank, a particular amount has to be placed in deposit by law. Interest income so derived will still be business income. It was so held by the Supreme Court in United Commercial Bank Ltd. v. CIT : 32ITR688(SC) . Thus, in the case of this particular assessed, there can be little doubt that one of its important business assets, i.e., the building in which the head office of the bank is situated is being used for business purpose in spite of the fact that a portion of it is let out. It cannot, thereforee, be said that in the present case the lifts and air-conditioning plant were not being used for business either in respect of the entirely of the user or in respect of the entirely of the machines.
25. It may here be observed that there is a distinction between the present case and the case where a building is erected for the purpose of letting it out to tenants. In such a case, even it there is an air-conditioning plant or lifts, the user will not be a 'business user', if we use the test used by the Madras High Court. The distinguishing line in such cases will have to be the terms of the letting to the tenant. If the use of the lifts and air-conditioning plant is allowed to the tenant by the terms of the lease, then it can be said that the same are not wholly and exclusively used for the purpose of business. It was so held by the Calcutta High Court in CIT v. J. Thomas and Co. Pvt. Ltd. : 110ITR566(Cal) , in which case the tenants were paying a separate charge for the use of the lifts and enjoyment of the air-conditioning system. There is nothing in the facts of the present case to suggest that the air-conditioning plant or its advantage was leased out to the tenant, and nor is there anything about the lifts. It, thereforee, appears that the tenant may have been using the lifts or air-conditioning plant just as any other visitor to the bank's premises. There is no special contract by which the benefit or user was transferred to the tenant. thereforee, there are no circumstances to show that the user as such, or even part of the user, was assigned to the tenant. In the circumstances, it would appear to us that both the lifts and the air-conditioning plant were wholly used by the assessed for business purposes and for no other purpose.
26. Our answers to the questions referred to us would thus be : that we would answer the first question in the negative to hold that proportionate depreciation was not allowable in respect of the let out portion. We would answer the second question in the affirmative by holding that full depreciation was allowable regarding the lifts and the air-conditioning plant, and we would answer the third question in the affirmative by holding that development rebate was allowable regarding the lifts and the air-conditioning plant as they were used wholly for business by the assessed. As the question are answered partly in favor of the assessed and partly in favor of the assessed and partly in favor of the Department, we have the parties to bear their own costs.