Alfred Henry Lionel Leach, C.J.
1. The assessee is a company-carrying on a hotel business. It was formed in 1928 and took over a hotel in Madras. Subsequently, the assessee built a hotel in Ootacamund and carried on a hotel business there until 1934. These facts do not appear in the statement of the case, but they have been mentioned in argument, and the are not in dispute. The assessee found that its business in Ootacamund was not profitable, and in 1934, leased the premises and its furniture and fittings to a firm named Davis and Company for the purpose, to quote from the order of the Income-tax Officer, 'of running a hotel'. Messrs. Davis and Company have, since then carried on this hotel business. For the assessment year, 1937-38, the assessee desired to deduct from its income the sum of Rs. 2,450 as a depreciation on the building and furniture at the Ootacamund hotel, the assessee company's contention being that it was entitled to this deduction under the provisions of Section 10(2)(vi) of the Indian Income-tax Act, 1922. The Income-tax Officer refused to allow the deduction and held that the hotel in Ootacamund must be regarded as property and as such, was assessable only under Section 9 of the Act. His decision was in turn concurred in by the Assistant Commissioner and the Commissioner. The assessee being dissatisfied asked the Commissioner to refer the matter to this Court as it involved a point of law and the Commissioner has in consequence framed this question:
Whether in this case the petitioner is entitled to an allowance for depreciation under Section 10(2)(vi) of the Act in respect of their Ootacamund building let out to Messrs. Davis and Company.
2. Mr. Sesha Aiyangar has very properly conceded that when the assessee was running a hotel it was entitled to be assessed under Section 10 of the Act, and therefore entitled to the deduction allowed by Sub-section 2, Clause (vi) but he says inasmuch as the assessee has ceased to utilise the building itself for the purpose of a hotel business the building must be regarded as property and not part of the assessee's business. In this connection, I would point out that Clause 3(j) of its memorandum of association gives the assessee power to let on rent the undertaking or any part of it, and therefore the letting of the Ootacamund hotel was part of the company's business. In my opinion the case is governed by the Full Bench decision of this Court in Mangalagiri Rice Factory v. Commissioner of Income-tax, Madras : AIR1926Mad1032 , which was followed by the Calcutta High Court in Section Roy Chowdhury v. Commissioner of Income-tax, Bengal I.L.R.(1935) 62 Cal. 804 : 8 I.T.C. 177. Sir Coutts-Trotter, C.J. and Krishnan and Beasley, JJ., had to consider the case of a company incorporated for the purpose of milling rice. The company's articles of association gave it power to lease out its buildings and there was a clause which stated that:
If it was deemed beneficial to the company with reference to circumstances it might lease or give its factory for contract.
3. Therefore, the powers of the company were powers which the assessee in the present case possesses. The company let its mill, and the question was whether it was entitled to the deductions allowed by Section 10(2)(vi). It was held that it was. In his judgment Beasley, J., observed:
The company could either work the mill itself or could let it out to others to do so. One is the business of milling and the other is the business of letting out the mill for others to do so. Both, in my view, are equally a business, and my answer, therefore, to the reference would be that the company is entitled to a deduction for depreciation of the buildings, machinery and plant.
4. I can see no difference in principle between the letting out of a rice mill and its machinery and the letting out of a building built, fitted for the purposes of a hotel business. As I have indicated, the assessee here his the power to carry on the hotel business or lease the whole or part of its undertaking. It has leased a part of its undertaking and if it had leased its two hotels, there would have been no difference between the present case and the two cases which I have mentioned. I do not consider that the fact that it has only let out one of the hotels and not the two can mike any difference, the assessee having full power to let out the whole or a part of its undertaking. As I regard tUe case as being governed by Mangalagiri Rice Factory v. Commissioner of Income-tax, Madras : AIR1926Mad1032 , I would answer the reference in the affirmative. The assessee, having succeeded in the reference, is entitled to its costs, Rs. 250 and the refund of its deposit of Rs. 100.
5. I entirely agree. In my view, the decision of the Income-tax authorities was based on the information that what was let in this particular case was 'a building'. In the decision, Mangalagiri Rice Factory v. Commissioner of Income-tax, Madras : AIR1926Mad1032 , it will be seen that the company in that case had their powers separately divided with regard to their properties. They were empowered to lease out buildings and vacant sites of lands, and by a separate provision they were empowered to lease or give their factory for contract. In this case, that power is contained in the memorandum of association, Clause 3(j), not separately as in the above case. Now, what did Davis and Company get in this case? In my view, they received a lease of the undertaking of a hotel known as a hotel business. In the case to which reference has been made, it was a rice mill business. Now, the equipment of a rice mill is naturally different to the equipment of a hotel. The kitchen, lounges, bars, public rooms, sleeping rooms, bath rooms, and lavatories of a hotel naturally find no place in a rice mill any more than the machinery of a rice mill finds a place in a hotel. But nonetheless, one is just as much a business as the other. It seems to me that when that view is borne in mind, the difficulties which the Income-tax authorities found in this case largely disappear, because what Bosotto Brothers, Limited, leased was this hotel business in Ootacamund, and if that is so, the position is exactly covered by the decision-in Mangalagiri Rice Factory v. Commissioner of Income-tax, Madras : AIR1926Mad1032 . I have only to add that I cannot for a moment accept the position that if an assessee has one undertaking, be it a rice mill or be it a hotel, and if he leases that undertaking it comes under Section 10, but if he owns two undertakings and leases only one of them, it comes under Section 9. The reasoning for the position that the latter position comes under Section 9 seems to me without any foundation whatever. For these reasons and for the reasons given by my Lord the Chief Justice I consider that the answer to the reference should be in the affirmative.
Krishnaswami Aiyangar, J.
6. It is not without some hesitation that I subscribe to the opinions just now expressed by my Lord and my brother, Mockett, J. I take the facts to be that the building which has formed the subject-matter of the contest was built and fitted up by the assessee to be utilised for the running of a hotel business, that the assessee actually ran such a business there for some years until he closed it in 1934. After the business was discontinued, the assessee let the building on a monthly rent of Rs. 120 to Messrs. Davis and Company who have been running a hotel oft their own in it since then. I also take that it was for the purpose of running a hotel that the building was leased. In spite of the fact that the building was not used by the assessee for purposes of his business during the year of account, he claims that an allowance should be made out of his gross business income for the depreciation of his building during the year of account. It is claimed on his behalf, that he is entitled to the allowance under Section 10(2)(vi).
7. The question is whether the proper section -to be applied to the case is Section 9 as claimed by the department or Section 10 of the Indian Income-tax Act, 1922, as claimed by the assessee. On behalf of the department a suggestion was made but not persisted in, that Section must first be resorted to before considering the applicability of Section 10. It seems to me that if a case properly comes within Section 10, there is no question of having to choose between that section and some other section in the Act. Being a taxing statute, the Income-tax Act should receive a strict construction, that is, a construction in favour of the subject, and not in favour of the Crown. If a case appears to be governed by either of two provisions, it is clearly the right of the assessee to claim that he should be taxed under that one which leaves him with a lighter Durden.
8. Section 10 Jays down the method to be adopted for arriving at the tax payable by an assessee under the head 'business' and says that the tax should be payable in respect of the profits or gains of any business carried on by him. In computing such profits and gains certain allowances have necessarily to be made as directed by the various clauses of Sub-section (2). These allowances are peculiar to the case where income from a business is assessed other rules being made for the computation of income from other sources.
9. It will be advantageous to set out the relevant portions of the section which throw light on the question at issue.
(1) The tax shall be payable by an assessee under the head 'business' in respect of the profits or gains of any business carried on by him.
(2) Such profits or gains (sic) the following allowances, namely:
(i) any rent paid for the premises in which such business is carried on....
(ii) in respect of repairs, where the assessee is the tenant only of the premises and has undertaken the cost of such repairs....
(iii) in respect of capital borrowed for the purposes of the business....
(iv) in respect of insurance against risk of damage or destruction of buildings, machinery, plant, furniture, stocks or stores, used joy the purposes of the business....
(v) in respect of current repairs to such buildings, machinery, plant or furniture....
(vi) in respect of depreciation of such buildings, machinery, plant or furniture being the property of the assessee....
10. I have italicised the words which have a material bearing on the point under consideration. The meaning of the word 'such' in Clause (vi) is to be got by going back to Clause (iv), and it is clear that a depreciation is to be allowed only if the buildings, machinery, etc., were used for the purposes of the business. Two conditions have to be satisfied by the assessee before he can claim depreciation:
(1) The buildings, machinery, plant or furniture should be the property of the assessee;
(2) they must be used for the purposes of the business.
11. The use of the definite article 'the' and of the word 'such' in these clauses makes it clear to my mind that the business contemplated in Clause (vi) of the section is the business carried on by the assessee and not by any person or persons other than the assessee, and that it is in respect of a building belonging to the assessee, and used for his business that he can claim a depreciation allowance.
12. Can it be said in the present case that the Ootacamund building was used in the year of account for the purposes of 'the business', that is the business of the assessee? Prima facie I should be inclined to take the view that the business carried on by Messrs. Davis and Company is not the business of the assessee, but is really the business of Messrs. Davis and Company only. The position, I concede, may be different if instead of the building, fitted up as this building has been fitted up, being leased, the business itself had been leased as a running concern. The Act, it seems to me, contemplates the business as being something different from the buildings, the plant, machinery or furniture which may be used for the purpose of the business. It is as different from any of these things, as for instance the capital embarked on it, or the establishment with which it is carried on. The term business as used in the section denotes, I think, an abstract and intangible thing, quite apart from any of these physical adjuncts, and quite apart also from such other elements as the goodwill, the business connections, the business reputation and so on. In my judgment it is an entity different from any of these things and has to be so understood in the Act. A running business can be leased as it can be sold, as such together with the buildings where it is carried on. If the lessee carries on the business leased to him, using the same premises together with the fittings and furniture though for the purposes of his own business there may be some ground - even of this I am by no means sure - for saying that the assessee is still carrying on the business, through the agency of the lessee, so as to attract the provisions of Section 10(2)(vi).
13. But the position here is different. In the premises leased, it is not denied that the lessees Messrs. Davis and Company are carrying on their own business, and it is not claimed that the assessee leased the business as a running concern either. The business in question cannot be regarded even in a theoretical and legal sense as the business of the assessee and must in my opinion be held to be the business of the lessees. Can it then be said that Section 10(2)(vi) applies to such a case? It is this point which created a considerable amount of difficulty in my mind and I should have, if it were open to me to do so, been inclined to answer this question in the negative. But I agree that the decision of the Full Bench in Mangaldgiri Rice Factory v. Commissioner of Income-tax, Madras : AIR1926Mad1032 , binds me and leaves me no option. There, the company which owned a rice mill leased it lo a lessee and the latter carried on his own business in the premises but with the plant and machinery of the lessors. There is nothing in the report of the case to show that the lease was of the business as a running concern and there was therefore no warrant for regarding the business that was run by the lessee as the business of the assessee. Still, the Court held that Section 10(2)(vi) applied for reasons, which are, if I may say with great respect, clearly enough stated in the judgment of Beasley, J., as he then was. The learned Judge pointed out,
the company could either work the mill itself or could let it out to others to do so. One is the business of milling and the other is the business of letting out the mill for others to do so. Both, in my view, are equally a business.
14. In the present case also, it would appear from Clause 3(j) of the Memorandum of Association that the assessee is empowered to let on rent the undertaking or all or any of the property for the time being belonging to the assessee. The letting of the property in this case must be held, according to the decision in the case cited, as part of the business of the assessee in this case also. Bound as I am by this decision, I am constrained to answer the question referred to us in the affirmative. According to the Full Bench decision the question in each case will be whether the leasing of the property can be regarded as corning within the scope of the objects clause of the Memorandum of Association of the assessee company. In that case, as in; this, the assessee was a limited company.
15. I may perhaps add that there is no objection under the Act either to an individual or a company carrying on business and also owning property. The income from each of these sources will then be separately assessed under different provisions. In the first case, the section to be applied will be Section 10(2)(vi) and in the second case the proper section applicable will be Section 9. The assessee will have to pay the aggregate of the taxes under both heads.