Commissioner Of Income Tax vs Modi Industries Ltd.
1992 Latest Caselaw 450 Del

JUDGMENT

B.N. Kirpal, J.

1. The question which is involved in this case is with regard to the interpretation of 22 of the IT Act. The case of the assessed is that a dwelling house was given to its managing agents and two nominees of the managing agents were living in the said house. The contention was that this house was occupied by the company for the purpose of its business and, therefore, the provisions of s. 22 of the IT Act did not apply.

2. In support of the aforesaid contention, counsel for the assessed referred to a decision of the Circuit Bench of Punjab High Court reported as CIT vs. Delhi Cloth and General Mills Co. Ltd. (1966) 59 ITR 152 (Punj) and also to a decision of a Division Bench of this Court in New Bank of India vs. CIT (1983) 140 ITR 132 (Del). In both these cases, it had been held that when the assessed allows its employees to live in its house, the income there from cannot be taxed under s. 22 of the Act as the house was occupied for the purposes of assessed's business.

3. Mr. Gupta, learned counsel for the Revenue, however, submits that in neither of these two cases, the Supreme Court decision of East India Housing and Land Development Trust Ltd. vs. CIT was even referred to. He also placed reliance upon a Division Bench decision of the Andhra Pradesh High Court in P. V. G. Raju, Rajah of Vizianagaram vs. CIT (1967) 66 ITR 122 (AP) and submits that income from house property can only be taxed under s. 22.

4. Under the IT Act, total income is computed under different heads, as provided by s. 14 of the Act. One of the heads is "Income from house property". Sec. 22 inter alia, provides that the annual value of the property consisting of any building or lands appurtenant thereto of which the assessed is the owner shall be chargeable to income-tax under the head "Income from house property". The exception to this is provided in the section itself and that is where portions of such property are in occupation of the assessed for the purpose of any of its business or profession carried on by him the profits of which are chargeable to income-tax, then said portions of property will not be subjected to tax under 22. Whereas the assessed is trying to contend that it is this exception which applies, the submission of the learned counsel for the Revenue is that the said exception has no application.

5. In order that the exception should apply, one of the essential ingredients is that the portions of the building should be such which may be in the occupation of the assessed. A question would, therefore, arise as to when can a company be said to be occupying the building though, possibly, occupation by its employees may amount to occupation by the company itself. The second condition which has to be satisfied is that such occupation must be for the purpose of "any business or profession carried on by him ......."

6. It is vehemently contended by the learned counsel for the petitioner that the premises must be used for a professional or commercial activity being carried on in the premises by the owner. When the property is used for residence, it is submitted by Mr. Gupta, no business or profession is carried out therein. The concept of profits mentioned under 22 would indicate that in the premises in question some business or professional activity must be carried out. Unless a commercial activity takes place in the property, there will be no profits.

7. Reference has also been made to s. 38 of the Act which contemplates a part of the premises being used as a dwelling house by the assessed. If the learned counsel for the assessed is correct then when houses are given to its employees, 22 will never apply as the houses will be regarded as having been given for the purpose of business and.s 38(1) will also never apply in the case of company.

8. It may be difficult to accept that under no circumstances s. 38(1) was meant to apply to a company who owned premises, part of which are used for dwelling houses. While interpreting 22 and s. 23, the provisions of s. 38 may have to be kept in mind, but the same were not considered in the decisions of the High Courts referred to hereinabove. Furthermore, we find that there is no reference to sub-s. (2) of s. 23 which specifically talks of house property.

9. It appears to us that there are large number of important points which are involved in this case which require a more detailed consideration. There are aspects which were not considered by the Division Bench of this Court in New Bank of India's case (supra), and in order that there may be no conflict of decisions, we feel that this case should be heard by a larger Bench.

10. We, therefore, direct that the papers be laid before Hon'ble the Chief Justice and the case be listed for hearing before a larger Bench.