- (1.) The question for determination in this appeal by special leave, is whether the assessee, the Calcutta National Bank Ltd. (in liquidation), is liable to Excess Profits Tax in respect of Rs. 86,000, which it realised by way of rent of the building at its headquarters in Calcutta, during the accounting period ending 31-3-1946. The Department and the Income-tax Appellate Tribunal answered the question in the affirmative. On a statement of the case to the High Court under S. 66 (1) of the Income-tax Act, a Bench of the Calcutta High Court ( Chakravarti C. J. and Lahiri J.) answered it in the negative, reversing the orders of the Department and the Tribunal. As the Bench refused to grant the necessary certificate of fitness, the appellant applied for, and obtained, special leave to appeal, by an order of this Court dated 27-9-1954.
(2.) The facts of this case are short and simple. The assessee was a banking company in a large way of business. It owns a six-storeyed building where its offices are located on the ground floor and a part of the 6th floor, while the rest of the building is let out to tenants. The annual rental income derived from the portion let out, is about Rs. 86,000. The Tribunal found that the portion let out is about four to five times the floor area of the portion of the building occupied by the assessee for the purposes of its own business. By an order dated 31-3-1949, the Excess Profits Tax Officer assessed the respondent on the said rental income in respect of the accounting period ending 31-3-1946, under sub-r. (4) of R. 4 of Schedule I to the Excess Profits Tax Act, 1940 (XV of 1940) (which hereinafter will be referred to as the Act). On appeal by the respondent, the Appellate Assistant Commissioner, by his order dated 3-1-1950, upheld the assessment on the basis of sub-r. (2) of R. 4 of Schedule I to the Act. He pointed out that the assessee carries on banking business which includes holding investments, and thus, the rental income in respect of its investments in immovable property, is included in its business income, even though it was not chargeable to income-tax under S. 10 of the Income-tax Act. Income from securities, like shares and properties, is chargeable to income-tax under Ss. 8, 9 and 12 of the Act; but that head of income is chargeable under the Act as business profits. He also pointed out that the assessee had itself included the value of these assets in the computation of its capital, for claiming standard profits. This had been done in the previous years, and the assessee bank had accepted the basis and the computation of capital assets during the previous years. On a further appeal by the respondent to the Appellate Tribunal, the Tribunal held that there was no doubt that the premises were built with a view partly to housing the head office of the company, and partly for the purpose of being let out to tenants, and that it was an investment by the Bank in immovable property. The Tribunal also found that this was within the terms of the Memorandum of Association of the respondent company. Hence, by its order dated March 22, 1951, the Tribunal held that the letting out of so much of the building as was not occupied by the company itself for its own business, was a part of its business and the rental income was, thus, liable to tax under the Act. It made a particular reference to sub-r. (4) of R. 4 of Sch. I to the Act, though the Department appears to have also relied upon sub-rule (2) of R. 4 aforesaid. Thereupon, the respondent got the Tribunal to state the case to the High Court, and the following question was accordingly referred to the High Court under S. 66(1) of the Income-tax Act : "Whether in this case the rental income from immovable property is part of these business income taxable under S. 2 (5) read with R. 4(4) of Sch. I attached to the Excess Profits Tax Act, 1940." The matter was heard by the High Court with the result indicated above. Hence, this appeal by special leave.
(3.) There is no doubt that excess profits are not chargeable under the Act unless the income falls within the ambit of business profits. Section 2(5) of the Act defines "business" as under : "business' includes any trade, commerce or manufacture or any adventure in the nature of trade, commerce or manufacture or any profession or vocation, but does not include a profession carried on by an individual or by individuals in partnership if the profits of the profession depend wholly or mainly on his or their personal qualifications unless such profession consists wholly or mainly in the making of contracts on behalf of other persons or the giving to other persons of advice of a commercial nature in connection with the making of contracts : Provided that where the functions of a company or of a society incorporated by or under any enactment consist wholly or mainly, in the holding of investments or other property, the holding of the investment or property shall be deemed for the purpose of this definition to be a business carded on by such company or society : Provided further that all businesses to which this Act applies carried on by the same person shall be treated as one business for the purposes of this Act." The definition of "business" under the Act, is wider than the definition of that term under the Income-tax Act (S. 2(4)). Section 2 (19) of the Act defines "profits" as follows : " 'profits' means profits as determined in accordance with the First Schedule." Section 2 (20) defines "standard profits" as follows : " 'Standard profits' means standard profits as computed in accordance with the provisions of S. 6". And the charging Section, S. 4 of the Act, provides that in respect of any business to which the Act applies, excess profits, that is, profits during any chargeabe accounting period, exceeding the standard profits, shall be charged, levied and paid. Section 5 of the Act provides as follows : "This Act shall apply to every business of which any part of the profits made during the chargeable accounting period is chargeable to income-tax by virtue of the provisions of sub-clause (i) or sub-clause (ii) of clause (b) of sub-s. (1) of S. 4 of the Indian Income-tax Act, 1922, or of clause (c) of that sub-section : Provided that this Act shall not apply to any business the whole of the profits of which accrue or arise without British India where such business is carried on by or on behalf of a person who is resident but not ordinarily resident in British India unless the business is controlled in India : Provided further that where the profits of a part only of a business carried on by a person who is not resident in British India or not ordinarily so resident accrue or arise in British India or are deemed under the Indian Income-tax Act, 1922, so to accrue or arise, then, except where the business being the business of a person who is resident but not ordinarily resident in British India is controlled in India, this Act shall apply only to such part of the business, and such part shall for all the purposes of this Act be deemed to be a separate business : Provided further that this Act shall not apply to any business the whole of the profits of which accrue or arise in an Indian State; and where the profits of a part of a business accrue or arise in an Indian State, such part shall, for the purposes of this provision, be deemed to be a separate business the whole of the profits of which accrue or arise in an Indian State, and the other part of the business shall, for all the purposes of this Act, be deemed to be a separate business." The First Schedule, which contains the rules for computation of profits, provides, in sub-rule 4 of R. 4, as follows : "(4) In the case of a business which consists wholly or partly in the letting out of property on hire, the income from the property shall be included in the profits of the business whether or not it has been charged to income-tax under S. 9 of the Indian Income-lax Act, 1922, or under any other section of that Act.";