- (1.) THE following question of law has been referred for our decision at the instance of the Commissioner of Income-tax, Bombay City II : "whether, on the facts and in the circumstances of the case, the assessee is entitled to the allowance under section 10 (2) (vii) in respect of demolition of a part of the building, even though the loss is not actually written off in the books of the assessee ?"
(2.) THE question has arisen with reference to the assessment year 1957-58, and upon the following facts : Messrs. London Hotel, Bombay, are a firm and they run a hotel called "london Hotel". The premises in which this hotel was being run were originally purchased by the three partners of Messrs. London Hotel on 7th September, 1945, for a sum of Rs. 1,15,000. They contributed to the consideration equally and when the London Hotel was started they treated the premises as being let out to the firm, the proprietary right vesting in the three partners jointly. The rent paid by the firm to the three individuals was debited in the books of the firm and the firm claimed the amount as a deduction in the years 1946-47 and 1947-48, and the deduction was allowed. Thus the property was treated as the private property of the three persons who had purchased it, although they were partners in that firm.
(3.) THIS position, however, was not accepted by the department in the assessment year 1948-49. The Income-tax Officer held that the premises in which the business of Messrs. London Hotel was being run were really a business assets of that firm and was liable to assessment as such in the hands of the firm. Consequent upon this order, depreciation on the property was being granted to the firm from the assessment year 1948-49 onwards under section 10 as a business asset of the assessee. However, so far as the account books of the assessee-firm were concerned, the asset was not shown as part of their assets, because the three partners of the firm always regarded it as their personal asset.;