Ajit K.Sengupta, J. - (1.) In this reference under Section 256(2) of the Income-tax Act, 1961, for the assessment year 1964-65, at the instance of the Commissioner of Income-tax, the following questions of law have been referred by the Income-tax Appellate Tribunal for the opinion of this court: "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the income from the property of No. 3, Netaji Subhas Road, Calcutta, acquired by the assessee and let out to its managed companies should be assessed under the head 'Profits and gains of business or profession' and not under the head 'Income from house property' ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in allowing expenses pertaining to the portion of the property at No. 3, Netaji Subhas Road, Calcutta, let out to the managed companies as deduction against profits or gains of business ? (3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the income from letting out furniture to the managed companies should be assessed under the head 'Profits and gains of business or profession' and not under the head 'Income from other sources' ?"
(2.) The facts leading to the reference are stated hereinafter. At the relevant time, the assessee was the managing agent, secretaries and treasurers of a number of limited companies. The assessee-company also dealt in jute goods. The assessee-company owns a building at No. 3, Netaji Subhas Road, Calcutta, wherein the registered office is located. This is a four-storeyed building and the assessee-company was occupying the ground floor and the second floor of the said building for its own business purposes. The rest of the building, with the exception of two rooms on the ground floor, which were let out to D.L. Millar and Co. Ltd., was occupied by the various managed companies, which were more than 20 in number. The case of the assessee all along has been that the rental income derived by it from letting out a portion of its property at No. 3, Netaji Subhas Road, Calcutta, to its various managed companies should be assessed under the head "Profits and gains of business or profession" and not under the head "Income from house property" and/or "Income from other sources". It was submitted on behalf of the assessee before the Income-tax Appellate Tribunal that the assessee-company was managing more than 20 companies and, for the proper conduct of its business, it was necessary that the managed companies should be situated in the same building in which the assessee had its own office and that under Clause 12 of the terms of the managing agency agreement, it was incumbent on the assessee-company to provide the managed companies with suitable furnished accommodation. It was also submitted that the entire floor area was distributed on functional basis and such distribution was an essential and integral feature of the conduct of the assessee's business. It was further submitted that the letting out of the building along with furniture to the managed companies was merely incidental to the main business of the assessee-company.
(3.) The Income-tax Officer had decided this question against the assessee-company in the earlier years as well as in the years under reference. The view of the Income-tax Officer was upheld by the Appellate Assistant Commissioner till the assessment year 1961-62. When the matter came on appeal by the assessee before the Tribunal, the same was decided in favour of the assessee. The Tribunal, in its order for the assessment year 1961-62, held that the letting out of accommodation in the case of the assessee-company was subservient and incidental to the carrying on of its main business and, therefore, the rental income from the property as well as from the furniture was assessable as business income and not as income from property. The Tribunal also held that, for a proper and efficient conduct of the business of the managed companies which were about 20 in number, it was imperative that the offices of the managed companies should be situated as close to one another as possible and, under the managing agency agreement, there was an obligation on the assessee-company to provide suitable furnished accommodation in the same premises as the registered office of the assessee-company itself. The assessee-company had also allocated the floor area of the building on functional basis. The Commissioner of Income-tax requested the Tribunal to make a reference to this court in respect of the assessment year 1961-62, but the same was declined by the Tribunal in R. A. Nos. 80 and 81/(Cal) of 1971-72 by its order dated July 24, 1971.;