GENTLE, J. - (1.) THIS reference under s. 66(1) of the IT Act is made by the Tribunal at the instance of the assessee, the Ballygunge Bank, Ltd. The question referred for the opinion of the Court is: "Whether in the circumstances of the case the rent derived from the buildings erected by the assessee was properly assessed under s. 9 of the IT Act ?"
(2.) THE assessees are a public limited company, one of their objects being to acquire land by purchase, lease or otherwise, to deal in such land or to build houses thereon and to deal in or let out such houses. By deed of lease dt. 28th Feb., 1936, the lessors let to the assessees, as lessees, a vacant piece of land (including a tank) of an area exceeding 6 bighas for the term of 40 years at a progressive monthly ground rent therein specified. The lease provided, inter alia, that : "Clause 5. The assessees would be entitled to parcel the land into a number of plots and to erect buildings, etc., thereon and to let out the same on hire and for the purpose of the same to lay out and construct lanes, streets, drains and sewers as might be necessary. 6. The assessees were entitled to construct, and would be held responsible for constructing, 25 separate and self-contained houses on the land at their own cost. 7. The assessees would use only the best available materials while constructing the buildings. 8. The assessees would construct at their own cost pucca structures; the position and detailed construction of each house and the number of rooms, storeys and dimensions thereof were left entirely to the assessees' discretion. 10. The existing tank and ditches to be filled in and levelled by the assessee. 11. Within 5 years after possession given of about 1 bigha 3 cottahs of land, the assessees would erect pucca structures and houses thereon after constructing pucca lanes, drains and sewers. 12. In case the assessees failed to comply with the conditions in cls. (10) and (11) the lessors would be entitled to take back possession of the entire land together with the buildings and houses erected thereon and the assessees would have no right to make objection thereto or to claim compensation in respect thereof. 14. After the expiration of the full period of 40 years the lessees `will' take possession of the entire land together with all the structures and the assessees `will' have no right, title or interest thereto and all the above `will' pass to the lessors free from all encumbrances and defects. 18. The assessees to pay a proportionate part of the municipal tax in respect of the land and the entire municipal tax, from time to time levied, upon the structures to be erected. 22. In case of acquisition of the land by the Government or by any public authority (mentioned in the lease) any compensation received to be payable to the lessors whereas compensation in respect of the pucca structures would be apportioned according to the provisions contained in the lease on a graduated division dependent upon the unexpired period of the lease when acquisition occurred; the lessor's share increasing as the period of the remaining term becomes less. 24. The lessors or their representatives to be entitled to visit the land or supervise any construction thereon on one day each week. 27. The assessees to be entitled to sub-lease the whole or any part of the land." The assessees obtained possession of the land, filled in the tank, carried out the several works specified in the lease and erected houses on the land which they let to tenants, the assessees receiving the rents from the tenants.
(3.) IN the assessee's income-tax assessment for the year 1941-42 there is included the sum of Rs. 5,115 for "property" which was assessed under s. 9 of the IT Act. By s. 6 income shall be chargeable to tax under the head of "property"; by s. 9 tax is payable by an assessee under the head of "INcome from property" in respect or the bona fide value of property consisting of any buildings or lands appurtenant thereto of which he is the owner. It is not disputed that the amount of the assessment is correct. It is contended, however, by the assessees that they are not the owners of the houses but, under the lease, the lessors became the owners at the time they were constructed; further, the assessment should have been made under s. 10, as profits and gains of the business carried on by the assessees, it being their business to let out houses at rents.;