COMMISSIONER OF INCOME TAX WEST BENGAL Vs. CALCUTTA NATIONAL BANK LTD

JUDGEMENT

(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 :

(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 :