Commissioner of Income Tax vs T.V. Sundaram Iyengar and Sons Ltd.

P.D. Dinakaran, J.—The appeal is directed against the order dated .6.2003 made in I.T.A. No. 83/Mds/96 on the file of Income Tax

Appellate Tribunal, Chennai Bench ''A'', holding that the residential properties of the respondent/assessee let out to the employees of the sister

concern of the respondent/ assessee are treated as business assets and that the income from letting out the property should be treated as business

income in the hands of the assessee and allowing depreciation for the same, on the following substantial questions of law.

(i) Whether in the facts and circumstances of the case, the Tribunal was right in holding that the residential properties let out to employees of sister

concerns are to be treated as business assets and depreciation allowed? and

(ii) Whether in the facts and circumstances of the case, the Tribunal was right in holding that income from letting out of property should be treated

as business income in the hands of the assessee?

2.1. In brief, the properties at No. 18, Jawahar Road, Madurai, and 20, Cenotaph Road, Madras, were under the occupation of the respondent

subsidiary company M/s. Southern Roadways Limited and Sundaram Industries Limited respectively. That apart, the properties at 20A and 20B,

D''sylva Road, Madras, are let out to Dr. Rangarajan and Mr. Srikant Ramanujam of Brakes India Limited respectively, who are employees of the

sister concern of the respondent/assessee. These assets of the respondent/ assessee since were let out to third parties, even though they are

employees of the sister concern, taking into consideration that these properties or portion of these properties were not in occupation of the

respondent/assessee for the purpose of business or any profession carried on by the respondent/assessee, the appellant/revenue assessed those

properties u/s 22 of the Income Tax Act (in short the ""Act"") as an income from the house property, of course, taking the estimated annual value of

the property into consideration in the assessment order dated 26.5.1995.

2.2. Aggrieved by the said assessment order, an appeal was preferred before the Commissioner of Income Tax (Appeals) contending that these

assets are commercial assets of the respondent/assessee and the properties were since let out to the employees of the sister concern, they are

deemed to be in occupation for the purpose of business of the respondent/assessee and therefore, the said rental income from the said assets has

to be assessed as profits and gains of business u/s 28 of the Act, but not as an income from the house property u/s 22 of the Act.

2.3. Per contra, the appellant/revenue contended that the contention of the respondent/assessee is not tenable, in view of the clear language

employed in Sections 22 and 28 of the Act, particularly, since it is not in dispute that the respondent/assessee is the owner of the property in

question; that they are not in occupation of the premises for the purpose of business of the respondent/assessee; and that they have rented out the

properties to the employees of the sister concern and receiving the rental income which has to be construed only as the income from house

property falling u/s 22 of the Act, but not as the profits and gains of the business falling u/s 28 of the Act.

2.4. The appellate authority, by order dated 9.11.1995 refused to accept the contention of the respondent/assessee and appreciating the stand of

the appellant/revenue dismissed the appeal.

2.5. However, on further appeal before the Tribunal, at the instance of the respondent/assessee, the assessment order of the assessing authority as

well as the order of the appellate authority dated 9.11.1995, referred to above, were set aside, charging the rental income received by the

respondent/assessee from the said properties as profits and gains of business u/s 28 of the Act and allowing depreciation thereon. Hence, the

present appeal.

The learned counsel for the appellant/revenue strongly placing reliance on Section 22 of the Act contends that both the assessing authority and

the appellate authority having satisfied that the respondent/assessee is the owner of the property in question and further satisfied that the property

was rented out to the subsidiary of the company and therefore they are not in occupation of the said premises for the purpose of business of the

respondent/ assessee, ought to have assessed the said property and charged the income from the house property only u/s 22 of the Act, but not u/s

28 of the Act, viz., as an income from business.

Per contra, learned counsel for the respondent/ assessee effectively contends that letting out the property to the employees of the sister concern

tantamount to letting out the same to the employees of the assessee themselves, since the respondent/assessee concededly is the holding company

and the tenants are the subsidiary company. Therefore, it is contended that, in strict sense, the property in question is in occupation of the

respondent/assessee, a holding company through the subsidiary company for having let it to the employee of the subsidiary company. In such

event, it is contended that the respondent/assessee is entitled to assess the said properties and to charge the rental income from the same u/s 28 of

the Act as profits and gains of the business and consequently, they are entitled for the allowable depreciation. In this regard, learned counsel for the

respondent/assessee places reliance on the decision of the full bench of Delhi High Court reported in Commissioner of Income Tax Vs. Modi

Industries Ltd., .

We have given careful consideration to the submissions of both sides.

6.1. Upon the above rival contentions while considering the substantial questions of law referred to above, it is apt to refer Sections 22 and 28(i) of

the Act, which read as follows:

Section 22: Income from house property. - The annual value of property consisting of any buildings or lands appurtenant thereto of which the

assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by

him the profits of which are chargeable to Income Tax, shall be chargeable to Income Tax under the head "" Income from house property"".

Section 28: Profits and Gains of business or profession:- The following income shall be chargeable to Income Tax under the head ""Profits and

Gains of business or profession:-

(i) the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year.

6.2. From a plain reading of Section 22 of the Act, it is clear that the annual value of the property, consisting of any buildings or lands appurtenant

thereto of which the assessee is the owner, is chargeable to Income Tax under the head ""Income from house property"" except such portions of

such property which the assessee may occupy for the purposes of any business or profession carried on by him, profits whereof are chargeable to

Income Tax. In other words, when an owner occupies the whole or any portion of house property for the purposes of his business carried on by

him, the profits of which are chargeable to Income Tax, the annual value of the whole or that portion of the property, as the case may be, will not

be chargeable to tax under the head ""Income from house property"".

6.3. In order to claim exemption in respect of the income from house property u/s 22 of the Act, the assessee must satisfy two conditions, viz., (1)

the property or portion thereof must be occupied by the assessee for the purposes of his business or profession; and (2) the profits of such

business should be chargeable to Income Tax. There is no dispute that profits of the assessee-company, which is stated to be ""occupying"" the

property are charged to Income Tax. To attract the exemption u/s 22 Act, it has to be seen whether the property is occupied for the purposes of

any business of the assessee-company. The point falling for consideration is whether to avail of the exemption u/s 22 of the Act, the property must

necessarily be: (i) in direct occupation of the assessee-company, and (ii) used as such for transaction of the assessee''s business or profession. This

would depend on the scope of the term ""occupy"". The term ""occupy"" appearing in section 22 of the Act has been judicially interpreted, as would

be noticed hereafter, as occupation directly by the assessee himself or through an employee or agent but such occupation by the employees, etc.,

within the meaning of the exception in the said section, must be subservient to and necessary for the performance of the duties in connection with

the business of the company, vide Commissioner of Income Tax Vs. Modi Industries Ltd., .

6.4. In the instant case, it is not in dispute that certain property belongs to the respondent/assessee themselves.

6.5. The next test to be satisfied is whether the property in question is the property other than the property occupied by respondent/assessee for

his business? The respondent/assessee is not in occupation of the property and there is no dispute about it. Therefore, the said property is squarely

attracted u/s 22 of the Act.

6.6. The learned counsel for the respondent/assessee, however, would contend that the respondent/assessee is the holding company of the tenants

to whose employees the impugned properties were let out and consequently, the property cannot be assessed u/s 22 of the Act and the income or

the profit thereon cannot be charged u/s 22 of the Act and it can be assessed and charged only u/s 28 of the Act, allowing the depreciation

thereon. It is true that the Full Bench of Delhi High Court in C.I.T. v. MODI INDUSTRIES LTD., referred supra, taking note of the fact that when

a house is occupied as residence by the employees or its Directors, whether on payment of rent or otherwise to enable them to discharge their

functions efficiently and the letting out of the property is subservient and incidental to the main business of the assessee, such an occupation

amounts to an occupation and user of the property by the assessee himself for the purpose of his business, even though no business is actually run

in such premises.

6.7. We are unable to apply the ratio laid down in C.I.T. v. MODI INDUSTRIES LTD., referred supra, to the instant case, as the

respondent/assessee have let out the properties in question to the employees of their sister concern, who are separate and independent assessees

by themselves, which makes a vast difference from letting out the properties to the employees of the respondent/assessee themselves. Therefore,

the occupation of the properties in question by the employees of the sister concern cannot be construed as an occupation by the employees of the

respondent/assessee themselves, in the absence of any specific provision in law to that effect, as it is trite law that the object of interpreting a statute

or any statutory provision is to ascertain the intention of the legislature or the authority enacting it. The intention of the maker is primarily to be

gathered from the language used, which means that attention should be paid to what has been said as also to what has not been said. As a

consequence, a construction which requires for its support, addition or substitution of words or which results in rejection of words as meaningless

has to be avoided. It is contrary to all rules of construction to read words into an Act unless it is absolutely necessary to do so. Rules of

interpretation do not permit courts to do so, unless the provision as it stands is meaningless or of a doubtful meaning. Courts are not entitled to

read words into an Act of Parliament unless clear reason for it is to be found within the four corners of the Act itself.

6.8. We are, therefore, of the considered opinion that the Tribunal committed an error in law in holding that the income from the property let out by

the respondent/assessee to the employees of the sister concern as an income from business and allowing depreciation thereon, and hold that the

income from the property let out to the employees of the subsidiary company should be treated as an income from house property u/s 22 of the

Act, instead of assessing the property in question as commercial assets and charging the same u/s 28 of the Act, as rightly contended by the

learned counsel for the appellant/revenue.

6.9. We, accordingly, answer both the issues positively in favour of the appellant/revenue and allow the appeal.