Expenditure incurred by an assessee for the repairs and maintenance of residential quarters for its employees is allowable as business expenditure under Section 10(2)(xv) of the Income-tax Act, 1922, if the residential quarters are incidental to the business of the assessee and the letting out of the quarters to the employees is necessary for the proper performance of the business.

1. In this case the assessee is a private limited company which carries on the business of manufature and sale of agricultural implements. The assessee has made construction of residential quarters for its employees. During the assessment years 1949-50 and 1950-51 the company spent a sum of Rs. 6,005/- and Rs. 5,542/-, respectively, for repairs and maintenance of these residential quarters. For the same period the company received sums of Rs. 5,692/- and Rs. 6,268/- on account of conservancy and maintenance charges from the employees of occupying the residential quarters.

In the course of assessment proceedings the company claimed that the amounts spent for maintenance of the residential quarters should be deducted from the texable income of the company under Sec.10 (2) (v) and Sec.10 (2) (xv) of the Income-tax Act. The claim was rejected by the Income-tax Officer on the ground that the amount realised by the company: for the occupation of these residential quarters was assessable to income tax as under Section 9, and the company was entitled to claim a sum equivalent to one-sixth of the rent realised on account of the cost of maintenance.

The Income tax Officer accordingly allowed a deduction of one-sixth of the amount realised by the company from the employee under Section 9 of the Income-tax Act. The company took an appeal to the appellate Assistant Commissioner from the decision of the Income tax Officer. The appeal was dismissed by the appellate Assistant Commissioner, who expressed the same view as the Income-tax Officer with regard to the claim made by the company. The Company then preferred an appeal to the Income-tax Appellate Tribunal, but the appeal was unsuccessful.

2. In these circumstances the appellate Tribunal was directed by the High Court to state a case on the following questions of law :

"1. Whether in the circumstances of the case the expenditure of Rs. 6,005/- incurred by the assesses in repairing quarters should be allowed as business expenditure under Sec.10 (2) (v) of the Indian Income-tax Act?

2. Whether in the circumstances of the case the expenditure of Rs. 5,542/- incurred by the assessee in repairing quarters should be allowed as business expenditure under Sec.10 (2) (v) of the Indian Income-tax Act?" When the reference came up before us in the first instance we found that it was not possible to furnish a satisfactory answer to the question, referred to the High Court unless the Appellate Tribunal made a supplementary statement of the case. Accordingly we directed that the Appellate Tribunal should give a hearing to both the parties and submit a supplementary statement of the case under Sec. 66 (4) of the Income-tax Act.

We directed that the Appellate Tribunal should take into consideration certain material documents, namely, the award of the Industrial tribunal dated the 16th September, 1947, the Memorandum of Association of the Company, especially paragraph 49-A, and also the letter of the Government of Bihar No. H. 101 (f) L/593, dated the 28th February, 1950, on the subject of Industrial Housing Programme, and also award of the Industrial Tribunal, dated the 22nd October, 1947. In accordance with our direction the Appellate Tribunal has now submitted a further statement of the case under Sec. 66 (4) of the Indian Income-tax Act.

3. After hearing learned counsel for both the parties we consider that the questions referred by the Income-Sax Appellate Tribunal should be reframed in the following manner so as to bring out the point actually in controversy between the parties :-

"1. Whether in the circumstances of the case the expenditure of Rs. 6,005/- incurred by the assessee in repairing quarters should be allowed as business expenditure under Sec.10 (2) (xv) of the Indian Income-tax Act?

2. Whether in the circumstances of the case the expenditure of Rs. 5, 542/- incurred by the assessee in repairing quarters should be allowed as business expenditure under Sec.10(2) (xv) of the Indian In