Rent from buildings let out to employees is assessable under Section 10 of the Income-tax Act if the letting out is incidental to the main business of the assessee.

1. In this case the assessee is Rohtas Industries Ltd., which is a public limited company carrying on the business of manufacture and sale of cement, sugar, paper and pulp and certain chemical products. The assessee owns certain buildings and quarters around its factories, most of which are let out to its employees and some to outsiders. The rents are fixed according to the types of buildings and quarters let out. The type of premise allotted to any of the Companys employees depended upon his status as an employee. The Company collected rents from its employees, and in its turn the Company granted rent allowance to its employees. The rent charged from them was see off against house rent allowance. In case the employee was allotted quarters carrying lower rent than the house allowance granted to him, the difference-between the two amounts was paid to the employee in cash. It is also admitted that there is no compulsion upon the employees to stay in the buildings owned by the Company.

2. For the assessment year 1948-49 the Company realised a rental income of Rs. 52,479/- which included a sura of Rs. 7,979/- representing rent) from buildings constructed during the accounting year. The total amount of rent also included rent realised from outsiders occupying the buildings owned by the Company. The Income-tax Officer assessed the income under Section 9 of the Income-tax Act after making the statutory allowance for repairs. It was argued on behalf of the assesses that the income should be taxed under Sec.10 of the Income-tax Act. The argument was rejected by the Income-tax Officer and the claim of the assessee for repairs and depreciation was disallowed. The assessee took the matter in appeal before the Appellate Assistant Commissioner.

It wag pointed out on behalf of the assessee that the rent realised from the employees amounted to Rs. 42,322/- and the rent realised from outsiders was Rs. 10,157/-. With regard to the rent realised from outsiders, the assessee conceded that the amount of rent should be assessed under Section 9 of the Income-tax Act. But with regard to the amount realised from employees, the contention of the assessee was that the assessment should be made under Sec.10 of the Income-tax Act.

The Appellate Assistant Commissioner accepted the argument of the assessee with regard to the amount of rent realised from the employees and allowed the claim for repairs and depreciation under Sec.10 of the Income-tax Act. The Income-tax Department took the matter in appeal to the Appellate Tribunal. The contention of the Department was that the rent realised from the employees also should be assessed as income from property under Section 9 of the Income-tax Act. The Tribunal accepted the contention of the Income-tax Department and held that the assessment should be made under Section 9 of the Income-tax Act even with regard to the rent realised by the assessee from the employees.

3. Under Sec. 66(1) of the Income-tax Act the Appellate Tribunal has submitted the following question of law for the opinion of the High Court:

"Whether on the facts and in the circumstances of the case the rents realised by the Company from the buildings of which it is the owner and which had been let out to its employees is assessable under Section 9 or Sec.10 of the Indian Income-tax Act?"

Section 9(1) of the Income-tax Act reads as follows:

9(1). The tax shall be payable by an assessee under the head "Income from Property" in respect of the bona fide annual, value of property consisting of any buildings or lands appurtenant thereto of which he is the owner, other than such portion of such property as he may occupy for the purposes of any business, profession or vocation carried on by him the profits of which are assessable to tax, subject to the following allowance, namely: * * * *

4. In our opinion the letting out of residential quarters by the assessee to its employees in the circumstances of this case is subservient to and incidental to