MAHAJAN, J.

1. The assessee is a public limited company. It has various sources of income from interest on securities, rent from house property and profits from various businesses such as cloth, chemicals, sugar distiller, printing, confectionery, tent making and manufacture of vanaspati. The assessee owns several buildings, such as, chawls, quarters and shops near about it cloth mill at Delhi. These chawls, etc., are let out by the assessee to its employees and also to some outsiders. It is common ground that out of the total rent recovered from these premises, a sum of Rs. 1,03,964 is deducted from the wages of its employees and only an amount of Rs. 8,163 as rent is recovered from persons other than the employees, i.e., from out-siders. In the assessment years 1948-49 and 1949-50 (account years ending June, 1947, and June, 1948, respectively), the department proceeded to assess its rental income from employees as "income from property" under section 9 of the Indian Income-tax Act (hereinafter referred to as the Act).

2. The assessees contention before the department was that the premises were let out to the empdoyees for the purposes of its business and the rental income fell to be computed under section 10 of the Act. This contention of the assessee was rejected by the Income-tax Officer, and in appeal, by the Appellate Assistant Commissioner. On further appeal, the assessee succeeded in his contention; but here too, members constituting the Bench hearing the assessees appeals differed. Mr. K. N. Rajagopal Sastri, Judicial Member, affirmed the order of the Appellate Assistant Commissioner to the effect that the rental income in question was "income from property" and, thus, had to be assessed under section 9 of the Act, whereas the Accountant Member, Mr. P. C. Malhotra, took the view that the aforesaid income was not "income from property" but was "income from business" and, therefore, was assessable under section 10 of the Act.

3. There being difference of opinion between the two members constituting the Bench, the following points of difference were referred by the Bench to the President of the Income-tax Appellate Tribunal, under section 5A(7) of the Act :

"(1) Whether the assessee-company was rightly assessed under section 9 in respect of its income from buildings or lands appurtenant thereto, of which it is the owner and which had been let to its own employees or wage earners ?

(2) Whether the undistributed profits earned by the assessee-company during the 12 months ending June 30, 1947, the amount of which was subsequently ascertained at Rs. 65,30,195 was reserve and should be included in computing the capital as on July 1, 1947, for the purpose of ascertaining the abatement allowable ?"

4. We are not concerned in this reference with the decision on the second question. But so far as the first question is concerned, the President agreed with the opinion expressed by the Accountant Member and held that the rental income of the assessee from the property let out to its employees fell to be computed under section 10 as "profits and gains of business". The department being dissatisfied with this order moved the Appellate Tribunal under section 66(1) of the Act for referring the question of law arising out of the order of the Tribunal for a decision by this court. The Tribunal rejected this application with the result that the department moved this court under section 66(2) of the Act. That application was allowed by this court and by its order dated the 6th October, 1955, the following two questions of law have been referred for our opinion along with the statement of the case, as required to be drawn up under section 66(2) of the Act :

"Whether the assessee-company was chargeable to tax under section 9 or under section 10 of the Indian Income-tax Act, 1922, in the assessments for 1948-49 and 1949-50 in respect to income from buildings or lands appurtenant thereto ?

(2) Whether the assessee is entitled to a deduc