2002 (9) TMI 13 - HC - Income Tax

Receipt of lease amount Business income OR Income from other sources - When no business activities have been carried out by the assessee pertaining to manufacturing and the assessee simply has given the mill on lease, which is not the business of the assessee, therefore, any amount received on account of lease, that cannot be treated as income from business. Therefore, the Income-tax Officer has rightly taxed that income or receipt under the head Income from other sources - Tribunal was not justified in holding that the income of the assessee is assessable under section 28

Summary

Issues:
1. Interpretation of Income-tax Act, 1961 regarding assessability of income under section 28.
2. Classification of lease money received as income from business or other sources.
3. Validity of Tribunal's decision in assessing lease money as business income.

Analysis:
The High Court of Rajasthan was presented with an application under section 256(2) of the Income-tax Act, 1961, regarding the assessability of the assessee's income. The primary question referred to the court was whether the Tribunal was justified in holding that the income of the assessee should be assessed under section 28 of the Income-tax Act, 1961 for the assessment years from 1973-74 to 1976-77.

The case involved a mill that was leased out by the assessee to another entity. The mill was initially owned by a family concern and later sold to a company, with the assessee holding debentures representing a portion of the sale price. Subsequently, the assessee formed a company and transferred the debentures to it. The mill was the subject of a partition suit in 1940, with the final decree allotting a portion of the mill to the assessee's company.

Despite the possession of the mill, the assessee leased it to another entity and received lease money. The Assessing Officer categorized this lease money as "Income from other sources," while the Appellate Assistant Commissioner and the Tribunal classified it as income from business under section 28 of the Income-tax Act, 1961.

The court noted that no manufacturing or business activities were conducted by the assessee in the mill during the relevant assessment years. The mere act of leasing the mill did not constitute the assessee's business activity. Therefore, the lease money received could not be considered as income from business. The court agreed with the Income-tax Officer's decision to tax the lease amount under the head "Income from other sources."

In conclusion, the court held that the Tribunal erred in directing the assessing authority to treat the lease amount as business income. The question was answered in the negative, favoring the Revenue and ruling against the assessee. The reference made to the court was disposed of accordingly.