1996 (8) TMI 47 - HC - Income Tax

Business Income Income From Other Sources Income Tax Interest Payable Profits Chargeable To Tax Trading Liability

Issues Involved:
1. Classification of income from hire charges of printing machinery and motor vehicles.
2. Taxability of interest written back under section 41(1) of the Income-tax Act, 1961.
3. Classification of income derived from providing air-conditioning services.

Issue-wise Detailed Analysis:

1. Classification of Income from Hire Charges of Printing Machinery and Motor Vehicles:
The primary issue was whether the income from hire charges of printing machinery and motor vehicles should be assessed under the head "Business" or "Other sources." The assessee, a private limited company, had discontinued its newspaper publishing business in 1969 but continued to hire out its printing machinery and motor vehicles. For the assessment year 1976-77, the assessee claimed this income under "Business," contrary to previous years where it was classified under "Other sources."

The Tribunal upheld the Revenue's view, noting that since the business of publishing was discontinued, the income from hiring machinery and motor vehicles could not be considered as business income. The Tribunal relied on section 56(2)(iii) of the Act, which was not applicable here as the machinery was not hired along with the building. Instead, section 56(2)(ii) was relevant, which deals with income from machinery, plant, or furniture let on hire. The Tribunal concluded that the income should be assessed under "Other sources."

2. Taxability of Interest Written Back under Section 41(1) of the Income-tax Act, 1961:
The second issue was whether the sums of Rs. 4,59,396 and Rs. 2,862, representing interest written back in the accounts, were chargeable to tax under section 41(1) of the Act. The assessee had borrowed money from sharebrokers and claimed interest as a deduction in previous years. Upon settlement, the liability was reduced, and the difference was written back as income.

The Tribunal held that section 41(1) applied, which requires two conditions: an allowance or deduction in respect of loss or expenditure in any year, and the subsequent obtaining of any amount or benefit in respect of such liability. The Tribunal found both conditions satisfied, as the interest was allowed as a deduction earlier, and the liability was extinguished through settlement, providing a benefit to the assessee. The Tribunal's view was supported by the Gujarat High Court's decision in Rashmi Trading, which held that the benefit could be obtained through book adjustments as well.

3. Classification of Income Derived from Providing Air-conditioning Services:
The third issue was whether the income from providing air-conditioning services should be assessed under "Business" or "Other sources." The assessee owned a property and provided air-conditioning services to its tenants, charging separately for these services.

The Tribunal held that the air-conditioning charges should be assessed under "Other sources." The relationship between the assessee and the tenants was that of landlord and tenant, not a business relationship. The Tribunal noted that central air-conditioning is an amenity in modern buildings and cited earlier decisions, including CIT v. Lakshmi Company and CIT v. Admiralty Flats Motel, which supported the view that such services are amenities rather than business activities. The Tribunal concluded that the charges for air-conditioning services were rightly assessed under "Other sources."

Conclusion:
1. The income from hire charges of printing machinery and motor vehicles is assessable under "Other sources."
2. The interest written back in the accounts is chargeable to tax under section 41(1) of the Income-tax Act, 1961.
3. The income derived from providing air-conditioning services is assessable under "Other sources."

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