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Issues Involved:
1. Whether the income of Rs. 2,000 was rightly treated as income from business for excess profits tax purposes. Issue-wise Detailed Analysis: 1. Whether the income of Rs. 2,000 was rightly treated as income from business for excess profits tax purposes: The assessees, a limited liability company engaged in the manufacture of jute products, let a portion of their business premises to Radha Kant & Co. for dehydrating potatoes. The Income-tax Officer included an estimated rent of Rs. 2,000 for ten months in the company's income for excess profits tax purposes. The company's appeal to the Appellate Assistant Commissioner was dismissed, and the Tribunal upheld this decision, considering the sum as part of the business income under Section 10 of the Indian Income-tax Act, 1922. The Tribunal's decision was based on rule 4, subrule (4), of Schedule I of the Excess Profits Tax Act, 1940, which states that income from property let out on hire should be included in business profits. The Tribunal noted that the assessee-company's memorandum of association permitted them to let lands and buildings, and historically, they had shown income from letting godowns as business income. However, the High Court referred to the definition of "business" in Section 2(4) of the Income-tax Act, 1922, and cited the case of In re Commercial Properties Ltd., which held that owning and letting property is not a business within the meaning of the Act. The income from such letting should be regarded as income from property and taxable under Section 9, not as business profits under Section 10. The High Court emphasized that the mere fact that a company owns property and lets it out does not convert the income into business profits. The proviso to Section 2(5) of the Excess Profits Tax Act, 1940, acknowledges that holding property is not a business unless it is the sole or main function of the company. The High Court concluded that the letting out of property by the assessee company, primarily engaged in manufacturing jute products, was incidental and not part of its main business. Therefore, the income of Rs. 2,000 from letting the premises to Radha Kant & Co. should be assessed as income from property, not as business income. The Tribunal's reliance on rule 4, subrule (4), was deemed incorrect as it conflicted with the substantive provisions of the Excess Profits Tax Act. The High Court clarified that the rule cannot extend the definition of "business" to include minor functions of holding property. Judgment: The High Court answered the reference in the negative, holding that the income of Rs. 2,000 could not be treated as business income for excess profits tax purposes. The assessee company was entitled to costs and the return of the deposit of Rs. 100.
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