1994 (9) TMI 53 - HC - Income Tax

Summary

Issues Involved:
1. Whether the lease money received by the assessee was assessable as 'income from business' u/s 28 of the Income-tax Act, 1961.
2. Whether the assessee-company was entitled to development rebate on new machinery installed during the relevant accounting period which was leased out.

Summary:

Issue 1: Income from Business
The assessee-company leased its factory and machinery to a sister concern due to financial constraints. The lease was initially for one year but extended up to six years. The Income-tax Officer treated the lease rent as income from other sources, but the Appellate Assistant Commissioner and the Tribunal held it as business income u/s 28. The Tribunal found that the assessee temporarily suspended its manufacturing activity due to financial issues but continued its business by leasing its commercial assets. The High Court agreed, noting that the lease was temporary and the assessee intended to resume manufacturing. The court distinguished this case from the Supreme Court's decision in New Savan Sugar and Gur Refining Co. Ltd. v. CIT, emphasizing that the intention to continue business was evident. Therefore, the lease income was rightly assessed as business income.

Issue 2: Development Rebate
The assessee claimed a development rebate on new machinery installed and leased out. The Income-tax Officer denied the rebate, and the Tribunal allowed it. The High Court disagreed with the Tribunal, stating that u/s 33 of the Income-tax Act, the machinery must be owned and wholly used for the assessee's business. Since the machinery was leased and controlled by the lessee, it was not wholly used for the assessee's business. The court cited the Supreme Court's decision in Mahabir Cold Storage v. CIT, which emphasized the need for unity of ownership and user in the business. Consequently, the assessee was not entitled to the development rebate.

Conclusion:
1. The lease income was assessable as 'income from business' u/s 28.
2. The assessee was not entitled to the development rebate on the leased machinery.