2011 (9) TMI 190 - HC - Income Tax

Income from lease rental by letting out machinery - income from Business or income from other sources u/s 56 - merely because the lease period has expired, the character of the rental income does not change from business income to income from other sources - Hence,the lease rental income earned by the assessee is to be assessed as income from business .

Summary

Issues:
1. Characterization of income from lease rental under the head "income from Business" or "income from other sources" u/s 56 of the I.T. Act, 1961.
2. Allowance of depreciation claim of the Assessee u/s.32 of the I.T. Act, 1961 for the Assessment Year 2001-2002.

Analysis:
1. The first issue raised by the Revenue pertains to the characterization of income from lease rental earned by the Assessee. The Tribunal had assessed the income under the head "income from Business," which was contested by the Revenue. The dispute arose due to the expiration of the lease period in the relevant assessment year. However, the High Court upheld the Tribunal's decision, emphasizing that the mere expiry of the lease period does not alter the character of the rental income. The Court agreed with the ITAT's conclusion that the lease rental income should indeed be assessed as "income from business." This decision was based on the consistent treatment of such income in earlier assessment years.

2. The second issue raised by the Revenue was regarding the allowance of a depreciation claim amounting to Rs. 3,85,390 by the Assessee under section 32 of the I.T. Act, 1961. However, the High Court deemed this question academic in light of its decision on the first issue. Since the characterization of the income as "income from business" was upheld, the Court did not delve into the second issue concerning the depreciation claim. Consequently, the Court dismissed the appeal, affirming the Tribunal's decision on the characterization of the lease rental income.

This judgment from the Bombay High Court clarifies the treatment of lease rental income for assessment purposes and underscores the importance of consistent application of tax laws across different assessment years. The decision provides guidance on the classification of income under specific heads and highlights the significance of factual findings in determining the appropriate tax treatment.