1986 (12) TMI 4 - HC - Income Tax

Summary

Issues Involved:
1. Whether the income received from the lease of machinery should be assessed as income from business or income from other sources.

Summary:

1. Facts and Circumstances:
The assessee-company, incorporated to carry on the business of producing, cultivating, and manufacturing tobacco products, leased out its machinery for Rs. 6,000 per month without using it for manufacturing. The Income-tax Officer assessed the income from leasing under the head "Other sources," a decision upheld by the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal.

2. Assessee's Contention:
The assessee argued that the non-starting of manufacturing does not negate the machinery's status as a commercial asset. They cited the Supreme Court decision in CEPT v. Shri Lakshmi Silk Mills Ltd. [1951] 20 ITR 451, which held that the yield of income by a commercial asset is business income, irrespective of how it is exploited.

3. Revenue's Contention:
The Revenue contended that without manufacturing activity, the asset lacks the incidence of a commercial asset, thus the income should not be assessed under "Business."

4. Case Law Analysis:
- CEPT v. Shri Lakshmi Silk Mills Ltd. [1951] 20 ITR 451 (SC): The Supreme Court held that a commercial asset temporarily let out retains its commercial character.
- Addl. CIT v. Rajindra Flour & Allied Industries P. Ltd. [1981] 128 ITR 402 (Delhi): The Delhi High Court ruled that leasing out a factory due to business constraints still constitutes a business activity.
- CIT v. Northern India Theatres (P) Ltd. [1981] 128 ITR 497 (Delhi): The lease of a cinema house was considered business income due to the commercial exploitation of the asset.
- CIT v. Aryan Industries (P.) Ltd. [1982] 138 ITR 718 (AP): The Andhra Pradesh High Court emphasized the importance of retaining the asset's commercial character.
- CIT v. Ajmera Industries Pvt. Ltd. [1976] 103 ITR 245 (Cal): The Calcutta High Court held that rental income from an asset not used for manufacturing could not be considered business income.

5. Court's Conclusion:
The court concluded that the mere acquisition of an asset for manufacturing does not make it a commercial asset unless it is used for that purpose. In this case, the machinery was never used for manufacturing, thus it cannot be considered a business asset. The court distinguished the present case from others where assets were temporarily leased out during a lull in business activity.

6. Final Judgment:
The income from the lease of machinery should be assessed as income from other sources. The question was answered in favor of the Revenue and against the assessee. No costs.