2015 (1) TMI 438 - HC - Income Tax

Deduction under Section 32AB - income from the lease rent - Business income or income from other sources - Tribunal observed that Assessing Officer in error in rejecting the claim of the appellant for deduction U/s. 32AB in respect of the least rent. - Held that - After the unit was set up, the assessee had admittedly never carried out the manufacturing activities for manufacturing of shoe polish. Further, The Tribunal rightly held that the facts of the case clearly indicated that the assessee wanted to exploit the asset as a commercial asset for commercial gain. It is further to be noted that leasing out had been done in the accounting year 1988-1989 and for the preceding assessment years, the assessee had shown the lease rent as business income, and the same had been accepted by the A.O. The Tribunal further held that the principle of res judicata was admittedly not applicable to the Income Tax Proceedings. - the income of the assessee is a business income. - Deduction u/s 32AB allowed - Decided against Revenue.

Summary

Issues:
Challenge to order by Income Tax Appellate Tribunal allowing deduction under Section 32AB on lease rent as business income and deleting addition on lease rent under income from other sources.

Analysis:
1. The appellant-revenue challenged the Tribunal's order allowing deduction under Section 32AB on lease rent as business income. The Assessing Officer contended that the company's main object was manufacturing, making lease rent income from a factory not aiding in manufacturing or trading of sodium. The Tribunal referred to Circular No.461 and held that the Assessing Officer erred in rejecting the deduction claim under Section 32AB for lease rent. The Tribunal noted that the company intended to exploit the asset for commercial gain, and leasing out was treated as business income in previous years. The principle of res judicata was deemed inapplicable to Income Tax Proceedings.

2. The Tribunal also observed that the company never conducted manufacturing activities for shoe polish after setting up the unit, indicating intent to use the asset for commercial gain. The Court agreed with the Tribunal's reasoning, finding the company's income to be business income. The appellant's counsel failed to demonstrate any legal or factual flaws in the CIT(A) and Tribunal's findings. Therefore, the Court upheld the Tribunal's decision, dismissing the appeal and ruling in favor of the assessee against the revenue.

3. The Court reviewed various legal principles cited by the appellant's counsel from past decisions, emphasizing that lease rent from commercial asset exploitation should be treated as business income. The expression 'wholly used' does not necessitate exclusive use by the assessee, as 'wholly' implies entirely, not exclusively. The Court found no legal errors in the Tribunal's order, affirming the Tribunal's decision based on cogent and convincing reasoning. The Court concluded that the income in question qualified as business income, leading to the dismissal of the appeal and a ruling in favor of the assessee.