1984 (8) TMI 14 - HC - Income Tax

Bad Debt, Deduction, Interest On Borrowed Capital, Money Lending, Other Sources, Special Deduction

Summary

Issues:
1. Classification of income under 'Business' or 'Other sources'

Analysis:
The case involved a public limited company that owned a printing machinery and a distillery plant, which were leased out to other companies. The Income-tax Officer categorized the income from these leases as "other sources" rather than "business" income. The Appellate Assistant Commissioner and the Income-tax Appellate Tribunal upheld this decision.

Regarding the printing machinery lease, it was noted that the assessee never operated a printing business and the machinery was leased out to another company. The Tribunal highlighted that the lease was terminated and the machinery was leased to another entity within the same group of companies. Similarly, for the distillery plant, the Tribunal found that the assessee did not apply for a license to run the distillery but leased it out to a separate firm. The Tribunal concluded that the income from these leases should be classified as "Other sources" as the assessee was not engaged in the business of letting out machinery or plant.

The Supreme Court's decision in CEPT v. Shri Lakshmi Silk Mills Ltd. was referenced to distinguish between business income and income from other sources arising from letting out assets. The Court emphasized that the intention behind letting out the asset determines the classification of income. In this case, the Tribunal found that the assets were not treated as commercial assets by the assessee but were exploited for earning rental income. The agreements were considered simple lease agreements without indications of commercial exploitation by the assessee.

The Tribunal also noted that the assessee's treatment of the assets as fixed assets, not circulating capital for business profit, supported the classification of income as from "Other sources." The Tribunal's decision was supported by the principle that the nature of a transaction is determined by the circumstances, not just the company's objects clause. The intention to conduct business must be evident from the facts and circumstances of the case for rental income to be classified as business income.

In conclusion, the Tribunal's decision to classify the income from leasing out the printing machinery and distillery plant as from "Other sources" was upheld. The Court found that the assessee did not engage in the business of letting out machinery or plant for profit, leading to the affirmation of the decision against the assessee.