1960 (9) TMI 112 - HC - Income Tax

Summary

Issues Involved:
1. Whether the oil mill is a commercial asset.
2. Whether the income from letting out the oil mill is income from business under section 2(5) of the Excess Profits Tax Act and hence taxable under the Act.

Detailed Analysis:

Issue 1: Whether the oil mill is a commercial asset
The court examined whether the oil mill, constructed by the assessee and subsequently leased out, qualifies as a "commercial asset." The facts of the case reveal that the funds for setting up the oil mill were sourced from the capital employed in the assessee's flour mill business. Additionally, there was no disability or incapacity preventing the assessee from operating the oil mill himself, and he eventually did so. The court found no material evidence to support the contention that the oil mill was not connected with the main business of the assessee, which was running a flour mill. The court noted that setting up a regular oil mill with plant and machinery is an unusual mode of investment solely for earning rent. The similarity between the oil mill and the flour mill business suggested an intention to expand the business. The court referred to the decision in Shree Laxmi Silk Mills v. Commissioner of Excess Profits Tax, which held that if a commercial asset is capable of being worked by the assessee for earning profits, the income received from letting it out is income from business. Given these considerations, the court concluded that the oil mill was indeed a commercial asset.

Issue 2: Whether the income from letting out the oil mill is income from business under section 2(5) of the Excess Profits Tax Act and hence taxable under the Act
The court analyzed whether the income from leasing the oil mill qualifies as income from business under section 2(5) of the Excess Profits Tax Act. The definition of "business" includes any trade, commerce, or manufacture, or any adventure in the nature of trade, commerce, or manufacture. The court observed that using a part of the capital already employed in the flour mill business to set up an oil mill constituted an expansion of the business. The income earned from letting out the oil mill before the assessee started running it himself was considered income from business. The court referenced the Supreme Court decision in Commissioner of Excess Profits Tax v. Shri Lakshmi Silk Mills, which stated that the yield of income by a commercial asset is the profit of the business, irrespective of how the asset is exploited. The court also considered the Supreme Court decision in Commissioner of Income-tax v. Calcutta National Bank Ltd., which distinguished between the meaning of "business" under the Excess Profits Tax Act and the Income-tax Act. The court concluded that the income from letting out the oil mill was indeed income from business and thus taxable under the Excess Profits Tax Act.

Conclusion:
The court answered both questions in the affirmative, holding that the oil mill was a commercial asset and the income from letting it out was income from business under section 2(5) of the Excess Profits Tax Act, making it taxable under the Act.