1965 (1) TMI 83 - HC - Income Tax

Summary

Issues:
Interpretation of profit under section 10(2)(vii) of the Indian Income Tax Act XI of 1922 in a case involving the excess sale amount over the written down value of building and machinery.

Analysis:
The case involved the assessment of profit under section 10(2)(vii) of the Act, where the Income Tax Officer treated the excess sale amount of building and machinery over the written down value as profit. The question revolved around whether the income derived from leasing a rice mill could be considered as income from business and taxed accordingly. The assessee contended that the income from the lease of the rice mill should not be classified as profit and gains of business due to prior leasing out of the mill. The central issue was whether the amount derived from leasing the rice mill should be considered income from business.

The definition of "business" under section 2(4) of the Indian Tax Act encompasses trade, commerce, manufacture, or any activity resembling trade, commerce, or manufacture. The Supreme Court's interpretation in Narain Swadeshi Weaving Mills v. Commission of Excess Profit Tax emphasized that a business involves a systematic, organized course of activity with a set purpose, determining whether a particular source of income constitutes a business.

The court differentiated cases where assets were let out as part of the business activity from mere property leasing instances. It cited various precedents to illustrate that letting out a commercial asset can be considered a business activity, emphasizing that the nature of the asset and its utilization for business purposes are crucial in determining the taxability of income derived from such assets. The court highlighted that the temporary leasing of a commercial asset does not alter its nature as a business asset, and the income generated from such leases can be classified as income from business.

The judgment rejected the contention that the principles applied in Narain Swadeshi Weaving Mills v. Commissioner of Excess Profits Tax were applicable to the case at hand. Instead, it aligned with the precedent set by Lord President Strathclyde in Sutherland v. Commissioners of Inland Revenue, emphasizing that the income derived from leasing a commercial asset for business purposes should be considered income from business. The court concluded that the income from leasing the rice mill should be treated as profit and gains of business, affirming the Income Tax Officer's assessment.