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Issues:
1. Classification of rental income from godowns and factories as 'Income from property' or 'Income from business.' 2. Disallowance of expenses claimed for maintaining closed branches during the assessment year. Analysis: 1. The first issue revolves around the classification of rental income from various godowns and factories by the assessee. The assessee contended that the rental income should be assessed under 'Income from business,' citing relevant case laws. However, the court found that the letting out of the properties was not incidental to the business of the assessee and lacked commercial expediency. As a result, the Tribunal's decision to assess the rental income under 'Income from property' was upheld. The court emphasized that no evidence was presented to establish the letting out of properties as a business activity. Therefore, the Tribunal's decision was deemed legally justified, and the first question was answered in the affirmative against the assessee. 2. The second issue pertains to the disallowance of expenses claimed for maintaining closed branches. The assessee argued that expenses incurred in maintaining all branches, including closed ones, should be deductible as they are part of a single business entity. Citing the precedent set by the Supreme Court in CIT v. C. Parakh and Co. (India) Ltd., the court highlighted that for an assessee operating multiple branches, expenses must be pooled together to ascertain net profits. The Tribunal's decision to label these expenses as losses of individual branches was deemed erroneous. Consequently, the court ruled in favor of the assessee, stating that all expenses incurred by the assessee in maintaining its branches, whether operational or closed, should be considered in determining the net profits of the business. Thus, the second question was answered in the negative and in favor of the assessee. In conclusion, the court upheld the Tribunal's decision regarding the classification of rental income from godowns and factories under 'Income from property.' However, it ruled in favor of the assessee concerning the deduction of expenses for maintaining closed branches, emphasizing the need to pool all expenses for assessing net profits. The reference was answered accordingly, with no order as to costs.
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