1981 (2) TMI 43 - HC - Income Tax

Summary

Issues:
1. Assessment of income from hiring air-conditioning plant under 'Business income'
2. Entitlement to claim development rebate under section 33 of the Income-tax Act, 1961

Analysis:
The High Court of Madhya Pradesh addressed a reference under section 256(1) of the Income-tax Act, 1961 regarding the assessment of income derived from hiring an air-conditioning plant. The primary issue was whether the income should be categorized as 'Business income' or 'Other sources'. The assessee had leased the air-conditioning equipment to a company and claimed it should be assessed under the head 'Business'. The Income Tax Officer (ITO) initially rejected this claim, assessing the income under 'Other sources' and denying development rebate. The Appellate Authority Commission (AAC) and the Income-tax Appellate Tribunal upheld this decision. However, the High Court disagreed with the Tribunal's reasoning. It emphasized that the heads of income in the Act are mutually exclusive, and income taxable under 'Profits and gains of business or profession' cannot be taxed as income from other sources. The Court noted that the assessee had acquired the air-conditioning plant as a commercial asset and leased it out, making the income eligible for assessment under 'Business income'. The Court concluded that the income derived from hiring the air-conditioning plant should indeed be assessed under the head 'Business income'.

Regarding the second issue of entitlement to claim development rebate under section 33 of the Income-tax Act, 1961, the Court ruled in favor of the assessee. Since the income was deemed assessable under 'Business income', the assessee was entitled to claim development rebate in respect of the air-conditioning plant. The Court's decision clarified that the assessee met the criteria for claiming development rebate under the Act. Consequently, the Court answered both questions in favor of the assessee, allowing the income to be assessed under 'Business income' and granting entitlement to claim development rebate under section 33. The parties involved were directed to bear their own costs in the reference proceedings.