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Issues:
Determining whether the assessee's rental income from a lease should be taxed under section 10 or section 12(4) of the Indian Income-tax Act, 1922. Analysis: The case involved an appeal against the judgment and order of B. N. Banerjee J., concerning the taxation of rental income from a lease under section 10 or section 12(4) of the Indian Income-tax Act, 1922. The appellant, a hotel business, leased out its entire business, including buildings, furniture, and goodwill, to another company. The dispute arose regarding the appropriate tax treatment of this rental income. Section 9 deals with income from property, while section 10 pertains to profits and gains of business. Section 12(4) specifically addresses the letting out of machinery, plant, or furniture along with buildings. The appellant's income from the lease was initially assessed under section 12 by the Income-tax Officer. The appellant contended that its rental income should be taxed under section 10, arguing that the lease constituted a business activity. The Appellate Assistant Commissioner partially agreed, directing that a portion of the income should be taxed under section 9 and another portion under section 12. The Commissioner of Income-tax upheld this decision in a subsequent order under section 33A. However, the High Court disagreed with the view that the Commissioner's order was merely administrative, citing a Supreme Court decision establishing the judicial nature of such orders. The High Court analyzed relevant precedents, including Sultan Brothers Private Ltd. v. Commissioner of Income-tax, to determine the appropriate tax treatment. Drawing parallels with the facts of the present case, where the lease encompassed various aspects of the hotel business without separate rent specifications, the Court concluded that the rental income should be taxed under section 10. The Court highlighted specific clauses in the lease agreement that indicated the lessor's intention for the leased assets to be utilized for commercial purposes. Considering the cumulative effect of the lease terms and circumstances, the Court found sufficient evidence of the leased assets being treated as commercial assets during the lease period. The lessor's intention, as evidenced by the lease agreement and subsequent resumption of possession for business operations, supported the conclusion that the rental income should be taxed under section 10. Consequently, the Court allowed the appeal, set aside previous orders, and directed the Income-tax Officer to assess the income in accordance with section 10.
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