1993 (11) TMI 79 - AT - Income Tax

Summary

Issues:
- Characterization of income from hiring out business assets
- Treatment of rental income under different heads
- Set off of unabsorbed depreciation against rental income
- Failure to address deduction of expenses, interest charges

Analysis:

1. Characterization of income from hiring out business assets:
The assessee leased out its business assets and claimed the rental income as business income. However, the Assessing Officer and CIT(A) assessed it under "income from other sources" based on the intention of the party leasing the assets. The Tribunal held that the rental income was rightly assessed under "income from other sources" as the assessee's intention was to earn rental income, not to continue business activities. Various case laws cited by the assessee were deemed distinguishable, and the decision was upheld.

2. Treatment of rental income under different heads:
The Tribunal rejected the assessee's argument that the rental income should be treated as business income. It emphasized the intention behind leasing the assets for earning rental income, leading to the conclusion that the income falls under "income from other sources." The Tribunal distinguished relevant case laws cited by the assessee to support its decision.

3. Set off of unabsorbed depreciation against rental income:
The Tribunal considered the issue of granting set off of unabsorbed depreciation against rental income. The assessee relied on the judgment of the Gujarat High Court, which allowed set off of unabsorbed depreciation even in the absence of business income. The Tribunal agreed with the assessee, citing the legal fiction introduced by section 32(1) of the Income Tax Act, and held that unabsorbed depreciation should be allowed against any other head, including rental income.

4. Failure to address deduction of expenses, interest charges:
The Tribunal noted that the CIT(A) failed to address certain grounds related to the deduction of expenses incurred by the appellant company and the charges of interest under sections 139 and 217 of the Income Tax Act. As a result, the Tribunal directed the CIT(A) to adjudicate on these grounds and restored the matter back to her file for further consideration.

In conclusion, the appeals were allowed in part, with the Tribunal upholding the assessment of rental income under "income from other sources," allowing set off of unabsorbed depreciation against rental income, and directing the CIT(A) to address the outstanding issues related to expenses deduction and interest charges.