1994 (3) TMI 150 - AT - Income Tax

Summary

Issues Involved:
1. Assessment of rental income from surplus factory area.
2. Disallowance of 1/3rd depreciation on the factory building.
3. Denial of investment allowance.

Detailed Analysis:

1. Assessment of Rental Income from Surplus Factory Area:
The primary issue was whether the rental income derived from the surplus area of the factory building should be assessed as "Income from house property" or "Income from business." The Assessing Officer treated the rental income as "Income from house property," which was upheld by the CIT(A). The CIT(A) referenced the Supreme Court's decision in Sultan Bros. Pvt. Ltd. vs. CIT, which emphasized that the nature of the operation, not the capacity of the owner, determines whether income is from house property or business. The CIT(A) concluded that the assessee let out the property simply as an owner, not as a commercial asset. The Tribunal upheld this view, noting that the property was never used by the assessee for its own business and was let out immediately after purchase. The Tribunal found no evidence to suggest that the property was held as a commercial asset, and thus the rental income was rightly assessed under "Income from house property."

2. Disallowance of 1/3rd Depreciation on the Factory Building:
The second issue was the disallowance of 1/3rd depreciation on the factory building. The Assessing Officer disallowed this depreciation, which was upheld by the CIT(A) based on past appellate orders. The CIT(A) directed the Assessing Officer to determine the Written Down Value (WDV) of the building and allow depreciation on the portion of the premises used for business purposes. The Tribunal agreed with this direction, noting that the assessee was not entitled to depreciation on the let-out portion since it was not used for business purposes. The Tribunal referenced the case of CIT vs. Sarveshwar Nath Nigam, distinguishing it on the grounds that the assessee was not engaged in leasing similar assets as part of its business.

3. Denial of Investment Allowance:
The third issue, concerning the denial of investment allowance, was not pressed by the assessee and was subsequently dismissed.

Revenue's Appeal:
The Revenue's appeal contested the CIT(A)'s direction to allow depreciation on the factory building. The CIT(A) had directed the Assessing Officer to determine the WDV and allow depreciation on the portion used for business purposes. The Tribunal found no infirmity in this direction and rejected the Revenue's appeal.

Conclusion:
Both the assessee's and the Revenue's appeals were dismissed. The Tribunal upheld the CIT(A)'s decisions that the rental income from the surplus factory area should be assessed as "Income from house property" and that depreciation should only be allowed on the portion of the building used for business purposes. The denial of the investment allowance was dismissed as it was not pressed.