1986 (6) TMI 88 - AT - Income Tax

Summary

Issues Involved:
1. Classification of lease income: Business income vs. Income from other sources.
2. Intention to resume business and abandonment of business.
3. Admissibility of new evidence at the appellate stage.
4. Applicability of precedents and legal principles.

Issue-wise Detailed Analysis:

1. Classification of Lease Income: Business Income vs. Income from Other Sources:
The primary issue in these appeals was whether the lease amount derived by the assessee-company should be considered as income from business or income from other sources. The assessee argued that the income should be treated as business income, while the revenue contended it should be classified as income from other sources. The Tribunal noted that the assets of the assessee-company were commercial assets fit to be used in the tobacco business. The lease agreements with Viswabharat Agro Products (P.) Ltd. and Gogineni Tobacco (P.) Ltd. were made with entities engaged in the tobacco trade, indicating the assets were used for business purposes. The Tribunal concluded that the lease income should be treated as business income, as the assets were commercially exploited in the same manner both before and after the lease.

2. Intention to Resume Business and Abandonment of Business:
The Tribunal examined whether the assessee had abandoned its business or merely leased its assets temporarily. The assessee provided evidence, including directors' reports and registration certificates from the Tobacco Board, indicating its intention to resume business. The Tribunal found that the assessee never abandoned the idea of resuming its business and maintained the infrastructure essential for its tobacco business. The Tribunal distinguished this case from the Supreme Court's decision in New Savan Sugar & Gur Refining Co. Ltd., where the intention was to earn rental income rather than continue business operations. The Tribunal held that the length of the lease period is relevant but not conclusive in determining abandonment of business.

3. Admissibility of New Evidence at the Appellate Stage:
The assessee submitted new evidence at the appellate stage, including public documents such as licenses and correspondence with the Tobacco Board and Andhra Bank. The Tribunal admitted these documents under rules 11 and 29 of the Income Tax Appellate Tribunal Rules, 1963, as they were crucial for a just decision and their veracity was not in doubt. The Tribunal cited various judicial precedents supporting the admission of new evidence if it is essential for a just decision.

4. Applicability of Precedents and Legal Principles:
The Tribunal considered the applicability of the Supreme Court's decisions in CEPT v. Shri Lakshmi Silk Mills Ltd. and New Savan Sugar & Gur Refining Co. Ltd. The Tribunal held that the facts of the present case were more aligned with Shri Lakshmi Silk Mills Ltd., where the income derived from commercial assets was treated as business income. The Tribunal also referred to the Andhra Pradesh High Court's decision in CIT v. Aryan Industries (P.) Ltd., which supported the view that the intention to resume business is crucial in determining the nature of lease income.

Conclusion:
The Tribunal set aside the impugned orders of the Commissioner (Appeals) and directed that the lease income for the assessment years 1979-80 to 1981-82 should be treated as business income. The business losses determined in earlier years should be carried forward and set off to the extent permissible. The appeals filed by the assessee were accordingly allowed.