1979 (12) TMI 99 - AT - Income Tax

Summary

Issues:
Assessment of rental income as business income or income from other sources for the assessment years 1977-78 and 1978-79.

Analysis:
The appeals were filed by the assessee for the assessment years 1977-78 and 1978-79 regarding the treatment of rental income. The Income Tax Officer (ITO) had added the rental income as income from other sources as the business had not yet started. The assessee contended that the rental income was actually business income as the land was intended for setting up an Auto Lamp Factory. The Commissioner of Income Tax (CIT) did not agree and upheld the ITO's decision.

During the appeal before the Tribunal, the assessee argued that the company had been incorporated with the main object of manufacturing auto lamps, and construction had been undertaken on the land allotted for the factory. The land was then leased to the Food Corporation of India, generating rental income. The assessee claimed that this income should be considered business income based on various legal precedents.

The Departmental Representative supported the CIT's decision, stating that as the business had not been set up, the income should be categorized as income from other sources. The Tribunal examined the evidence and found that the assessee had treated the property as a commercial asset, with the intention to exploit it for business purposes. The Articles of Association also supported the assessee's right to lease out the property.

Based on the evidence and legal principles, the Tribunal concluded that the rental income should be assessed as business income and not income from other sources. The transaction was entered into with the intention of trading, as permitted by the Articles of Association. Therefore, the CIT's decision was overturned, and the ITO was directed to assess the rental income as income from business, allowing all relevant business expenditures.

In conclusion, both appeals were allowed in favor of the assessee, and the rental income was to be treated as business income for the respective assessment years.