1989 (6) TMI 99 - AT - Income Tax

Assessment Year, Income From House Property, Income From Letting Out, Income From Other Sources, Income From Property, Plant And Machinery

Summary

Issues Involved:
1. Classification of income from leasing out industrial sheds, office premises, and factory premises.
2. Entitlement to depreciation and investment allowance for the plant and machinery at the Bangalore factory.

Issue-wise Detailed Analysis:

1. Classification of Income from Leasing Out Properties:

The primary issue was whether the income derived by the assessee from leasing out its industrial sheds, office premises, and factory premises should be treated as business income, income from property, or income from other sources. The assessee contended that the income should be treated as business income, arguing that the leased assets were commercial assets, and any income derived from leasing such assets would constitute business income.

The Income Tax Officer (ITO) rejected this contention and treated the income as income from property. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the ITO's decision but directed that the income received from Mr. Victor should be treated as income from other sources, considering the inseparable leasing of plant, machinery, and building.

The Tribunal considered various judicial precedents, including the Supreme Court's decisions in CEPT v. Shri Lakshmi Silk Mills Ltd., Narain Swadeshi Wvg. Mills v. CEPT, East India Housing & Land Development Trust Ltd. v. CIT, and Sultan Bros. (P.) Ltd. v. CIT. The Tribunal noted that the assessee's business of manufacturing mosaic tiles had ceased and the properties were leased out as surplus assets. The lease deeds indicated normal leasing arrangements without any services rendered by the lessor to the lessees.

The Tribunal concluded that the income from leasing out the office premises and factory sheds at Valappanchavadi should be treated as income from property. The Tribunal upheld the CIT(A)'s decision to treat the income from leasing out the factory shed at Mowbreys Road, Madras, along with plant and machinery to Mr. Victor, as income from other sources. The Tribunal found that the business of manufacturing mosaic tiles had closed, and the income from leasing out the factory and machinery could not be treated as business income.

2. Entitlement to Depreciation and Investment Allowance:

The second issue was whether the assessee was entitled to depreciation and investment allowance for the plant and machinery installed at its Bangalore factory. The assessee claimed that the production had commenced during the year, and some machines were in closing stock, indicating that the machinery was put into use.

The ITO and CIT(A) rejected this claim, noting the absence of wages in the accounts, which suggested no manufacturing activity. The Tribunal found that the authorities had not examined the issue thoroughly. The Tribunal remitted the matter back to the ITO for fresh adjudication, directing the ITO to verify the assessee's claim that manufacturing activity had started during the year and to allow depreciation and investment allowance if the claim was substantiated.

Conclusion:

The Tribunal partly allowed the appeal, confirming the classification of income from leasing out properties as income from property or other sources, and remitting the issue of depreciation and investment allowance back to the ITO for fresh adjudication.