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TMI Blog1989 (9) TMI 157X X X X Extracts X X X X X X X X Extracts X X X X ..... company to a sister concern styled as M/s Indure (P.) Ltd. The claim of the assessee in respect of hire charges from the commercial assets was that 'income from business' and against the same the assessee had also claimed set off of losses pertaining to earlier years and also unabsorbed depreciation coming from earlier years. The ITO not only held that income from hiring out of commercial assets to M/s Indure (P.) Ltd. as income from 'other sources', but rejected assessee's claim regarding set off of unabsorbed losses and depreciation coming from earlier years. The CIT (Appeals) confirmed the finding of the ITO in respect of all the three years. 3. Aggrieved by the said order of CIT (Appeals) the assessee has come before the Tribunal, raising three substantial grounds, disputing the finding of CIT (Appeals), who held the income from hiring charges as income from 'other sources' and also who did not hold the admissibility regarding set off of unabsorbed losses and depreciation. The learned counsel for the assessee while disputing the main finding given by the CIT (Appeals) regarding income from hiring charges as 'income from other sources', submitted that in case the said is held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the assessee that in the meantime till alternative arrangements were made to employ a reliable and competent production in charge, the assessee had agreed to lease the captioned assets to the lessee. From the said letter he projected that no sooner the assessee was in a position to resume its manufacturing operations, the said lease will be terminated. He drew our attention towards the annexure in which each of the nine assets including motor vehicle were leased out for different monthly charges. He relied on a catena of decisions viz. CEPT v. Shri Lakshmi Silk Mills Ltd. [1951] 20 ITR 451 (SC), CIT v. National Mills Co. Ltd. [1958] 34 ITR 155 (Bom.), [1962] 46 ITR 181 (sic), CIT v. Vania Silk Mills (P.) Ltd [1978] 112 ITR 701 (Guj.), CIT v. Katihar Jute Mills (P.) Ltd [1979] 116 ITR 781 (Cal.), Addl. CIT v. Rajindra Flour & Allied Industries (P.) Ltd [1981] 128 ITR 402 (Delhi) and CIT v. Premchand Jute Mills Ltd [1987] 164 ITR 288 (Cal.) from which he specifically read from page 300 of the report. He submitted that all these cases support the contention of the assessee and read certain relevant paras from some of these cases. He submitted that cases relied upon by the CIT (Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... & fixture, moulding boxes, laboratory equipments and motor vehicle on the monthly rent, noted against each of these assets on page 14 of assessee's compilation, which is annexure with the letter written by the assessee company on 15-3-1980 and which on the margin stands accepted by and on behalf of M/s Indure Pvt. Ltd. since there is no specific lease deed executed by the assessee company with the lessee, it becomes very important to give the terms of lease, which are indicated in the said letter and its preamble. Therefore, we reproduce the same as under : --- "To : Dated: 15th March, 1980 M/s Indure Private Limited 45/1, New Industrial Area Site No. 4, Sahibabad (U.P.) Subject : Proposal for the short term lease of the plant and machinery, laboratory equipment, motor vehicles, furniture and fixtures etc. of M/s INDMAC. Dear Sirs, As you are aware our manufacturing operations of castings are suspended because of ill health of Mr.D.R. Mehta and we propose to shift our factory from Faridabad to a place near your factory either in Sahibabad or in Delhi. In the meantime till alternate arrangements are made and we employ a reliable and competent production incharge we have agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -------------------------------------------------------------------------------------------------------------------------------------------------- 31-12-1978 23,66,917 - 1,37,314 25,04,231 (-)82,316 31-12-1979 15,34,672 - 2,550 15,37,222 (-)56,897 31-12-1980 2,18,086 66,100 - 2,84,186 (-)58,132 31-12-1981 - 99,200 - 99,200 40,134 31-12-1982 - 1,12,800 - 1,12,800 65,831 31-12-1983 - 88,800 798 89,598 50,346 31-12-1984 69,142 67,200 544 1,36,886 37,287 31-12-1985 66,860 67,200 554 1,36,614 37,674" --------------------------------------------------------------------------------------------------------------------------------------------------- 7. From the above letter and chart it is apparent that it was only for a period of three years i.e. 1982-83, 1983-84 and 1984-85 that the assessee had no sales of its own, though for assessment year 1984-85 there were other incomes, howsoever small it was, as it was that of Rs. 798. From the perusal of above extracted letter and statement it is clear that it was only for a limited period that the assets were hired out, as the assessee wanted to tide over that period which unfortunately fell on its business due to serious sickness and r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he rent for five months received from the lessee by the assessee was therefore income from business and was chargeable to excess profit tax." 8.1. The facts of the instant case are also similar as it was due to difficulty in running the factory due to sickness and resignation of the Managing Director and it was in order to reduce the loss as a consequence of rent and supervision of the assets that the commercial assets were leased out. 9. Their Lordships of Bombay High Court in case of National Mills Co. Ltd. following earlier decision that of Supreme Court in Shri Lakshmi Silk Mills Ltd.'s case held the income from letting out of the plant and machinery as income from "business". Very briefly to state the facts, M/s National Mills Co. Ltd. which was manufacturing textiles, got into financial difficulties and ceased manufacturing textiles in April 1949. So much so the said company was ordered to be wound up by the court in February 1950. The liquidator of the said company let out the plant and machinery at a monthly rent for a period of three years, option having been left to the lessee for renewal of the lease. In that case even the lessee had option to purchase the plant at a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he premises included the out-houses, restaurants, furniture, fixtures, machinery and the whole equipment of the cinema house. The Tribunal, however, held the income as "income from other sources" in the said case. But when the matter came before the Bombay High Court, their Lordships observed that if an assessee who was using a commercial asset himself for his business, for the purpose of earning profit, lets out the assets to a stranger for being used in the same business for which it was used by the assessee, the mere circumstance that the asset had been let out without being used by the assessee himself is not sufficient to come to a conclusion that the assessee has ceased to do the business which he was carrying on till then. Their Lordships, however, observed that issue whether it is income from "business" or from "other sources" would depend upon the facts of each case. 10.1. Facts found in the present case arc that assessee was using the commercial assets for its business. For the temporary period of three years or so, when it could not use the same, the same were let out to an allied concern, who used the same for the same purpose and as per terms and conditions of the off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business." 11.1. The present case again is on a better footing because commercial assets were utilised prior and after to leasing out and the assessee also had provision for leasing out all the commercial assets in its memorandum. 12. Even their Lordships of Calcutta High Court in the case of CIT v. Prem Chand Jute Mills Ltd. [1978] 114 ITR 769 had occasion to deal with identical dispute and in the said case all the earlier decisions, dealt with by us above, came to be referred, including certain decisions relied upon by the Revenue. In that case the assessee company had been carrying the business of manufacture of jute goods and it incurred heavy losses due to various factors including quarrels amongst the Directors. It was found difficult to work the mills and attempts at settlement were made first through the mediation of Central Government Investigation and later through the Jute Controller. The company leased out the Jute Mill for a period of five years with an option to renew it for another five years. The Tribunal not only held in that case that income from the lease was 'business' income, but also held that assessee was entitled to set off its unabsorbed losses and unabso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ITO. At the Tribunal's stage it was held that it was income from 'business'. In this case even memorandum of association did not contain the express power to carry on the business of letting out. The company was authorised to carry on business. Their Lordships held that the authority was wide enough to include the business of letting out and confirmed the finding of the Tribunal that it was income from 'business'. Their Lordships went on to observe that commercial asset was not put in cold-storage. The desire of the company to exploit the commercial asset, if possible by itself, and, if not possible, with the aid of someone else by leasing it out. 14. Their Lordships of Delhi High Court in the case of Rajinder Flour & Allied Industries (P.) Ltd. had occasion to deal with identical issue. In this case their Lordships of Delhi High Court, under which we are sitting, after dealing with a large number of decisions on the issue adjudicated the issue in favour of the assessee, that income from leasing out was "business" income. This is the case on which reliance was placed by the learned D.R. on certain observations. While applying the case law not only the entire facts in the backgr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ships went on to hold as under :--- "One of the objects of the company was to hire out factories. No doubt, if there is a person whose business is to hire out machines or plants etc. he would be said to be doing business although in normal circumstances this might be considered a non-business purpose. Similarly, on the facts of the present case, the objects clause permitted the assessee to hire out its factory as a part its business activities. Therefore, the leasing of the factory would be a part of the business by the assessee. So, in addition to all the previous reasons given, it would appear that the leasing of the factory was a business activity. 14.1. In the present case as well there is object and not only it is a case of border-line but an issue covered by the Jurisdictional High Court. 15. We are also fortified in our action by Calcutta High Court decision in the case of Premchand Jute Mills Ltd., in which the decisions in the case of CIT v. Jaipuria China Clay Mines (P.) Ltd. [1966] 59 ITR 555 (SC) and also New Savan Sugar & Gur Refining Co. Ltd.'s case came to be referred. It was also a case of Premchand Jute Mills Ltd. which was leased out for five years with furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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