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TMI Blog1994 (3) TMI 150X X X X Extracts X X X X X X X X Extracts X X X X ..... uilding is to be assessed under the head "Income from house property". Consequently, the direction of the CIT(A) to the Dy. CIT (Asst.) to allow depreciation on such portion of the premises as is in occupation of the appellant for the purposes of its business, is erroneous." 3. In Ground No. 1, the assessee has challenged the assessment of the rent from the surplus area from the factory building as income from house property, as against its claim that it should be assessed as income from business. The learned Assessing Officer has dealt with this issue at page 2 of the assessment order dt.23rd March, 1989, as under: "As per past history, rental income enjoyed by the assessee will be treated as income from House Property. There is no force in the arguments of the assessee that it should be treated as income from business and his arguments are rejected." 4. Aggrieved by the above decision of the learned Assessing Officer, the assessee went in appeal before the CIT(A). It was argued before the learned CIT(A) that the surplus portion after actual user of the same for business, if let out, the income derived from the let out surplus portion was liable to be assessed as income from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the property. I am, therefore, of the opinion that part of the property has been let out for earning income therefrom and as such the true character of the income derived is income from property assessable under s. 22 of the IT Act. The facts of the cases relied upon by the appellant are totally different and hence these decisions are of no help to it. To conclude, I hold that the income in question has rightly been assessed as income from house property." 5. As regards the alternate plea, the learned CIT(A) held that the unabsorbed depreciation, if any, for the preceding assessment years, is to be set off first against the business income, if any, after giving effect to his appellate order and in case there is still a balance of unabsorbed depreciation left, it is to be set off against the income from house property. 6. The assessee is aggrieved by the decision of the learned CIT(A) in regard to the assessment of the income in question as income from house property and ground No. 1 before us relates thereto. 7. Shri S. Sampath, the learned counsel for the assessee, submitted that the assessee is a limited company. It purchased a factory building for Rs. 23,89,056 in auction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rival submissions and perused the authorities cited by both the sides. The admitted facts are that the property in question is a factory building purchased on3rd March, 1980and, at that time, a part of it was let out to three tenants. Immediately after the purchase of the property, some more part of it was let out to another three tenants. In the vacant portion, the assessee-company started its own business activities. Since the assessee's own business was at initial stage, it let out the surplus area of the property and received rental income. The assessee's case is that the letting out of the surplus area was exploitation of the commercial asset and hence the income therefrom is assessable as income from business. To begin with, the question which arises for consideration is, whether the assessee-company has held the property as commercial asset. It is now well-settled that every asset, which is once used as a business asset or which is capable of being so used, cannot be regarded as a commercial asset. In order that asset may be regarded as a commercial asset, it must be the asset of a running business. In the case of the assessee before us, the property in question was purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had been leased out to several persons on rental basis. The Hon'ble Karnataka High Court held that the income derived from letting out sheds was not the income derived from the exercise of property rights only but income from carrying on the assessee's own business. In the case of the assessee before us, it has derived income from letting out a part of the property in exercise of its property rights only and no material has been brought on record to enable us to hold that by letting out the property, the assessee-company served its own business interest. In this view of the matter, in our opinion, the ratio of this decision will also not render any assistance to the assessee. 11. We have also gone through the other case laws and find that they are also distinguishable on facts. In the case of Addl. CIT vs. Rajendra Flour Industries Ltd., the assessee started to construct and run flour mill. After installation of the factory, the company let out the flour mill for five years as a temporary measure to tide over the period of difficulties. The mill was restored to the assessee on expiry of the term of lease and the assessee started running the mill thereafter. The Hon'ble Delhi Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of CIT vs. Sarveshwar Nath Nigam (1963) 48 ITR 853 (Punj). Shri Suman Gupta, the learned Departmental Representative, on the other hand, submitted that the assessee is not entitled to depreciation on the let out portion of the factory building, because that portion has not been used by the assessee for the purposes of its business. 16. We have considered the rival submissions and perused the decision relied upon by Shri Sampath. We have already held that the rental income from the surplus let out portion of the building has rightly been held by the learned CIT(A) to be assessable under the head "Income from house property", and rejected the claim of the assessee that the aforesaid income is assessable under the head "Income from business". It is not in dispute that the assessee has not used the let out portion for the purposes of its business. As a lessor, the assessee is not entitled to claim depreciation ordinarily on the asset leased out by him unless the assessee is engaged in the business of leasing similar assets. Admittedly, the assessee is not engaged in the business of leasing out similar assets, nor has ever used the asset in question for the purposes of its business. W ..... X X X X Extracts X X X X X X X X Extracts X X X X
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