9911796707
TMI Blog1989 (6) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... Enterprises, Salem, and (iii) M/s Meccano Mysore. The office premises at Mowbreys Road, Madras was given on lease to (i) M/s. Nirlon Synthetic Fibre and Chemicals and (ii) M/s Computer Marketing Agencies. It was the contention of the assessee before the lower authorities that the income derived by it from leasing out of the industrial sheds, office premises and factory constituted its business income and so will have to be assessed under that head. However, the ITO rejected the assessee's request and computed the income arising from letting out of these properties as income from property and computed the assessee's income on that basis. 2. On appeal, the CIT (Appeals) while confirming the action of the ITO in treating the income from various properties as property income, directed him to treat the receipts from Mr. Victor alone as income from other sources, on the ground that the leasing out of the plant and machinery and building was inseparable. 3. The assessee carried on business of manufacture of polishing machines at Bangalore. The contention of the assessee was that the production had actually commenced during the year and some of the machines produced by it were remaini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business in the manufacture of mosaic tiles at Madras. It had discontinued the said business and during the year under consideration it shifted its activities to Bangalore for manufacture of a totally new products namely, polishing machines. Thus, there is no dispute that the assessee has closed down its business activity in respect of manufacture of mosaic tiles at Madras. It had certain industrial sheds at the industrial estate at Velappanchavadi Madras. These sheds were leased out to M/s Samson Rubber Industries and M/s Jaykay Biscuit Food Industries. On a perusal of the lease deeds, it appears that what was leased out to these two parties were the factory premises namely sheds No. 1 and 2 with asbestos roof, rolling shutter gate together with electrical power supply and meter. Whatever might have been the use to which these properties were put to in the earlier years, there is no dispute that these two sheds have been leased out to these two parties for carrying on their respective businesses in those premises after getting necessary licences from the authorities concerned. The terms of the lease indicate that they are normal leases given by the owners of properties for derivi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y licences that are required for carrying on its business. The lessor also agreed to assist the lessee in all matters relating to the allotment of quotas or other benefits that have been enjoyed by the business. The trade name MECCANO was also allowed to be used by the lessee. Though the original lease was given from Sept., 1988 onwards, it is extended from time to time, and admittedly even now the premises is under lease to the lessee. On the basis of the above conditions of the lease deed, it is claimed that the income arising to the assessee on leasing out of the factory sheds is income from business as the assessee was trying to exploit and derive income from leasing out of its commercial assets. 6. A number of Courts have considered the question whether the income arising on leasing out factory premises amounts to income from business, income from property or income from other sources. The Supreme Court in the case of CEPT v. Shri Lakshmi Silk Mills Ltd. [1951] 20 ITR 451, held that if a commercial asset is not capable of being used as such, then its being let out to others does not result in an income which is the income of the business, but it cannot be said that an asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it remained idle for some time. The Court observed that in that case the company was continuing its business of manufacture of silk cloth throughout the period and only a part of its business namely, that of dyeing silk yarn, had to be temporarily stopped allowing to the difficulty in obtaining silk yarn on account of the war. It was under these circumstances, the Court held that that part of the assets did not cease to be commercial assets of that business since it was temporarily put to different use or let out to another and accordingly the income from the assets would be profits of the business irrespective of the manner in which that asset was exploited by the company. No general principle could be laid down which would be applicable to all cases and that each case must be decided on its own circumstances according to ordinary common sense principles. In the case of Narain Swadeshi Wvg. Mills, the Court found that the firm's business had actually closed. It no longer manufactured any ribbons and laces. It had accordingly no further trading or commercial activity. It could not in fact use the plant, machinery, etc., after the land and the buildings where they were installed had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e from business. The Court further held that the income from the hire of the furniture and fixtures had to be assessed u/s 12 after providing for the allowances mentioned in sub-sec. (3) of that section. Whether a particular letting is business has to be decided in the circumstances of each case. Each case has to be looked at from a businessman's point of view to find out whether the letting was the doing of a business or the exploitation of his property by an owner. A thing is not by its very nature a commercial asset. A commercial asset is only an asset used in a business and nothing else, and business may be carried on with practically all things. Therefore, it is not possible to say that a particular activity is business because it is concerned with an asset with which trade is commonly carried on. 11. The Andhra Pradesh High Court in the case of Tripurasundari Cotton Press Co. Ltd. v. CIT [1966] 62 ITR 193 held that where the business activity of the assessee ceased totally, the factory, buildings and godowns were not part of the business assets and the department was right in assessing the rent derived from the lease of the buildings and godowns etc., under sec. 9 of the IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shows that it is no more a commercial asset. The income derived by the assessee on letting out the office premises is merely in the nature of income from house property and we accordingly hold that the lower authorities are correct in treating the income as income from property and not as income from business. Same is the position with regard to the leasing out of the factory sheds at Valappanchavadi. Here also the lease deeds do not show that the assessee had rendered any services to the lessees so as to constitute the activity of leasing as a business proposition. The lease deeds show that these assets, which are no more required by the assessee for its business, have been let out on hire for carrying on their own business. The assessee has no interest in such business carried on by the lessees and the income derived by it is only from the activity of letting out of the factory sheds. As such the income from such leasing out the factory sheds at Valappanchavadi has to be treated as income from property alone. 14. Though it was claimed before the first appellate authority that the factory sheds at Mowbreys Road, Madras was leased out to three parties, namely, Mr. Victor, Propri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of the plant and machinery installed by it in its Bangalore factory. It was also urged that the accounts show that certain machinery had been manufactured in the factory and they were remaining in the closing stock. The CIT (A) however, rejected the assessee's claim on the ground that no wages were admitted in the accounts and without wages there could not have been any manufacturing activity at all. In our opinion, the lower authorities are not correct in rejecting the assessee's claim for grant of depreciation and investment allowance, without examining the full facts. The assessee's claim that certain machineries were manufactured in its Bangalore factory during the year requires verification. The learned representative for the assessee also claims that if an opportunity is given to him he will be able to satisfy the lower authorities, that in fact manufacturing activity had started during the year of account. In view of the fact that the authorities below have not examined the issue in its proper perspective, we consider it necessary to remit back the matter of allowance of depreciation and investment allowance on the plant and machinery of the assessee's Bangalore f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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