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TMI Blog2007 (2) TMI 579X X X X Extracts X X X X X X X X Extracts X X X X ..... y intention to close down the company and ultimately, the business ; that to mitigate further losses, outdated equipment was sold and steps were taken to dispose of the lying stocks ; that the company continued and is still in existence and in order to reduce the burden of routine expenses, it leased out its commercial assets, i.e., its shed along with fittings, etc., duly disclosed in the balance-sheet, under a composite lease, for the time being, to exploit these commercial assets to its benefit ; and that the income therefrom was shown as income from business, which has, however, been assessed as income from house property. The Assessing Officer observed that the assessee had sold all its plant and machinery and stocks during the financial year 1999-2000 and that no business activity was carried out by the assessee during the year. Accordingly, the assessee was asked as to why rental income of Rs. 10,54,000 be not treated as income from house property and not as business income, as claimed. In response, the assessee submitted that renting out that part of its business premises was itself business activity ; that it had leased its premises to an outsider as a source of business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This premises was rent out for a period of five years. No business was started by the company till date. (ii) Their Lordships of the Supreme Court in an exactly similar case (Universal Plast Ltd. v. CIT [1999] 237 ITR 454) have held that the amount earned by the assessee by leasing out the assets of the business would not be income from business carried out by it. Various High Courts have also held the similar view on this issue. Some of such decisions are as under : (i) Madras Silk and Rayon Mills P. Ltd. v. ITO/Asst. CIT [2003] 262 ITR 122 (Mad) ; (ii) Scindia Potteries v. CIT [2002] 253 ITR 168 (Delhi) ; (iii) CIT v. Indian Warehousing Industries Ltd. [2002] 258 ITR 93 (Mad) ; and (iv) Guntur Merchants Cotton Press Co. Ltd. v. CIT [1985] 154 ITR 861 (AP) Keeping in view the above facts and case law the income from the rent of Rs. 10,54,000 is being assessed as income from house property not the business income. The learned Commissioner of Income-tax (Appeals) confirmed the assessment order, holding as follows : (1) Disposing of plant, machinery and stocks proves that there is no intention of revive the business activity. (2) Five years is quite a reasonable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... radesh High Court in the case of Ambica Tobacco Co. P. Ltd. v. CIT [1988] 172 ITR 343. On the other hand, supporting the orders of the taxing authorities, the learned Departmental representative has submitted that the income in question has correctly been treated as income from house property, rather than as business income, as claimed by the assessee. He submits that all plant and machinery and stock stands sold out by the assessee, four long years back, and even no business activity was carried out during the year under consideration. It is submitted that as noted by the learned Commissioner of Income-tax (Appeals), there has been no business activity of the assessee for the last five years. It is contended that the assessee has not been able to prove, at all, its stated intention of reviving its business. We have heard the parties and have perused the material on record. In this case, the admitted facts are that the assessee was carrying on business as a company manufacturing, primarily, shoe uppers. However, in the late 1990s, it decided to stop such activity. It sold all its plant and machinery and stocks and leased out its commercial shed along with its fittings. The leas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2001, and that till such raising of the debit note, the sale did not take place, since the ownership remained with the assessee and no title in the goods vested with the purchasers. In this regard, even if the contention of the assessee is accepted, for the sake of argument, it does not help the case of the assessee at all. This transaction was of sale of old stock of leather of the assessee. This does not, in any manner, amount to the assessee having carried out any business in the year under consideration. The assessee has next contended that what it has leased out is its commercial assets along with its fittings, which formed part of the plant and machinery of the assessee, and that even the lessee is carrying on commercial activity thereat. As far as the first part of the argument is concerned, the assessee is merely clutches at straws. Having sold off its entire plant and machinery, the mere fact that its commercial shed has been leased out along with its fittings, which, according to the assessee, formed part of its plant and machinery, does not act as even an iota of evidence in favour of the intention of the assessee being to restart its erstwhile business ever. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... long ago and it is the commercial shed which has been let out, and the income therefrom is sought to be assessed as business income. Remarkably, in Ambica Tobacco Co. P. Ltd. [1988] 172 ITR 343 (AP), the income from lease of machinery was held assessable as income from other sources. The assessee contends that it has used its commercial shed as a commercial asset and, therefore, income therefrom its business income. However, as observed hereinabove, the mere fact of leasing out its commercial shed by the assessee does not lead to the conclusion, by itself that the income therefrom is the business income of the assessee. The assessee has admittedly stopped its business for long years and its acts do not show its intention of restart its business at all. From the above discussion, it is also clear that the learned Commissioner of Income-tax (Appeals) rightly confirmed the observation of the Assessing Officer that no business activity was carried on by the assessee during the year under consideration. Merely incurring of business expenditure does not amount to carrying on of business during the previous year. In view of the above discussion, finding no error with the order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity in the shape of unsecured loans, the confirmation whereof had not been received in the assessment proceedings. The learned Commissioner of Income-tax (Appeals) deleted this addition, observing as follows : I have considered the views of both sides on this issue, I am of the opinion that the liability of an assessee does not cease merely because it is barred by limitation. It ceases only when after getting barred by limitation, the assessee unequivocally expresses his intention nor to honour it even when demanded. In other words, liability never ceases. Debt is never extinguished, the Limitation Act only prevents its enforcing. It does not also confer any benefit on the debt or as contemplated by section 41(1) of the Income-tax Act, 1961. The decision resorted to by the Assessing Officer is distinguishable from the facts of the assessee s case of T. V. Sundaram Iyengar and Sons Ltd. [1996] 222 ITR 344 (SC), the assessee received deposits from customers which were unclaimed and transferred to profit and loss account, but included in the total income. It was in this particular situation that the hon ble Supreme Court held unclaimed balance transferred to profit and loss accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cable. Moreover, it has not been made out by the Assessing Officer as to how the provisions of section 41(1) apply. In view of the above, the order of the learned Commissioner of Income tax (Appeals) on the issue at hand does not call for any interference by us. It is hereby confirmed. Ground No. 1 raised by the Department stands rejected. A propos the second issue, the Assessing Officer observed that as per the rent deed, the assessee had rented out property at Rs. 85,000 per month, i.e., for Rs. 10,20,000 for the whole year, but the only value of the property to be reckoned was in accordance with section 23(1) of the Income-tax Act, 1961. For this purpose, the Assessing Officer took into account the yield from the interest-free advance amounting to Rs. 10,20,000 taken by the assessee from his tenant. The Assessing Officer increased the amount of rent actually received by the assessee by 10 per cent. of such rent, amounting to Rs. 1,02,000. The learned Commissioner of Income-tax (Appeals) deleted this addition. Before us, the learned Departmental representative has placed reliance on the Assessing Officer s order, whereas learned counsel for the assessee has relied on the or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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