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TMI Blog2014 (11) TMI 180X X X X Extracts X X X X X X X X Extracts X X X X ..... see commenced his business - At the inception he had no intention of letting out the building, machinery and licence to anyone - He set up the business for carrying on the business - He was expecting income. In 1980's because of the labour problem, as the assessee found it difficult to carry on the business, he leased this entire business as a going concern with the licence in favour of the lessee M/s McDowell and Company and thus was deriving income from such lease and treated the said lease under the head 'profits and gains of business or profession' - The assessee was so assessed. Without any justification whatsoever, notice was issued for reopening of the assessment for the AY 1997-98 and 1998-99 – The Tribunal was rightl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the manufacture and sale of IMFL products. In the early 1980's in order to get rid of militant labour, the assessee let out the entire factory along with excise licence and certain plant and machineries to the lessee, M/s McDowell and Company. The assessee filed his returns showing the said income under the heading 'profits and gains of business or profession'. Assessment orders were passed on that basis for the assessment years 1997-98 and 1998-99. The assessee was assessed accordingly. However, proceedings were initiated for re-opening of the assessment on the ground that the said income should have been assessed as 'income from other sources'. The assessee objected to the same. Objections were over-ruled and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business with the assets (building, plant and machinery, furniture and fitting) to M/s. Mc. Dowell Co., Ltd., under the head income from other sources based on the Apex Court judgment reported in 26 ITR 765 (SC)? 2. Whether the Tribunal was correct in not taking into consideration the fact that M/s. Mysore Wine Products Ltd., (assessee) which was let out to M/s. Mc. Dowell Spirits Ltd., was later amalgamated and was renamed as M/s. Mc. Dowell Co. Ltd.? 6. We have heard the learned counsel appearing for the parties. 7. Section 56(2) (iii) of the Income Tax Act, 1961 reads as under: 56. Income from other sources. (1) xxx xxx xxx (2) In particular, and without prejudice to the generality of the provisions of sub-sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set of that business as soon as it was temporarily put out of use or let out to another person for use in his business or trade. The yield of income by a commercial asset was the profit of the business irrespective of the manner in which that asset was exploited by the owner of the business. He was entitled to exploit it to the best advantage and he might do so either . by using it himself personally or by letting it out to somebody else. The view that in order to constitute business income, the commercial asset must at the time it was let out be in a condition to be used as a commercial asset by the assessee himself was not correct. 10. In that case, the assessee-company was a manufacturer of silk cloth and as a part of its business, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period. It depends upon the facts and circumstances of each case. When the intention was not to part with the assets, but to lease it out for a temporary period as a part of exploitation, it could not be said that no business was carried on and the income derived by the Company from letting out the machinery was only rental income. There was a temporary suspension of business for a temporary period with the object of tiding over the crisis condition. There was never any act indicating that the company never intended to carry on the business in the future. 12. In such circumstances, the income derived by way of lease rent from the letting out of its assets was assessable to tax under the head Profits and gains of business . Whether a pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, no fault could be found with that portion of the order. 15. Similarly, what is leased is the commercial assets of the assessee. Earlier he was personally exploiting the commercial asset. Subsequently, he allowed the lessee to exploit that commercial asset. When he gave the commercial asset to the lessee, the intention was not to lease. The intention was to exploit the commercial asset through his expertise and derive income. Therefore, in view of Section 56(2)(iii) coupled with the judgments of the Apex Court as aforesaid, the income should fall under the head 'profits and gains of business' and not from 'income from other sources'. Therefore, the order passed by the Tribunal is in accordance with law. Accordingly ..... X X X X Extracts X X X X X X X X Extracts X X X X
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