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TMI Blog1958 (3) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... building etc., to Sardar Spinning Weaving Mills of Ahmedabad on a monthly rent of ₹ 36,900. A copy of the lease deed is annexure 'A' and forms part of the case. 3. The mills had been showing losses in the past. These losses could be carried forward and set off against income from the same business. The assessee therefore claimed the right to set off the losses of the company prior to the year of account on the ground that it was the loss which accrued from the same business. The Department has, however, held that the rent received by the assessee is income which is assessable under section 12 of the Income-tax Act. The loss brought forward as a result of carrying on the business, therefore, cannot be set off against the rental income received by the liquidator by leasing out the factory. 4. According to the Department the business of the manufacture of textiles came to an end on the appointment of the liquidator. In order to make effective use of the machinery during the period of liquidation the machinery was let out by the liquidator. There was no intention on the part of the liquidator to do business. The intention was to let out the property. 5. On the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing year and the total amount is depreciation allowable under section 10(2)(vi). Under section 12, the position in our opinion is no different. If the first question is decided against the assessee, the following question of law will arise: Whether on the facts and circumstances of the case the assessee company is entitled to claim depreciation to which effect had not been given in the previous years as part of the depreciation allowance of the year of account as provided under the proviso to section 10(2)(vi)? 10. The parties agree that the facts necessary to draw up a statement of the case have been correctly stated. The only suggestion made by the Departmental Representative is that the question framed in paragraph 7 of the statement of the case should be in the following form: Whether on the facts and in the circumstances of the case, the lease rentals of ₹ 73,800 received by the assessee company is an income assessable under section 10 or 12 of the Income-tax Act? We think that the question framed by the Tribunal is a more appropriate question to be referred. G. N. Joshi with R. J. Joshi, for the Commissioner N. A. Palkhivala with B. A. Palkhiva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 24(2). The Tribunal held in favour of the assessee. An assessee carrying on business utilises certain assets as business or commercial assets. With the help of these assets the assessee carries on its business and makes profits. There is another way by which the assessee may also make profits out of these assets. Instead of carrying on business itself, it may permit someone else to use these assets and carry on the same identical business. Even in such a case, the activity of the assessee would be a business activity. It would be carrying on the same business through a different instrumentality. It is not necessary that in order that the income of the assessee should be business income, it should be produced by the assessee utilising the business assets itself. So long as those assets are used as business assets, it is irrelevant whether the business assets are exploited and used by the assessee itself or someone else. It is true that you have a different situation under certain circumstances. The assessee may stop doing business altogether, and these assets may cease to have the character of business or commercial assets. Then, they take on an entirely different character. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tself was not in a position at the time to exploit or use that commercial asset. Now, the important thing to note is what the Supreme Court at page 456 states: It may be observed that no general principle can be laid down which is applicable to all cases, and each case has to be decided on its own circumstances. The latter case is also a decision of the Supreme Court and that is the case of Narain Swadeshi Weaving Mills v. Commissioner of Excess Profits Tax [1954] 26 I.T.R. 765. Here again the Supreme Court considered the question as to whether an assessee carried on business and whether the income earned was from commercial asset or in the course of business, as a question of fact ; and at page 772 they referred to the facts found by the Tribunal, and the most important finding was that the assessee firm had put it out of its power to use the plant, machinery etc. for it had no right in the lands and buildings where the plant, machinery, etc. had been installed and on this essential fact, apart from other facts, the conclusion was irresistible that the assessee firm was not carrying on business when it lets out its plant and machinery. It had shown a clear unequivocal inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re textiles than it should do itself. The fact that the lease was for a particular duration with an option to renew it does not indicate a definite unequivocal intention to stop business, because there was no guarantee that the lessee would necessarily exercise that option. Even the option to purchase at the end of a particular period does not clearly show that till that period had reached, the activity of the assessee was not a business activity. The fact that the company had gone into liquidation does not prevent the liquidator from carrying on business. Now, as against the circumstances relied upon by Mr. Joshi, there are the circumstances relied upon by Mr. Palkhivala. The one is that the lessors had to render assistance to the lessees in the carrying on of the business and Mr. Palkhivalla says that that indicates that the lessors were participating in the business, were anxious that the business should go on ; and this, according to Mr. Palkhivala, would have been so, if all that the lessors were doing was to exploit their assets as capital assets. Mr. Palkhivala also relies on the provision, which is similar to the provision in the Akbar Mills' case*, that a part of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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