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TMI Blog1972 (8) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... 19,722 The said amounts represented the irrecoverable part of the rent from the producers who had taken the assessee's studio on rent for production of pictures. The Income-tax Officer disallowed the said claim on the ground that the claim related to a business which had been completely wound up, that the business of distribution of pictures was different from production of films, and that the business of production was not in existence in these years. The assessee appealed to the Appellate Assistant Commissioner, who allowed the claim stating: " The appellant-company was renting out its studios and machinery for film producers. The losses that are partly written off are rental dues from these producers. The studios' immovable properties are still being rented out to a cotton merchant. The memorandum and articles of association allow it to rent out the immovable properties and machinery. From this, it is clear that the appellant's business of letting out its immovable properties and machinery is continuing." In the previous year relevant for the assessment year 1962-63 there was no distribution of picture; and the only receipts by the company were as under: Rs. Rental on stud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... godown, and that, thereafter, the assessee carried on the business of distribution of films and earned income by way of commission on the collections up to the assessment year 1961-62. But, the distribution of films has nothing to do with the original business of production of films which required the use of the studio building and the machinery. Therefore, it has to be taken that the assessees business of producing pictures had been discontinued from the year 1958-59 when the machineries pertaining to the film production were sold and the studio was let out for using it as a godown. The question is whether the rental income received by the company from the studio building without any machinery for its user as a cotton godown can be brought under the head " Profits and gains of business ". The income from the studio building is undoubtedly an income from property. But, to bring that income under a different head, " Profits and gains of business ", it must be shown that the building has been used for the purposes of the business. The reasons given by the Income-tax Officer for treating the income as income from property are these : " (1) The company itself had shown the income fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I and M. M. Ipoh v. Commissioner of Income-tax. It is true that in this case in respect of the three earlier assessment years the income from the studio building was held to be business income by the Appellate Assistant Commissioner relying on a clause in the articles of association of the company authorising it to let out the building and the machinery, even though the business of production of films had been stopped and the entire machinery used for production of films had been sold showing the assessee's intention to discontinue the business of production of films, and the studio building has been actually let out for use as a cotton godown. But, the question is whether the decision of the Appellate Assistant Commissioner holding the rental income from the studio building to be a business income in these circumstances is correct. The fact that the revenue has not challenged the decision of the Appellate Assistant Commissioner in the previous years by filing appeals before the Tribunal will not prevent it from raising the question as to the proper head under which that income has to be brought in the subsequent years. We, therefore, proceed to consider the question as to whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re held as trading assets. There the assessee was a banking company whose business included dealings in securities. The assessee contended that the securities are part of its trading assets and any income which accrues in respect of those assets in the form of interest has the same characteristics of profits or gains of its banking business and that, therefore, it must be treated as business income falling under section 10 of the Indian Income-tax Act, 1922. The Supreme Court, after considering the scheme of the Act, the scope of the provisions of sections 6 to 12, and the form of the return prescribed under section 21 giving the various heads of income expressed: " Thus, on a true construction of the various sections of the Act the income of an assessee is one and the various sections 7 to 12 are modes in which the statute directs that income-tax is to be levied and these sections are mutually exclusive. The head of income of which the source is " interest on securities " has its characteristics for income-tax purposes and falls under the specific head covered by section 8 of the Act, and where an item falls specifically under one head it has to be charged under that head and no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was received by a company formed with the object of developing and setting up markets. This decision gives a square answer to the reasoning given by the Appellate Assistant Commissioner that as the memorandum and articles of association of the company in this case had authorised the letting of its assets, such letting and the receipt of income was in the course of its business. As pointed out in Commercial Properties Ltd. v. Commissioner of Income-tax, merely because the owner of the property was a company incorporated with the object of owning property, the incidence of the income derived from the property owned could not be regarded as altered, and the income came more directly and specifically under the head " Property " than income from business. In Sultan Brothers Private Ltd. v. Commissioner of Income-tax, their Lordships of the Supreme Court dealt with a case of composite letting of building fitted with furniture and fixtures for the purposes of being run as a hotel and the question was whether the income derived from such a lease was one from business or one from property or one from other sources. In that case the assessee-company constructed a building on a certain pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e from the studio building cannot be brought to tax under any other head. As pointed out in Bengal Jute Mills Co. v. Commissioner of Income-tax, letting out property is the ordinary method of obtaining income from the property, and management of property by letting it out does not result in an income from business, unless the functions of managing and letting out the property are the sole or main functions of the company. In that case the court was concerned with a case where the assessee-company which was engaged in the manufacture and sale of jute products let a portion of its business premises to a firm which was conducting the business of dehydrating potatoes. The court held that the rents and profits received from such letting could not be regarded as profits of the assessee's business as the letting out of the property was not either part of it business or a seperate business and that, therefore, the income derived from the letting of the assessee's premises cannot be regarded as income from business for the purpose of the Excess Profits Tax Act. As already stated, in this case, the assessee has stopped his business of producing films even during the assessment year 1957-58 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax as profits of business. The Supreme Court held that it was part of the normal activities of the assessee's business to earn money by making use of its machinery either by employing it in its own manufacturing concern or temporarily letting it to others for making profit for that business when for the time being it could not itself run it and that as the dyeing plant had not ceased to be a commercial asset of the assessee the rental receipts have to be treated as income from business and was chargeable to excess profits tax. The Supreme Court bad expressed that if the 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 which was acquired and used for the purpose of the business ceased to be a commercial asset of the business as soon as it was temporarily put out of use or let out to another person for use in his business or trade. Reliance is also placed by the assessee on a decision of this court in G. R. Narasimier & Co. v. Commissioner of Income-tax and of the Supreme Court in S. G. Mercantile Corporation P. Ltd. v. Commissioner of Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee himself cannot use the studio building for the purpose of his business of film production without purchasing new machineries and installing the same in the building. The studio building as such cannot be put to use as a studio for production of films either by the assessee or by the lessee. S. G. Mercantile Corporation P. Ltd. v. Commissioner of Income-tax was a case where the assessee-company which was authorised by its memorandum of association to take on lease or otherwise acquire and to hold, improve, lease or otherwise dispose of land, houses and other real and personal property and to deal with the same commercially, took on lease a market place for an initial term of 50 years and spent a sum of Rs. 5 lakhs for the purpose of remodelling and repairing the structures on the site. During the accounting year the activity of the assessee-company consisted of developing property and letting out portions thereof as shops, stalls and ground spaces to shopkeepers, stallholders and daily casual market vendors. The question was whether the income of the assessee-company from subletting the stalls was assessable as business income under section 10 of the Income-tax Act, 1922, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he income is treated as income from property the character of that income will not be altered because it has been received by a company, and the learned judges have cited with approval the following observations in Karanpura Development Co. Ltd. v. Commissioner of Income-tax : " Ownership of property and leasing it out may be done as a part of business, or it may be done as land-owner. Whether it is the one or the other must necessarily depend upon the object with which the act is done. It is not that no company can own property and enjoy it as property, whether by itself or by giving the use of it to another on rent. Where this happens, the appropriate head to apply is income from property, (section 9), even though the company may be doing extensive business otherwise. But a company formed with a specific object of acquiring properties not with a view to leasing them as property but to selling them or turning them to account even by way of leasing them out as an integral part of its business, cannot be said to treat them as land-owner but as trader." On a due consideration of the matter in the light of the statutory provisions and the relevant decisions on the point, we are of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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