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TMI Blog1991 (3) TMI 182X X X X Extracts X X X X X X X X Extracts X X X X ..... tal carried forward loss came to about Rs. 1 crore and after adjustment of reserves the said loss was of Rs. 78,01,690. It became difficult for the assessee-company to raise finances required for expansion and modernisation of the plant. In the above circumstances, the assessee entered into an agreement dated 7-12-1981 with Laxmi Starch Ltd. Under the said agreement the assessee permitted Laxmi Starch Ltd. as operator to use and operate the total factory assets of the assessee-company on payments to be made in accordance with clause 3 of the agreement. These payments ranged from Rs. 50,000 per month to Rs. 3 lakhs. Under the agreement the assessee-company permitted Laxmi Starch Ltd. to use the paper mills for a temporary period of three years commencing from 1st April, 1981 and ending on 31st March, 1984 with an option to Laxmi Starch to seek extension for a further period not exceeding two years on the expiry of initial period of three years. Laxmi Starch Ltd. had a right at any time to surrender the benefit of the user of the assets of the assessee-company after giving three months' prior notice of its intention to do so. Under clause 6 it was provided that all workmen, clerical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., were allowable. The Income-tax Officer did not discuss the agreement in detail in the assessment order. He observed that Laxmi Starch Ltd. was a company under common control and management and that income derived by assessee under the aforementioned operating agreement was assessable as " income from other sources " under section 56(1) of the Act. He further observed that provisions of section 56(2) were not attracted and as such deduction claimed by the assessee were not allowable. According to him, only deductions admissible under section 57(iii) were expenditure laid out wholly and exclusively for the purpose of earning the operating consideration and that no such expenditure could be said to have been incurred by the assessee. He accordingly, assessed the entire operating consideration of Rs. 4,50,000 under the head " income from other sources " under section 56(1) of the Act. 3. The assessee filed appeal before the CIT(A). The CIT(A) observed that the tenor of the agreement indicated that the assessee did not intend to stop carrying on business or to give up the commercial assets. According to him, this was not a case where the assessee had attempted to earn income by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, are relevant. As already stated the assessee had accumulated losses to the extent of Rs. 78 lakhs as on 31-3-1981. Finances were needed for modernisation of plant and machinery for which the assessee had prepared a project. It was not possible for the assessee to obtain the finances. Consequently, the assessee had no option but to engage the services of other company to keep the manufacturing activity going on for some temporary period. It was in this background that the assessee entered into the abovementioned agreement. Various clauses in the agreement indicate that the assessee intended to resume manufacturing activity on expiry of the period of agreement. It is for this reason that there was a clause in the agreement to the effect that the structures constructed by M/s. Laxmi Starch Ltd. would be taken over by the assessee at the time of termination of the agreement. Besides, the assessee had kept to itself the option to obtain new plant and machinery which were to be installed by M/s. Laxmi Starch Ltd. during the operation of the agreement. We were told at the Bar that after 1-4-1986 the assessee has continued the said business on termination of the agreement. The original ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time and that intention was required to be gathered from surrounding circumstances. In the decision on which the learned Departmental Representative has relied it is no doubt observed that where entire assets are leased out the income would be regarded as income from other sources. However, facts of that case were not similar to the facts of our case. The facts of our case are akin to the facts in the case of Vikram Cotton Mills Ltd. and that decision supports the conclusion that we have reached. 8. Several decisions of Patna High Court on which the learned D.R. has relied are cases of leasing of colliery which stands totally on different footing and principle laid down in these decisions would not be applicable on the facts of the present case. In this connection, useful reference can be made to decision of Calcutta High Court in CIT v. Premchand Jute Mills Ltd. [1978] 114 ITR 769. In that case, the assessee who was carrying on business of manufacture of jute goods incurred heavy losses and as such leased out its jute mills for a period of five years with an option of renewal for another five years. It was held that the rental income was income from business. It was laid down t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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