Income from Industrial Sheds: Business Income vs. Property Income classification upheld by court

The court upheld that income derived from letting out industrial sheds should be classified as 'income from business' rather than 'income from property', following precedent. Additionally, the change in accounting method from mercantile to cash system for interest accrued on loans to co-operative sugar factories was deemed consistent and bona fide by the Tribunal, allowing for accurate ascertainment of income. The court agreed with the Tribunal's decision, ruling in favor of the assessee on both issues.

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Issues involved:
1. Classification of income derived from letting out industrial sheds as 'income from business' or 'income from property'.
2. Change in accounting method from mercantile to cash system for interest accrued on loans advanced to co-operative sugar factories.

Issue 1:
The assessee, a public sector undertaking, leased out industrial sheds and claimed the lease rent as income from business. The Department argued it should be classified as 'income from property'. The Commissioner (Appeals) and Tribunal ruled in favor of the assessee based on precedent CIT v. A. P. Small Scale Industrial Development Corporation [1989] 175 ITR 352, stating such income is to be assessed as business income. The court upheld this decision, concluding the income from industrial sheds should be treated as business income.

Issue 2:
The assessee corporation changed its accounting method from mercantile to cash system for interest accrued on loans to co-operative sugar factories. The Income-tax Officer disagreed with this change, stating the income cannot be properly deduced under the cash system. However, the Commissioner and Tribunal found the change to be consistent and bona fide, allowing the true income to be ascertained even with the new method. The Tribunal held the change in accounting method was in accordance with the law, and the court agreed, answering in favor of the assessee.

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