1997 (2) TMI 37 - HC - Income Tax

Tribunal Decision Affirmed: Lease Income Classified as Other Sources for Assessment Year 1974-75

V. Ramakrishnan Sons Ltd. Versus Commissioner Of Income-Tax

The High Court upheld the Tribunal's decision that lease income derived from foundry machinery should be assessed under the head of other sources for the ... Other Sources, Lease Issues:1. Determination of whether the lease income derived from foundry machinery should be assessed as business income or income from other sources for the assessment year 1974-75.Detailed Analysis:The case involved a dispute regarding the classification of lease income derived from foundry machinery as either business income or income from other sources for the assessment year 1974-75. The Income-tax Officer had initially treated the income as arising from other sources, as the foundry had been leased out since 1966, leading to the cessation of the foundry business as claimed by the assessee. The Appellate Assistant Commissioner and subsequently the Tribunal upheld this classification, relying on the decision in New Savan Sugar and Gur Refining Co. Ltd. v. CIT [1969] 74 ITR 7. The Tribunal also noted that the assessee was not engaged in money-lending business, further supporting the classification of the lease income as income from other sources.The assessee contended that the lease income should be classified as business income, arguing that the machinery was acquired with the intention of transferring it to a company for which the assessee was the managing agent. The assessee claimed that the managing agency system, under which the lease income was initially assessed as other sources, was abolished in 1970, and compensation received was directed to be assessed as business income. However, the Department's counsel supported the Tribunal's decision, emphasizing that the assets were not commercial and the intention to discontinue the foundry business was evident from the previous assessments under other sources.The High Court considered the facts presented, highlighting that the assessee was no longer engaged in managing agency business during the assessment year in question. The Court noted that the assessee did not explicitly claim the lease income under the head of managing agency business, and without proper pleading, it could not be classified as such. Referring to the decision in New Savan Sugar case, the Court reiterated that lease income from letting out machinery cannot be assessed as business income. Since the managing agency system was no longer in place, and there was no specific claim for the lease income to be assessed as business income, the Court upheld the Tribunal's decision to classify the lease income under other sources.Ultimately, the High Court ruled in favor of the Department, affirming that the lease income derived from foundry machinery should be assessed under the head of other sources for the assessment year 1974-75.