Business income from leasing business assets allowed set-off of carried forward losses where assets remained commercially exploited.

Income from leasing factory premises and plant and machinery may constitute business income where those assets continue to be exploited as business or commercial assets, even if the assessee does not itself carry on manufacturing operations. The decisive factor is the factual finding whether the business has in substance ceased or whether the assets remain deployed in the course of business activity. On the facts found, the Tribunal treated the assets as continuing business assets and the letting as part of the business activity, so the lease rentals were available for set-off against carried forward business losses under section 24(2) of the Income-tax Act.

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Issues: Whether the lease rentals realised by leasing out the factory could be treated as business income so as to permit set-off of carried forward business losses under section 24(2) of the Income-tax Act.

Analysis: The decisive question was whether, on the facts found, the plant and machinery continued to retain the character of business or commercial assets during liquidation. Income from exploiting such assets may remain business income even if the assessee does not itself operate the business, provided the assets are still employed in the course of the assessee's business activity. Whether the business had ceased and whether the assets had become capital assets were questions of fact for the Tribunal. On the material found, the Tribunal had concluded that the assets remained business assets and that the letting was part of the business activity. The contention that liquidation necessarily ended the business was rejected, and the argument that the Department could raise a new distinction between the original and later business was not accepted.

Conclusion: The lease rentals were held to be income against which the carried forward losses from the textile business could be set off under section 24(2), and the answer to the referred question was in the affirmative, in favour of the assessee.

Ratio Decidendi: Where business assets continue to be exploited as business or commercial assets, income from letting them out may still constitute business income, and the character of the income depends on the factual finding whether the business has in substance ceased or continues through another mode of exploitation.

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