Lease rent as business income upheld; development rebate and section 80J deduction denied for lack of manufacturing activity.

Lease rent received by the assessee was assessable as business income under section 28, following the earlier decision in the assessee's own case for prior assessment years; the income was therefore not taxable under the head "other sources". The claim to development rebate was rejected on the basis of the earlier decision in the assessee's case. Deduction under section 80J was also denied because the machinery had been let out, the lessee had control of its use, and the assessee could not be said to manufacture or produce articles, so the statutory condition in section 80J(4) was not met.

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Issues: (i) Whether lease money received by the assessee during the assessment year 1974-75 was taxable as business income under section 28 of the Income-tax Act, 1961 or as income from other sources under section 56 of that Act; (ii) Whether the assessee-company was entitled to development rebate and deduction under section 80J of the Income-tax Act, 1961.

Issue (i): Whether lease money received by the assessee during the assessment year 1974-75 was taxable as business income under section 28 of the Income-tax Act, 1961 or as income from other sources under section 56 of that Act.

Analysis: The income from lease rent was held to fall under the head 'Business' under section 28, following the earlier decision in the assessee's own case for the assessment years 1971-72 and 1972-73. That view was treated as governing the present reference.

Conclusion: The question was answered in the affirmative, in favour of the assessee and against the Revenue.

Issue (ii): Whether the assessee-company was entitled to development rebate and deduction under section 80J of the Income-tax Act, 1961.

Analysis: The claim to development rebate was held to be not sustainable on the basis of the earlier decision in the assessee's case. As to section 80J, the machinery had been let out and the lessee had control over its use; the assessee therefore could not be said to manufacture or produce articles, and the statutory condition under sub-section (4) of section 80J was not fulfilled.

Conclusion: The question was answered in the negative, in favour of the Revenue and against the assessee.

Final Conclusion: The reference was disposed of by upholding taxation of the lease rent as business income while denying the assessee's claims to development rebate and deduction under section 80J.

Ratio Decidendi: Lease rent is assessable as business income where the governing facts and earlier binding decision require that characterisation, and deduction under section 80J is unavailable unless the assessee satisfies the statutory condition of manufacturing or producing articles.

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