Rental income from incidental letting is property income, not business income, where property dealing is not the company's main function.

Rental income from part of a company's business premises was held to be income from property, not business income, because mere ownership and letting of premises do not amount to business unless holding and letting the property is the company's whole or main function. The court also stated that Rule 4(4) of Schedule I to the Excess Profits Tax Act, 1940 cannot enlarge the statutory definition of business or override the substantive provision. As the assessee was primarily a manufacturing company and the letting was only incidental, the rental receipts were not assessable as business profits for excess profits tax purposes.

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Issues: Whether rental income from the letting of part of the assessee-company's business premises was assessable as business income for excess profits tax purposes, and whether Rule 4(4) of Schedule I of the Excess Profits Tax Act, 1940, could treat such income as business profits where the letting was only incidental to the company's manufacturing business.

Analysis: Under the Indian Income-tax Act, income from property is distinct from profits and gains of business. Mere ownership, management, and letting of property do not constitute business unless the holding and letting of property form the whole or the main function of the company. The proviso to Section 2(5) of the Excess Profits Tax Act, 1940 shows that holding property is not ordinarily business, except where it is the company's whole or main function. Rule 4(4) of Schedule I cannot be construed so as to enlarge the statutory definition of business and override the substantive provision. Since the assessee was primarily a manufacturing company and there was no finding that letting the premises was its sole or main business, the rental income remained income from property.

Conclusion: The rental income was not assessable as business income for excess profits tax purposes and the question was answered in the negative, in favour of the assessee.

Ratio Decidendi: Income from the letting of property is not business income unless the holding and letting of that property constitute the company's whole or main business, and a rule in the schedule cannot expand the statutory definition of business.

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