Business income under Excess Profits Tax Act excludes rent from company buildings let outside its constitutional objects.

The Madras HC considered whether rent from portions of a company's buildings, and the corresponding building cost, formed part of its business under the Excess Profits Tax Act. Applying the definition of "business" in section 2(5), its provisos, rule 4(4) of Schedule I, and the company's memorandum of association, the Court noted that the company was authorised to acquire and deal with property only for its own business purposes, not to carry on a business of constructing buildings for letting. As the buildings were erected for the company's own use and the letting was not within its constitutional objects, the rental receipts were excluded from profits and the related cost was excluded from capital employed.

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Issues: Whether the letting out of portions of the assessee company's buildings formed part of its business so as to require the rental receipts and the corresponding cost of the buildings to be included in the computation under the Excess Profits Tax Act.

Analysis: The definition of business under section 2(5) of the Excess Profits Tax Act was considered with its provisos, together with rule 4(4) of Schedule I, and read in the context of the company's memorandum of association. The company was authorised to acquire and deal with property only for the purposes of its business, not to carry on the business of constructing buildings for letting them out. The authorities relied on for the assessee were distinguished because, in those cases, the letting of the premises was itself within the objects of the company and formed part of its business. Here, the buildings were erected for the company's own business use and the portions let out were not shown to be part of the business activity contemplated by its constitution.

Conclusion: The letting of the buildings did not constitute the company's business, and the rental income and the corresponding cost of the buildings were rightly excluded from the computation of profits and capital under the Excess Profits Tax Act.

Ratio Decidendi: Where a company's constitutional objects do not authorise the business of constructing and letting buildings for profit, such letting is not business income for excess profits tax purposes and the cost of the let portion cannot be treated as capital employed in the business.

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