Rental income from discontinued business assets taxed as property income where the business had wholly ceased.

Rent from factory buildings and godowns is assessable as income from property, not business income, where the assessee has wholly discontinued the underlying business and the property no longer forms part of an ongoing commercial undertaking. Although rent from a commercial asset may sometimes retain business character if the asset remains part of the business apparatus and is only temporarily let out, that principle does not apply when business activity has ceased entirely and the property is being exploited independently of any continuing trade. On these facts, the rental receipts fell under the property head and the Revenue's treatment was upheld.

---

---

Issues: Whether rent derived from letting out factory buildings and godowns, after the assessee had completely stopped its cotton pressing business, was assessable as business income or as income from property.

Analysis: The statutory scheme under the Indian Income-tax Act, 1922 separates income under distinct heads, including income from property under section 9 and profits and gains of business under section 10. Income derived from a commercial asset may be assessable as business income where the asset continues to be part of the business apparatus and is temporarily exploited by letting it out. However, the decisive question is whether, on the facts, the asset still retains the character of a commercial asset. Here, the assessee had discontinued its cotton pressing business altogether in 1950, decided to let out only the buildings, and intended to sell the machinery. The business activity had ceased totally, and the property was no longer part of an ongoing business undertaking.

Conclusion: The rent from the leased property was income from property and not business income; the answer was against the assessee and in favour of the Revenue.

Ratio Decidendi: Where business activity has wholly ceased and the property is no longer a commercial asset of an ongoing business, rent derived from its letting is taxable as income from property rather than as business income.

---