Factory Rental Income Deemed Business Income: Legal Precedents and Factual Analysis Prevail

The High Court held that the rental income derived by the assessee from leasing out a part of the factory building constituted business income. Despite the temporary lease, the main part of the factory was still used for business activities, supporting the commercial nature of the lease. Legal precedents and factual considerations favored this classification, leading to the rejection of the Revenue's appeal.

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Issues Involved: Determination of whether rental income derived by the assessee-company from letting out a part of the factory building constitutes 'business income' for assessment years 1971-72, 1973-74, and 1974-75.

Summary:
The assessee, a private limited company engaged in manufacturing rubber goods, faced financial difficulties due to losses and quality issues. To curtail losses, a portion of the factory building was leased out. The Income-tax Officer initially treated the rental income as income under the head "Property" for 1971-72 but accepted it as business income for 1972-73. However, for 1973-74 and 1974-75, the rental income was not accepted as business income by the Income-tax Officer. The Appellate Assistant Commissioner ruled in favor of the assessee, considering the rental income as business income. The Tribunal upheld this decision, emphasizing that leasing out a part of a commercial asset temporarily does not change its nature. The main part of the factory building was still used for business activities. The High Court concurred, citing precedents and the commercial motivation behind the lease. The rental income was deemed as business income, and the question was answered against the Revenue.

In conclusion, the High Court affirmed that the rental income derived by the assessee from letting out a part of the factory building constituted business income based on the commercial nature of the lease and the specific circumstances of the case. The decision was supported by legal precedents and factual considerations, leading to the rejection of the Revenue's appeal.

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