1988 (4) TMI 39 - HC - Income Tax

Leasing of heavy equipment: hiring income characterised as business not other sources, assessed accordingly for tax relief.

Income from hiring a bulldozer was characterised as income from business rather than income from other sources on the basis that leasing machinery is a ... Adventure in the nature of trade - Characterisation of income - Commercial asset leasing - income from ' business ' - Whether, the income derived from hiring of bulldozer is assessable under the head 'Business ' or 'Other sources'? - HELD THAT:- It was explained once again in the case of New Savan Sugar and Gur Refitting Company Limited case [1969 (2) TMI 7 - SUPREME COURT], where the Supreme Court observed that in the case of Lakshmi Silk Mills Ltd. [1951 (9) TMI 1 - SUPREME COURT], only a part of the machinery was let out on lease and that too only for a short period. The present case must be governed by the case of Lakshmi Silk Mills Ltd. and not by that of New Savan Sugar & Gur Refining Co. Ltd. The proposition that rental income from leasing is not income from business is too wide proposition to be accepted. Leasing of machinery has become quite common in these days. It is now a well-established form of activity for earning profit. It cannot be contended that leasing out of an equipment and the income derived therefrom is not business or income from business. Income from leasing out of machinery must be held to be income from 'Business ' on the authority of CEPT v. Lakshmi Silk Mills Ltd. [1951 (9) TMI 1 - SUPREME COURT]. It is true that in the instant case the assessee had not commenced its business of production of mosaic tiles. That, however, could not make much difference as the tile factory was passing through period of gestation. While some assets were lying idle, the assessee thought of making the best use out of them. In my view, this was an activity of the nature of business, and hence it was an adventure in the nature of trade/commerce. Thus, failed to find substance in the submission urged by senior standing counsel. In my concluded opinion, the income from leasing out of the bulldozer, was income from an adventure in the nature of trade which has been characterised as business by section 2(13) of the Income-tax Act. The income of the assessee from leasing the bulldozer must be assessed as such. It was not income from ' Other sources '. It could not be assessed as such. It is thus clear that the income derived from the hiring of bulldozer was assessable under the head ' Business ' and not ' Other sources '. The question referred to this court by the Tribunal must be answered accordingly in favour of the assessee and against the Revenue with costs. Issues Involved:1. Whether income from leasing of bulldozer constitutes income from 'business' or 'other sources.'Summary:Issue: Whether income from leasing of bulldozer constitutes income from 'business' or 'other sources.'The case involves four references u/s 256(1) of the Income-tax Act concerning the assessment years 1970-71 to 1973-74. The primary question is whether the income derived from hiring a bulldozer by the assessee is assessable under the head 'Business' or 'Other sources.'The assessee, a private limited company incorporated in June 1967, aimed to carry on business as engineering and building contractors and to manufacture tiles. While setting up a tile factory, the company purchased a bulldozer for Rs. 2 lakhs, which was let out to M/s. Hyderabad Investment Trust Ltd. for Rs. 12,000 per month. The Income-tax Officer initially accepted this income as business income, but the Appellate Assistant Commissioner and the Tribunal later classified it as income from 'other sources.'The Tribunal found no evidence that the bulldozer was acquired as a commercial asset. It was seen as a prudent investment during the factory's gestation period. The Tribunal concluded that the hiring of the bulldozer was not an adventure in the nature of trade, as the company merely earned hire charges without bearing maintenance expenses.The court examined the definition of 'business' u/s 2(13) of the Income-tax Act, which includes any trade, manufacture, or adventure in the nature of trade. It referenced several Supreme Court cases, including G. Venkataswami Naidu & Co. v. CIT [1959] 35 ITR 594 and Sultan Brothers Pvt. Ltd. v. CIT [1964] 51 ITR 353, to determine whether a single transaction could be considered an adventure in the nature of trade.The court concluded that the leasing of the bulldozer was an adventure in the nature of trade. The company had varied objectives, including dealing in plants and machinery. The bulldozer was purchased with idle capital and leased out to earn profit, indicating a business activity. The court distinguished this case from others where entire businesses were leased out, such as New Savan Sugar & Gur Refining Co. Ltd. v. CIT [1969] 74 ITR 7 (SC).The court held that the income from leasing the bulldozer was assessable under the head 'Business' and not 'Other sources.' The question was answered in favor of the assessee, with costs awarded to the assessee.