Court rules leasing income from machinery not used for manufacturing as other income, not business income.

The court held that income from leasing machinery, not used for manufacturing, should be assessed as income from other sources, not business income. The court emphasized that merely acquiring an asset for manufacturing does not make it a commercial asset unless used for that purpose. Citing precedents, the court concluded that the machinery, never used for manufacturing, cannot be deemed a business asset. Therefore, the income was assessed as from other sources, ruling in favor of the Revenue and against the assessee, with no costs awarded.

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Issues Involved:
1. Whether the income received from the lease of machinery should be assessed as income from business or income from other sources.

Summary:

1. Facts and Circumstances:
The assessee-company, incorporated to carry on the business of producing, cultivating, and manufacturing tobacco products, leased out its machinery for Rs. 6,000 per month without using it for manufacturing. The Income-tax Officer assessed the income from leasing under the head "Other sources," a decision upheld by the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal.

2. Assessee's Contention:
The assessee argued that the non-starting of manufacturing does not negate the machinery's status as a commercial asset. They cited the Supreme Court decision in CEPT v. Shri Lakshmi Silk Mills Ltd. [1951] 20 ITR 451, which held that the yield of income by a commercial asset is business income, irrespective of how it is exploited.

3. Revenue's Contention:
The Revenue contended that without manufacturing activity, the asset lacks the incidence of a commercial asset, thus the income should not be assessed under "Business."

4. Case Law Analysis:
- CEPT v. Shri Lakshmi Silk Mills Ltd. [1951] 20 ITR 451 (SC): The Supreme Court held that a commercial asset temporarily let out retains its commercial character.
- Addl. CIT v. Rajindra Flour & Allied Industries P. Ltd. [1981] 128 ITR 402 (Delhi): The Delhi High Court ruled that leasing out a factory due to business constraints still constitutes a business activity.
- CIT v. Northern India Theatres (P) Ltd. [1981] 128 ITR 497 (Delhi): The lease of a cinema house was considered business income due to the commercial exploitation of the asset.
- CIT v. Aryan Industries (P.) Ltd. [1982] 138 ITR 718 (AP): The Andhra Pradesh High Court emphasized the importance of retaining the asset's commercial character.
- CIT v. Ajmera Industries Pvt. Ltd. [1976] 103 ITR 245 (Cal): The Calcutta High Court held that rental income from an asset not used for manufacturing could not be considered business income.

5. Court's Conclusion:
The court concluded that the mere acquisition of an asset for manufacturing does not make it a commercial asset unless it is used for that purpose. In this case, the machinery was never used for manufacturing, thus it cannot be considered a business asset. The court distinguished the present case from others where assets were temporarily leased out during a lull in business activity.

6. Final Judgment:
The income from the lease of machinery should be assessed as income from other sources. The question was answered in favor of the Revenue and against the assessee. No costs.

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