1986 (3) TMI 29 - HC - Income Tax

High Court affirms Tribunal decisions on jute mill income classification, enabling set-off of losses.

The High Court upheld the Tribunal's decisions for the assessment years in question. The income from the first lease of the jute mill was classified as ... Carry Forward, Developement Rebate Issues Involved:1. Classification of income from letting out the jute mill.2. Entitlement to carry forward and set off unabsorbed depreciation and losses.Summary:Issue 1: Classification of Income from Letting Out the Jute MillThe assessee, Premchand Jute Mills Ltd., let out its jute mill under two separate leases. For the assessment years 1968-69 and 1969-70, the Tribunal held that the income from the first lease should be assessed as business income u/s 28 of the Income-tax Act, 1961, following the precedent set in CIT v. Prem Chand Jute Mills Ltd. [1978] 114 ITR 769. The Tribunal noted that the first lease included clauses ensuring the mill's commercial character, and thus, the income was deemed business income. However, for the assessment years 1970-71 and 1971-72, the Tribunal found that the second lease indicated an intention to earn rental income rather than exploiting the mill as a commercial asset. Consequently, the income was classified as 'Income from other sources' u/s 56.Issue 2: Entitlement to Carry Forward and Set Off Unabsorbed Depreciation and LossesFor the assessment years 1968-69 and 1969-70, the Tribunal allowed the set-off of unabsorbed depreciation and losses against the business income from the first lease. For the assessment years 1970-71 and 1971-72, despite classifying the income as 'Income from other sources,' the Tribunal allowed the set-off of unabsorbed depreciation from earlier years, citing sections 56(2)(ii), 57(ii), and 32(2) of the Act. The Tribunal referenced CIT v. Jaipuria China Clay Mines (P.) Ltd. [1966] 59 ITR 555 to support this view, emphasizing that the scheme of the Act permits such deductions to maintain consistency in the written down value of assets.Court's Decision:The High Court upheld the Tribunal's decisions for both sets of assessment years. For 1968-69 and 1969-70, the income was rightly assessed as business income, allowing the set-off of unabsorbed depreciation and losses. For 1970-71 and 1971-72, the court affirmed that unabsorbed depreciation could be set off against rental income classified as 'Income from other sources,' aligning with the legislative intent and avoiding anomalies in the written down values of assets.Conclusion:The High Court answered all questions in the affirmative and in favor of the assessee, confirming the Tribunal's findings and interpretations of the relevant sections of the Income-tax Act, 1961. There was no order as to costs.