Commercial asset leasing remains business income when the asset retains its business character and is merely exploited through letting.

Income from leasing a commercial asset remains business income where the asset retains its commercial character and the lease is a mode of exploiting that asset; temporary letting alone does not convert it into income from other sources. On the stated facts, the rice mill and cinema theatre continued to be commercial assets, so the lease receipts were taxable as business income. Because the assessee retained an interest in the business assets and equipment, the basis for denying registration did not survive, and continuance of registration was upheld.

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Issues: (i) Whether income derived from leasing out the rice mill and cinema theatre was assessable as business income or as income from other sources; (ii) whether the assessee-firm was entitled to continuance of registration.

Issue (i): Whether income derived from leasing out the rice mill and cinema theatre was assessable as business income or as income from other sources

Analysis: Income from letting out a business asset is taxable as business income where the asset continues to be a commercial asset and the letting amounts to exploitation of that asset. The decisive factor is the intention gathered from the lease terms and surrounding circumstances, and temporary leasing does not by itself destroy the commercial character of the asset. On the facts found, the leased assets did not cease to be commercial assets.

Conclusion: The income was assessable as business income and not as income from other sources.

Issue (ii): Whether the assessee-firm was entitled to continuance of registration

Analysis: Once the income from the assets was held to be business income and the assessee retained interest in the business assets, the basis for refusing continuance of registration did not survive. The finding that the assessee had interest in the business and its equipment supported continuation of registration.

Conclusion: The assessee-firm was rightly granted continuance of registration.

Final Conclusion: The reference was answered in favour of the assessee on both questions, affirming business-income treatment of the lease receipts and the continuance of registration.

Ratio Decidendi: Income from leasing a commercial asset remains business income where the asset continues to retain its commercial character and the lessor's intention, gathered from the lease and surrounding circumstances, is to exploit the asset as part of the business.

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