1977 (8) TMI 45 - HC - Income Tax

Income from machine leasing assessed as business income by Tribunal, ruling in favor of assessee

The Tribunal determined that the income earned by the assessee from hiring out its machines was assessable as business income. The Tribunal considered the ... Income From Business, Manufacturing Concern Issues Involved:1. Whether the income earned by the assessee by giving on hire its machines was assessable as business income.2. Whether the rent income or the hire charges of the machine received by the assessee from M/s. Jasmine Mills Pvt. Ltd. was assessable as income from business.Summary:Issue 1: Income from Hire of Machines as Business IncomeThe Tribunal was tasked with determining whether the income of Rs. 10,600 earned by the assessee by giving on hire its machines was assessable as business income. The assessee, a private limited company engaged in the manufacture and sale of art silk cloth, imported two machines and installed them at the premises of its sister concern, M/s. Jasmine Mills Pvt. Ltd., under a lease agreement. The Income-tax Officer initially considered the income as 'income from other sources,' but the Appellate Assistant Commissioner and subsequently the Tribunal held it as 'business income.' The Tribunal found that the machines could be used in the assessee's business and were let out due to the lack of air-conditioning facilities at the assessee's premises. The Tribunal relied on the object clause 3(o) of the memorandum of association and the legal precedent set in Commissioner of Excess Profits Tax v. Shri Lakshmi Silk Mills Ltd. [1951] 20 ITR 451 (SC), concluding that the income from hiring out the machines was business income.Issue 2: Rent Income from Sister Concern as Business IncomeFor the subsequent assessment years 1969-70 and 1970-71, the Tribunal addressed whether the rent income or hire charges received from M/s. Jasmine Mills Pvt. Ltd. was assessable as business income. The Tribunal reiterated its findings from the previous year, emphasizing that the lease agreement terms indicated a temporary arrangement and the machines were used in a business identical to the assessee's. The Tribunal also noted that the assessee retained priority rights over the machines and had the option to terminate the lease. The Tribunal applied the legal principles from Shri Lakshmi Silk Mills Ltd. [1951] 20 ITR 451 (SC) and New Savan Sugar & Gur Refining Co. Ltd. v. Commissioner of Income-tax [1969] 74 ITR 7 (SC), affirming that the income from leasing the machines was business income.Conclusion:The Tribunal's decision was based on the finding that the machines were commercial assets of the assessee, temporarily let out due to practical constraints, and the income derived from such leasing was part of the business income. Both references were answered in the affirmative, in favor of the assessee and against the revenue, with the revenue directed to pay the costs of the assessee in each case.