Lease rental under a rehabilitation scheme retains business income character when commercial assets are deployed for business revival.

Lease rental received under a BIFR-approved rehabilitation scheme was treated as business income because the plant, machinery and other business assets remained commercial assets deployed for revival of the sick industrial unit. The arrangement was not regarded as a mere passive letting out of property; instead, the assets were temporarily exploited under a statutory reorganisation plan intended to restore business operations. The character of the receipt was therefore determined from the standpoint of a prudent businessman and the facts of each assessment year. Applying the principles governing exploitation of commercial assets, the rental was taxable as business income and not as income from other sources.

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Issues: Whether lease rental received under the BIFR-approved rehabilitation scheme was assessable as business income or as income from other sources.

Analysis: The assessee had entered a statutory rehabilitation arrangement under the Sick Industries (Special Provisions) Act, 1985, under which its plant, machinery and other business assets were placed under an irrevocable lease for eight years to enable revival of the sick industrial unit. The arrangement was not treated as a mere passive letting out of property. The decisive factors were that the assets remained commercial assets, the scheme contemplated revival of the business, the assets were exploited in the course of the assessee's business plan, and the income had to be viewed from the standpoint of a prudent businessman on the facts and circumstances of each assessment year. Applying the settled principles governing exploitation of commercial assets, the receipt was held to be business income.

Conclusion: The lease rental was taxable as business income and not as income from other sources.

Final Conclusion: The appeals failed because the assessee's receipt arose from exploitation of commercial assets under a rehabilitation scheme intended to revive the business, and the Tribunal's view that the receipt was business income was upheld.

Ratio Decidendi: Where business assets are temporarily deployed under a statutory rehabilitation scheme with a genuine objective of revival, the receipts from such deployment retain the character of business income if the assets continue to be commercial assets and the arrangement is part of the business reorganisation.

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