Business income treatment of rental receipts under excess profits tax where property letting forms part of the assessee's business activity.

Rental income received by a banking company from letting part of its building was treated as business profit chargeable to excess profits tax under the Excess Profits Tax Act, 1940. The majority held that the Act used "business" in a broader sense than the Income-tax Act, and that the bank's memorandum and actual use of the property showed exploitation of property as part of its business operations. Rule 4(4) of Schedule I was read as a computation provision that could bring receipts from letting property into taxable profits where the letting formed part of the business activity. The dissent would have confined business to the bank's core banking function and excluded mere surplus property letting.

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Issues: Whether rental income derived by a banking company from the letting out of a portion of its building was part of its business income chargeable to excess profits tax under the Excess Profits Tax Act, 1940.

Analysis: The majority held that the Act was not confined to the narrow sense of business under the Income-tax Act and that the bank's activities, as reflected in its memorandum of association and actual use of the building, included holding and exploiting property as part of its business operations. The first proviso to section 2(5) was treated as an enlarging provision for certain corporations, but not as the only source of business character under the Act. Rule 4(4) of Schedule I was read as a computation provision applying to businesses that consist wholly or partly in letting out property on hire, and the rental receipts were treated as business profits because the letting was connected with the bank's business activity. The dissent held that the bank's essential business was banking, that the proviso required the holding of investments or other property to be its wholly or mainly function, and that mere ownership and letting of surplus premises did not amount to such business.

Conclusion: The rental income was held to be part of the assessee's business profits and was liable to excess profits tax.

Dissenting Opinion: Kapur J. held that the income from rent was not business profit under the Act because the bank was not principally engaged in holding property or letting it on hire, and that rule 4(4) could not enlarge the statutory definition of business.

Final Conclusion: The appeal succeeded and the assessment to excess profits tax on the rental income was sustained.

Ratio Decidendi: Income from letting out property forms part of business profits under the Excess Profits Tax Act where the letting is undertaken as part of the assessee's business activity and the computation rule expressly brings such receipts into taxable profits, even if the income would fall under a different head for income-tax purposes.

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