Leasing a running commercial asset can yield business income, and mere cessation of business does not dissolve a firm.

Leasing a running oil mill for a limited period, with the lessee allowed to use the mill name and existing licences, was treated as exploitation of a commercial asset; the rental receipt was held to be business income rather than income from other sources. On the partnership issue, mere cessation of business did not amount to dissolution, and in the absence of a lawful dissolution or use of the cancellation machinery, the firm was held to continue for tax purposes. The assessee was therefore entitled to continuation of registration under section 184(7), and the assessments were to be framed in the status of a registered firm.

---

---

Issues: (i) Whether the rent received from leasing out the oil mill was assessable as business income and not as income from other sources. (ii) Whether the firm had ceased to exist so as to disentitle it to continuation of registration under section 184(7) of the Income-tax Act, 1961.

Issue (i): Whether the rent received from leasing out the oil mill was assessable as business income and not as income from other sources.

Analysis: The lease was for a limited period and the mill was let out as a running commercial concern, with the lessee permitted to use the mill name and operate under the existing licences. The arrangement showed exploitation of a commercial asset rather than a permanent transfer of the asset itself. The character of the receipt was not altered by the fact that it was a fixed annual amount or that it had been assessed differently in earlier years. The use of a commercial asset by leasing it out can still yield business income where the owner retains the option of running the concern itself.

Conclusion: The receipt was business income, not income from other sources, and this issue was decided in favour of the assessee.

Issue (ii): Whether the firm had ceased to exist so as to disentitle it to continuation of registration under section 184(7) of the Income-tax Act, 1961.

Analysis: The existence of a partnership depends on the contractual relation between the partners and its dissolution can occur only in accordance with the modes recognised by the Partnership Act. Mere cessation of business does not, by itself, dissolve the firm. The statutory scheme under section 184(7) required only that there be no change in constitution or profit-sharing ratio, while section 185 contemplated grant of continuation of registration upon a valid declaration. The Revenue did not invoke the cancellation machinery under section 186. Since no lawful dissolution had taken place, the firm continued to exist for tax purposes.

Conclusion: The firm remained in existence and was entitled to continuation of registration under section 184(7); this issue was decided in favour of the assessee.

Final Conclusion: The assessee was entitled to continuation of registration for both assessment years, and the assessments had to be reframed in the status of a registered firm.

Ratio Decidendi: Leasing a running commercial asset on terms that preserve its character as a business undertaking does not cease its character as business income, and cessation of business does not amount to dissolution of a partnership firm unless dissolution occurs in the manner recognised by law; continuation of registration under section 184(7) depends on the statutory conditions alone.

---