Business income from temporary factory letting allowed, with set-off of brought forward business loss

Temporary letting of a sugar factory and allied assets under a collaboration arrangement was treated as exploitation of a commercial asset for business purposes, because the premises were used to carry on manufacturing activity and the agreement did not provide for sharing profits or losses. The receipts were therefore characterised as business income rather than income from other sources. On that basis, brought forward business loss was also allowable to be set off against the current year income.

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Issues: Whether the receipts from temporary letting out of the sugar factory and allied charges were assessable as business income or income from other sources, and whether the brought forward business loss could be set off against the current year income.

Analysis: The arrangement with the other concern was found to be a collaboration agreement for temporary use of the factory premises and assets to carry on manufacturing activity, without any clause for sharing of profits or losses. The factory remained a commercial asset, and the arrangement was entered into to tide over financial , reconstruct the business, and exploit the full potential of the undertaking. On these facts, the receipts were held to be part of the business receipts and not passive income from other sources. Once the income was treated as business income, the set-off of brought forward business loss was also admissible.

Conclusion: The receipts were taxable as business income and not as income from other sources, and the set-off of brought forward business loss was allowable, in favour of the assessee.

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