TaxTMI 
TaxTMI 
TaxTMI 
1987 (2) TMI 124
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....d invested in the purchase of new plant and machinery as part of expansion program of the rice mill. On the purchase of new plant and machinery, the assessee claimed the following amounts: "1981-82 1982-83 Rs. Rs. (a) Investment allowance under section 32A 11,551 1,158 &nb....
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....he lease income is only by way of rent for the assets leased out and does not partake of the nature of profits and gains derived from an industrial undertaking. Deduction under section 80HHA also was found to have been wrongly allowed in view of the fact that the assessee was only leasing out the mill along with other co-owners and was never engaged in the running of small-scale industrial undertaking. In this view of the matter, he directed the Income-tax Officer to redo the assessment afresh in accordance with law. 4. Sri K. R. Krishnamurty, the learned representative of the assessee, submitted that the assessee did not inherit the mill as a property. On the other hand, he along with other members of two families to one of which he belongs, purchased Sri Sesharatna Rice Mill with the obvious intention of leasing it out and, therefore, leasing constituted a business activity in the hands of the assessee. This is not a case of leasing out the mill for a temporary period after working it. The cases relied on by the Commissioner of Income-tax to hold that leasing is not a business activity are all cases wherein the asset was used as a commercial asset for some time in the business a....
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....n, he submitted that the assessee never worked the mill by himself. He is only a co-sharer and it was the lessee, viz., the partnership firm which was running the mill and, therefore, the assessee is not carrying on any business activity as such. Investment allowance is admissible only when the asset is owned by the assessee and wholly used for the purposes of the business carried on by him. The assessee as co-owner did not carry on any business. He was only collecting lease rent and enjoying his share therefrom and, therefore, there was absolutely no case for grant of investment allowance. Regarding relief under section 80J, he submitted that profits and gains must be derived from the industrial undertaking and the relief is calculated as a percentage on the capital employed in the industrial undertaking or on the profits of the business. The assessee as a co-owner did not derive any profit or gain as such from an industrial undertaking and, therefore, the Commissioner rightly withdrew the relief granted. Regarding the claim under section 80HHA, he submitted that here again, the assessee will be entitled to deduction only if the income included profits and gains derived form a sma....
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....ed before us and as per records, it appears that the assessee along with some others had purchased Sri Sesharatna Rice Mill with the obvious intention of leasing out the same from time to time. This is proved by the conduct of the assessee right form the beginning. This is not a case of the assessee having exploited the commercial asset himself for some time and started leasing out the same after closure of business. Thus, the cases relied on by the learned Commissioner are distinguishable. The very business of the assessee, though partly owned, as a co-sharer. The assets are used in the business of leasing as the plant and machinery were installed in the leased premises. The lease agreement also covers all the machinery and plant installed in the premises. The mill is engaged in manufacturing activity as it converts paddy into rice. This is not a case of idle leasing. The assessee himself, as a partner of the lessee, is exercising control and supervision over the leased property. Therefore, all the conditions stipulated in section 32A of the Act are fulfilled in the case of the assessee. In its order in the case of ITO v. Sri Kancherla Srinath [IT Appeal No. 354 (Hyd.) of 1984 dat....
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....rt in the case cited supra, in which, as per head notes, it was held that in hearing the appeal, the Tribunal may give leave to the assessee to urge grounds not set for the in the memorandum of appeal and in deciding the appeal, the Tribunal is not restricted to the grounds set froth in the memorandum of appeal or taken by leave of the Tribunal. The Tribunal is not precluded from adjusting the tax liabilities of the assessee in the light of its findings merely because the findings are inconsistent with the case pleaded by the assessee. Therefore, we reject the contention of Shri Santhanam in this behalf. 10. As we have held that the lease income received by the assessee constituted business income and in the light of our discussions as detailed above, we hold that the assessee is entitled to the grant of investment allowance under section 32A of the Act and thus reject the arguments of Shri Santhanam that the assessee is eligible for the deductions specified in section 57. 11. Section 80J operated from the gross total income of the assessee for the assessment year 1980-81 and section 80-I for the assessment year 1981-82. The gross total income must include any profits and gains d....