TaxTMI 
TaxTMI 
1974 (5) TMI 13
X X X X Extracts X X X X
X X X X Extracts X X X X
....owever, be indicated. The assessee-company was incorporated on July 31, 1959, and closed its accounts on December 31, 1960. In the assessment year 1961-62, the assessee derived income from ground rent and the same was assessed under the head "Other sources". For the assessment years 1962-63 to 1964-65, the assessee claimed that the entire rental income should be assessed under the head "Business". The Income-tax Officer computed the total incomes for these years as under : 1962-63 1963-64 1964-65 Rs. Rs. Rs. Property ... 5,956 10,625 10,755 Business ... 113 -- 1,705 Interest ... -- 105 -- Other sources ... 2,339 -- -- --------- ---------- ------------ 8,408 10,730 12,460 Less : Business loss -- 966 -- Total income 8,408 9,764 12,460 While doing so, the Income-tax Officer treated the rental income either as from property or as from other sources. In appeal, the Appellate Assistant Commissioner has found that in the assessment year 1962-63, the assessee derived income from letting out factory sheds (assessed by the Income-tax Officer under the head " Property") and lease-rent from the letting out of the open plot of lands (assessed by the Income-tax Officer un....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essary for the manufacture and to prepare such articles. (3) To erect, construct and purchase or otherwise acquire any land, houses, buildings and premises, offices, workshops, factories and mills and any fixed or movable machinery, tools, engines, boilers, plants, implements patterns, stock-in-trade and patent rights convenient to be used in or about the trade or business of manufacturers of pipes, fittings, etc., engineers, founders, smiths or machinists, or for any other business of the company." It was pointed out that the assessee constructed factory sheds and also made electrical installations and the position as apparent from the balance-sheet was as under : Additions as on 31-12-1960 31-12-1961 31-12-1962 31-12-1963 Rs. Rs. Rs. Rs. Land and buildings 1,59,181 nil nil nil Factory sheds 25,566 38,180 nil 29,908 Electric installations 10,680 983 778 nil The Tribunal's attention was drawn to the letter from the Ministry of Steel and Heavy Industries, Government of India, approving the grant of licence for the import of plant and machinery valued at Rs. 11.75 lakhs for the manufacture of M. I. Pipe fittings and the import permit was available for a period of tw....
X X X X Extracts X X X X
X X X X Extracts X X X X
....It is further to be noted that when copies of the draft statement of the case were sent to the parties it was,pointed out by the assessee that the rent from its factory shed and electrical installations was claimed to be income from business or other sources and the assessee suggested without making any application that question No. 1 should be modified to bring out the true question and the Tribunal had in fact modified the said question No. 1 and the question No. 1 which has been referred to this court is the modified question as suggested by the assessee. Mr. B. L. Pal, learned counsel appearing on behalf of the department, has submitted before us that, on the basis of the findings recorded by the Tribunal, this court in answering the question No. 1 should hold that the rent received from the factory sheds and electrical installations belonging to the assessee was neither assessable under section 28 nor under section 56(2)(iii) of the Income-tax Act,, 1961, and the said income was only assessable under section 22 of the Act. Mr. Pal in this connection has drawn our attention to the relevant findings of the Tribunal on this aspect which are contained in paragraphs 3 and 7 of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s income by letting out the aforesaid properties. It is the submission of Mr. Pal that the income received by the assessee by letting out its factory shed and electric installations should be income from house properties under section 22 of the Act and the Tribunal should have proceeded, if necessary, to apportion the rent realised by the assessee by letting out the factory shed along with the equipment contained in it. Mr. Pal has, therefore, submitted that so far as the question No. 1 is concerned this court should answer that, so far as the rent received from the factory sheds is concerned, the same cannot be assessed either under section 28 or under section 56(2)(iii) of the Income-tax Act, 1961, and the said income realised from the factory sheds should be apportioned and should be assessed under section 22 of the Act. On the question No. 1 Mr. Pal has further submitted that in any event this court cannot hold and should not hold that the said income is the business income of the assessee as, according, to Mr. Pal, there is really no proper question on that aspect in the absence of any application by the assessee to the Tribunal. Mr. Pal has contended that the Tribunal should ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ources. On the facts found by the Tribunal in the instant case we are of the opinion that the Tribunal was justified in holding that the income derived by the assessee by way of rent from the factory, sheds and electric installations has to be assessed under section 56(2)(iii) of the Income-tax Act, 1961. The decision cited by Mr. Mukherjee, in our view, in the facts of the instant case are not of any great assistance. It is to be noted that in the instant case the clear finding of the Tribunal is that the manufacturing business by the assessee had not been started in the relevant years for want of certain machinery. As the assessee had not started its manufacturing business, it cannot be said that the assessee had derived its income by exploiting its commercial asset through other agencies. The Tribunal itself recognises that the position would have been entirely different if the assessee had already commenced business and had then let out the factory to other parties and under such circumstances the decision cited by Mr. Mukherjee would have been of considerable assistance. It is well settled that an assessee may exploit its commercial asset itself directly and also through oth....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ining Co. Ltd. v. Commissioner Of Income-tax and also to the decision of the Supreme Court in the case of Narain Swadeshi Weaving Mills v. Commissioner of Excess Profits Tax . He has also referred to the decision in the case of Inland Revenue Commissioners v. Broadway Car Co. (Wimbledon) Ltd. 3 and to the decision of the Supreme Court in the case of Karanpura Development Co. Ltd. v. Commissioner of Income-tax . Mr. Nirmal Mukherjee, learned counsel appearing on behalf of the assessee, has contended that it is well-settled that the object clauses in the memorandum of a company have to be liberally construed. It is his further contention that the fact is clearly established that the assessee-company had let out the surplus portion of non-factory buildings including the godowns after utilising the portions which the assessee actually needed for its business. Mr. Mukherjee had contended that, though the assessee-company had not commenced its manufacturing business, the assessee-company was undoubtedly carrying on its other business activities and in the course of its other business activities the assessee-company had been using the non-factory buildings and also its godowns. It is th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ss Profits Tax Act includes amongst others, any trade, commerce or manufacture or any adventure in the nature of trade, commerce or manufacture. The first part of this definition of a 'business ' in the Excess Profits Tax Act is the same as the definition of a business in section 2(4) of the Indian Income-tax Act. Whether a particular activity amounts to any trade, commerce or manufacture or any adventure in the nature of trade, commerce or manufacture is always a difficult question to answer. On the one hand it has been pointed out by the judicial Committee in Commissioner of Income-tax v. Shaw Wallace & Co. that the words used in that definition are no doubt wide bat underlying each of them is the fundamental idea of the continuous exercise of an activity. The word 'business'connotes some real, substantial and systematic or organised course of activity or conduct with a set purpose. On the other hand, a single and isolated transaction has been held to be conceivably capable of falling within the definition of business as being an adventure in the nature of trade provided the transaction bears clear indicia of trade. The question, therefore, whether a particular source of income i....