TMI Blog1994 (9) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... eased out?" The assessee-company owned a factory in Faridabad, wherein it had installed machinery, etc., for manufacturing various items of iron and steel including heavy castings. The accounting year of the assessee-company ends every year on March 31. It started manufacturing operations for the first time on December 28, 1968. The manufacturing was done by the company up to May 31, 1970. Thereafter, it was decided by the aforesaid company that it should lease out the factory building, machinery, etc., to a sister concern to begin with for a period of one year. The circumstances under which and the terms and conditions on which the aforesaid properties were leased were contained in the lease deed dated June 1, 1970. In terms of the said lease deed, the company had mortgaged its building and plant, etc., to Messrs. Haryana State Financial Corporation for a sum of Rs. 12 lakhs whereon it had to pay interest at 9 1/2 per cent., besides it had various other creditors to whom it had to pay interest at 10 to 15 per cent. The assessee also needed more finance to the tune of Rs. 15 lakhs to meet the cost of furnace and rolling mills already ordered for being set up in the existing premi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded by another term of eight months, i.e., from January 1, 1976, to August 31, 1976, on the existing terms and conditions and the lessee, Messrs. Northern India Finance Company, be informed accordingly." It was further resolved that : " In no case any further extensions will be allowed as, time to time, extension was allowed only in view of the pendency of execution of contract of Beas Purchase Organisation." The assessee had tendered for supplying heavy castings and other machinery to Beas Project Works some time in 1973 and the tender of the assessee-company was accepted in October, 1973. The assessee placed an order for manufacturing the said heavy castings with the lessee firm which manufactured the same in the factory premises of the assessee-company and it was in this connection that the lease was being extended after 1973 in favour of the lessees with a view to enable them to manufacture the aforesaid heavy castings so that the lessor could supply them to the Beas Project Authorities. In terms of the lease deed, the assessee received the sum of Rs. 8,80,000 during the accounting period relevant to the assessment year 1971-72 from the lessees as lease rent. Before t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... temporarily it had changed its mode of doing the business. The commercial assets of the assessee continued to belong to it, which were leased to earn income. While we are in agreement with this conclusion, it is also necessary to point out that the stock-in-trade, etc., sold to the lessee, as on the date of the lease deed was an inevitable consequence of the lease and from that it cannot be inferred that the assessee had decided to close its business. The fact that the machineries were installed even after the lease, is a factor indicative of the assessee's intention to take up manufacturing activity in the near future. The decision of the Supreme Court in New Savan Sugar and Gur Refining Co. Ltd.'s case [1969] 74 ITR 7 is based on the particular facts of the said case. The lessee in the said case was permitted to set up additional machinery without interference from the lessor (vide page 14). The cumulative effect of the several clauses of the lease deed, was that the lessor had no intention to treat the factory and machinery, etc., as a commercial concern during the subsistence of the lease. The lessor (assessee) ceased to carry on any business, and it seems the assessee's on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ausible conclusion has been drawn, no objection can be taken. On that basis, applying the correct principle, the Tribunal found that the intention was not to part with the machinery but to lease it out for a temporary period as a part of exploitation. In such a circumstance, it cannot be said that no business was carried on and the income derived from the machine letting was only a rental income. There was a temporary suspension of business for a temporary period with the object of tiding over the crisis condition. There was never any act indicating that the assessee never intended to carry on the business. In the background of these principles and in the facts and circumstances of the case so found, we cannot say such a finding was either perverse or not sustainable." In the instant case, initially the lease was only for one year. Subsequently, it was renewed in view of the assessee's financial requirements. The total period of the lease was about six years. The assets were commercial assets and when the assessee had to supply articles to the Beas Project, it got them manufactured in the very factory. From this it is also clear that the assessee continued in business. The su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... At page 96, the court held : "The capital asset, namely, the ship, plant or machinery, should be owned by the assessee during the relevant accounting year and wholly used in the business carried on by the assessee during the previous year in question. There must exist unity of ownership and user in the business. The emphasis for entitlement to rebate accrues from the use of the machinery or the plant by the owner for the purpose of its business resulting in the manufacture of the goods or services. It is not the owner ship of the goods or the resultant end-product of the raw materials used that is relevant. The only relevant consideration is that, during the previous year or part of the relevant period, ownership of the asset shall remain with the assessee. Only the successor in interest of the business, in accordance with the provisions of the Act, so long as the twin requirements under section 33(1) are fulfilled, is entitled to the benefit. But, when the unity of ownership and use of the asset in the business are disrupted or a branch of an earlier business is taken over by a new firm which exists simultaneously with the other branches of the old business, the benefit of deve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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