1976 (3) TMI 83 - AT - Income Tax

Summary

Issues Involved:
1. Classification of income from letting out godowns: "business" income or "house property" income.

Detailed Analysis:

1. Classification of Income from Letting Out Godowns:

The primary issue in this appeal is whether the income received from letting out godowns should be assessed under the head "business" or "house property."

Facts and Background:
- The assessee is a limited company previously engaged in rice milling, which ceased operations and let out its godowns.
- The Income Tax Officer (ITO) assessed the rent income as income from house property, a decision upheld by the Appellate Assistant Commissioner (AAC).

Arguments:
- The assessee argued that letting out the godowns was part of its business activities and should be treated as business income.
- The Departmental Representative contended that the facts were similar to the case of Tripurasundari Cotton Mills Ltd. (62 ITR 193), where the income was not considered business income.

Analysis:
- The Tribunal examined the nature of the asset and the activity of the assessee.
- The godowns were used for commercial storage, indicating that they are commercial assets, similar to machinery or factories.
- The Tribunal distinguished the present case from Tripurasundari Cotton Mills Ltd., noting that the latter involved a complete cessation of business and sale of machinery, whereas the assessee in the present case continued to exploit the godowns commercially.

Legal Precedents:
- Several cases were cited to support the view that income from leasing commercial assets is business income:
- CIT vs. Managalagiri Shri Umamaheswara Gin & Rice Factory Ltd. (AIR 1926 Mad. 1032)
- In re Sudhacharan Roy Chowdary (3 ITR 114)
- Bosotto Bros., Ltd. (8 ITR 41)
- CIT vs. National Mills Ltd. (34 ITR 155)
- Laxmi Industries (P) Ltd. (41 ITR 645)
- Ram Mohandeo Prasad vs. CIT (42 ITR 211)
- Dalchand & Sons vs. CIT (69 ITR 247)

Commercial Exploitation:
- The Tribunal emphasized that the commercial exploitation of the godowns, through short-term leases to various parties, indicated an ongoing business activity.
- The Supreme Court's decision in CIT vs. National Storage Pvt. Ltd. (66 ITR 596) was particularly relevant, as it involved letting out godowns with special facilities, which was deemed a business activity.

Company's Intention and Control:
- The Tribunal noted that the assessee had not permanently ceased business, had not sold its machinery, and was not under liquidation.
- The frequent changes in licenses and the control over the godowns suggested active business management.

Supreme Court's Guidance:
- The Supreme Court's decision in S.G. Mercantile Corporation, Pvt. Ltd. vs. CIT (83 ITR 700) was also cited, where letting out shops and stalls was considered a business activity.
- The Supreme Court emphasized that a limited company is presumed to carry on business unless shown otherwise.

Conclusion:
- The Tribunal concluded that the assessee was exploiting the godowns as a commercial asset and that the income should be assessed as business income.
- The appeal was allowed, recognizing the income from letting out godowns as business income.

Final Judgment:
- The appeal by the assessee is allowed, and the income from letting out godowns is to be assessed under the head "business."