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Issues Involved: Determination of the appropriate head for assessing income derived from letting out a factory building - whether under the head "Business" or "House property".
Summary: The High Court of Madras addressed the issue of assessing income derived from letting out a factory building under the head "Business" or "House property". The assessee, a textile manufacturing company, had constructed a factory building within its compound and let it out to its subsidiary for running a textile mill. The Revenue contended that the income should be assessed under the head "Income from property", while the assessee argued it should be treated as part of income from business. The Appellate Tribunal sided with the assessee, prompting the Revenue to raise the question for reference. The Revenue argued that since the assessee did not use the building as a factory itself, it could not be considered as exploiting the property as a commercial asset. Citing various decisions, the Revenue emphasized that income derived from simply letting out a property should be assessed under the head "Income from property", regardless of the tenant being a subsidiary. In contrast, the assessee relied on precedents to support the view that a commercial asset could be exploited by letting it out, especially when the assessee finds it inconvenient to utilize it in its own business. The assessee maintained that since the Tribunal had found the asset to be a commercial asset, the income should be assessed under the head "Income from business". The Court referred to established principles, including the need to assess each case from a businessman's perspective to determine if the letting was a business activity or property exploitation. It noted that in cases where the asset is let out for a specific business purpose, such as in this scenario where the factory was let out to a subsidiary for textile manufacturing, the income should be assessed under the head "Income from business". The Court concurred with the Tribunal's view and held that the income derived by the assessee should indeed be assessed under the head "Income from business", ruling in favor of the assessee with costs. This judgment clarifies the distinction between income derived from a simple property letting and a letting with a business purpose, emphasizing the context and purpose of the letting arrangement in determining the appropriate head for income assessment.
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