TMI Blog1968 (8) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... hether, on the facts and in the circumstances of the case, the assessment of the sum of Rs. 6,489 under section 12 instead of section 10 of the Income-tax Act, 1922, is justified in law ? " At the relevant time, the assessee was a firm of partnership carrying on a business of running a powerloom factory at Madurai with 12 powerlooms. The assessee manufactured handloom cloth for a number of years and for that purpose he used fixed assets consisting of machinery and buildings at No. 28, Chairman Muthuramier Road, Madurai. The business was carried on up to April 12, 1954, and thereafter the manufacturing was stopped, with the result that the machinery and buildings were lying idle. With effect from November 1, 1956, the powerlooms were, howe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of manufacture of handloom cloth but leased out the powerlooms with the allied equipments as from November 1, 1956. The assessee himself did not use the capital assets for manufacturing cloth but leased out the same and obtained income. In the circumstances, therefore, the revenue as well as the Tribunal thought that income from leasing out the powerlooms was not income from business. The second agreement has has been styled by the parties as a deed of agreement of agency. That by itself may not be of much significance. By that agreement, the assessee appointed the second party as his managing agent for a period of nine years from April 1, 1958. As the second party was already in possession of the powerlooms as the managing agent of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and subject only to the payment to the first party of the profits guaranteed to him under clause 9. That clause provided that the second party guaranteed a net profit of Rs. 650 only per month to the first party, which should be a fixed one not subject to any variation at any time during the period of the agreement of agency. The second party should meet all the public charges. A further provision in the agreement was that the licence, for all the installations should stand in the name of the first party, though the second party should be entitled to make such applications, appeals and the like and sign such papers as may be necessary for the purpose of obtaining or renewing the necessary permits for the running of the looms in the name ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the machinery was being kept in a good condition. The intention of the parties as expressed being one to create the relationship of principal and agent in relation to the working of the looms, we do not see why we should read the document as a lease, unless there are circumstances which will justify such a view. It is true that the second party has been put in possession. But that is explainable, because even as an agent or managing agent, to commission the powerlooms and run the same, he would have to be put in possession. The fixed payment of a monthly profit of Rs. 650 has been strongly relied on for the revenue and it is contended that this shows that the assessee has no interest in the outcome of the business of running a powerloom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee in that case acquired a ginning factory and made additions thereto, running the factory till a particular period and at the end of it, leased it out on an annual basis. For the assessment year 1952-53, the Income-tax Officer assessed the depreciation amount allowed as a profit of the business, rejecting the contention of the assessee that the lease amount was not a profit assessable under section 10(2) of the Indian Income-tax Act but was only assessable under section 12 and hence the second proviso to section 10(2)(vii) did not apply. The Punjab High Court, referred to a number of decided cases and concluded that what, in such circumstances, the court had to decide was whether, in the facts and circumstances found by the Income-tax Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or supervising the business himself he may as well agree with the agent that he may look after and carry on the business but on a guaranteed profit. We do not see why, in such circumstances, notwithstanding the fixed guaranteed payment, the activity is not business or loses its character as a business. Mr. Balasubramanyan next contended that the subject-matter of the agreement is not the business but only the looms and their accessories, more especially when the assessee had stopped the business of manufacturing handloom cloth some years earlier to the agreement. We think that this is not a proper reading of the terms of the agreement. They clearly show that the powerlooms have been put into the hands of the second party in order that he ..... X X X X Extracts X X X X X X X X Extracts X X X X
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