TMI Blog1972 (8) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... tudio building was rented to a cotton merchant to be used as a cotton godown. In the previous years relevant,to the assessment years 1959-60, 1960-61 and 1961-62 the company carried on the business of distribution of pictures and earned income by way of commission on the collections. In the said three years the assessee claimed the following sums as deduction: Rs. 1959-60 23,000 1960-61 22,500 1961-62 19,722 The said amounts represented the irrecoverable part of the rent from the producers who had taken the assessee's studio on rent for production of pictures. The Income-tax Officer disallowed the said claim on the ground that the claim related to a business which had been completely wound up, that the business of distribution of pictures was different from production of films, and that the business of production was not in existence in these years. The assessee appealed to the Appellate Assistant Commissioner, who allowed the claim stating: " The appellant-company was renting out its studios and machinery for film producers. The losses that are partly written off are rental dues from these producers. The studios' immovable properties are still being rented out to a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n ? " From the facts set out earlier, it is seen that the assessee-company did not carry on its business of producing films after the assessment year 1957-58, that they let out the studio for production of pictures to third parties for some time, that they had sold all the machineries pertaining to the film production during the assessment year 1958-59 and had let out the studio building to a cotton merchant for using it as a godown, and that, thereafter, the assessee carried on the business of distribution of films and earned income by way of commission on the collections up to the assessment year 1961-62. But, the distribution of films has nothing to do with the original business of production of films which required the use of the studio building and the machinery. Therefore, it has to be taken that the assessees business of producing pictures had been discontinued from the year 1958-59 when the machineries pertaining to the film production were sold and the studio was let out for using it as a godown. The question is whether the rental income received by the company from the studio building without any machinery for its user as a cotton godown can be brought under the head " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rlier years should be taken to govern the situation in this year as well. It is well-established that each assessment year is a unit by itself and that, the decision rendered with reference to any particular year will not constitute res judicata or estoppel in relation to the assessment for the subsequent years so as to bind either the assessee or the revenue vide New Jehangir, Vakil Mills Co. Ltd. v. Commissioner of Income-tax I and M. M. Ipoh v. Commissioner of Income-tax. It is true that in this case in respect of the three earlier assessment years the income from the studio building was held to be business income by the Appellate Assistant Commissioner relying on a clause in the articles of association of the company authorising it to let out the building and the machinery, even though the business of production of films had been stopped and the entire machinery used for production of films had been sold showing the assessee's intention to discontinue the business of production of films, and the studio building has been actually let out for use as a cotton godown. But, the question is whether the decision of the Appellate Assistant Commissioner holding the rental income from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom other sources, and that, therefore, the assessee was not entitled to claim relief of earned income in respect of such interest. Their Lordships of the Supreme Court in United Commercial Bank Ltd. v. Commissioner of Income-tax have also expressed the same view. In that case it was held, that interest on securities is a specific head of charge, and, therefore, it cannot be charged as profits of business, even if the securities were held as trading assets. There the assessee was a banking company whose business included dealings in securities. The assessee contended that the securities are part of its trading assets and any income which accrues in respect of those assets in the form of interest has the same characteristics of profits or gains of its banking business and that, therefore, it must be treated as business income falling under section 10 of the Indian Income-tax Act, 1922. The Supreme Court, after considering the scheme of the Act, the scope of the provisions of sections 6 to 12, and the form of the return prescribed under section 21 giving the various heads of income expressed: " Thus, on a true construction of the various sections of the Act the income of an assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether the income realised from the tenants of the shops and stalls in the market was liable to be taxed as " business income " under section 10 of the Indian Income-tax Act, 1922, or as income from property under section 9. It was held that the income derived by the company from shops and stalls was income received from property and fell under the specific head in section 9, and that the character of that income was not altered because it was received by a company formed with the object of developing and setting up markets. This decision gives a square answer to the reasoning given by the Appellate Assistant Commissioner that as the memorandum and articles of association of the company in this case had authorised the letting of its assets, such letting and the receipt of income was in the course of its business. As pointed out in Commercial Properties Ltd. v. Commissioner of Income-tax, merely because the owner of the property was a company incorporated with the object of owning property, the incidence of the income derived from the property owned could not be regarded as altered, and the income came more directly and specifically under the head " Property " than income from busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome tax Act, 1961, make receipts from property taxable under the head " income from property " on the owner. The mere fact that the studio building along with the machinery was used for the business of the assessee in film production it one stage and, therefore, was a commercial asset, will not make any difference since a specific head of charge is provided for income accruing from the ownership of a house property and the rental income from the studio building cannot be brought to tax under any other head. As pointed out in Bengal Jute Mills Co. v. Commissioner of Income-tax, letting out property is the ordinary method of obtaining income from the property, and management of property by letting it out does not result in an income from business, unless the functions of managing and letting out the property are the sole or main functions of the company. In that case the court was concerned with a case where the assessee-company which was engaged in the manufacture and sale of jute products let a portion of its business premises to a firm which was conducting the business of dehydrating potatoes. The court held that the rents and profits received from such letting could not be rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance is placed by the assessee. In that case the assessee-company was a manufacturer of silk cloth and as a part of its business it installed a plant for dyeing silk yarn. On account of war it could not make use of the plant and had to keep it idle. In the course of the accounting year it was let out to a person on a monthly tent for dyeing jute. The question was whether the rents realised by the assessee were chargeable to excess profits tax as profits of business. The Supreme Court held that it was part of the normal activities of the assessee's business to earn money by making use of its machinery either by employing it in its own manufacturing concern or temporarily letting it to others for making profit for that business when for the time being it could not itself run it and that as the dyeing plant had not ceased to be a commercial asset of the assessee the rental receipts have to be treated as income from business and was chargeable to excess profits tax. The Supreme Court bad expressed that if the commercial asset is not capable of being used as such, then its being let out to others does not result in an income which is the income of the business, but it cannot be said tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivity will be of a commercial character and would fall within the wide ambit of business." In that case the commercial asset as such was exploited by the assessee through an agent and it naturally follows that the assessee instead of himself running the powerlooms worked the powerloom factory through an agent and received his share of the profits which will be clearly an income from business. But, that is not the case here. Here, even the assessee himself cannot use the studio building for the purpose of his business of film production without purchasing new machineries and installing the same in the building. The studio building as such cannot be put to use as a studio for production of films either by the assessee or by the lessee. S. G. Mercantile Corporation P. Ltd. v. Commissioner of Income-tax was a case where the assessee-company which was authorised by its memorandum of association to take on lease or otherwise acquire and to hold, improve, lease or otherwise dispose of land, houses and other real and personal property and to deal with the same commercially, took on lease a market place for an initial term of 50 years and spent a sum of Rs. 5 lakhs for the purpose of re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... developing landed properties and promoting and setting up markets thereon. The income derived by such a company from the tenants of the shops and stalls constructed on the land for the purposes of setting up market would not be taxed as ' business income ' under section 10 of the Act, to which a more detailed reference would be made hereafter, but under section. 9 of the Act." The Supreme Court specifically laid down the principle that once the income is treated as income from property the character of that income will not be altered because it has been received by a company, and the learned judges have cited with approval the following observations in Karanpura Development Co. Ltd. v. Commissioner of Income-tax : " Ownership of property and leasing it out may be done as a part of business, or it may be done as land-owner. Whether it is the one or the other must necessarily depend upon the object with which the act is done. It is not that no company can own property and enjoy it as property, whether by itself or by giving the use of it to another on rent. Where this happens, the appropriate head to apply is income from property, (section 9), even though the company may be doing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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