TMI Blog2005 (9) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Commissioner of Income-tax, Ahmedabad. "Whether the Appellate Tribunal is right in law and on facts in giving direction to treat the income from compensation under the head 'Income from other sources'?" The assessment year is 1985-86, for which the relevant accounting period is the year ended on March 31, 1985. The assessee, a trust, was engaged in a business styled as Nijrang Packaging Industries as a proprietor of the said business. By a partnership deed dated June 1, 1984, the assessee trust through one of its trustees became a partner of a firm styled as Mis. Nijrang Packaging Industries with another trust viz., Bhalchandra Trust as the other partner. Under the terms and conditions of the partnership deed, the goodwill of the erstwhile business was to remain exclusively with the assessee-trust. The assessee trust retired from the said partnership with effect from January 1, 1985. Under the terms and conditions of the retirement cum dissolution deed, the assessee trust granted a licence to the Bhalchandra Trust to use the name and goodwill of the business. For the use of the name and goodwill, the Bhalchandra Trust was required to pay a monthly compensation of Rs. 35, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the business carried on by the other trust, and that therefore, the earning of the stipulated sum cannot be said to be from any business connection in praesenti. The Commissioner of Income-tax (Appeals) found that as per the deed of retirement the appellant trust had divested itself of any right to the business, subject only to the right of compensation for the user of the name and goodwill. That, the income thus accruing to the appellant cannot be treated as a business income. That on retirement the assessee ceased to carry on business, and it was not as if there was any temporary suspension of business. That, the business was no longer under the control of the assessee and that, therefore, it could not be said that there is any nexus between the business and the income received by way of compensation. Accordingly, the Commissioner of Income-tax (Appeals) directed the Inspecting Assistant Commissioner to treat the income by way of monthly compensation as income under the head "Other sources". In the case of CIT v. B. M. Kharwar [1969] 72 ITR 603, the apex court has held that if the transaction is embodied in a document, the liability to tax depends upon the meaning and cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come from house property" or could be said to be income from "Profits and gains of business or profession". This court after exhaustively reviewing the case law on the subject laid down the following principles "(i) No general principle could be laid down which is applicable to all cases and each case has to be decided on its own facts and circumstances. (ii) Whether an income falls under one head or another has to be decided according to the common notions of a practical and reasonable man, for the Act does not provide any guidance in the matter. (iii) In each case, what has to be seen is whether the asset is being exploited commercially by the letting out or whether it is being let out for the purpose of enjoying the rent. The distinction between the two is a narrow one and has to depend on certain facts peculiar to each case. Pure and simple, commercial assets like machinery, plant, tools, industrial sheds or godowns having high business potential stand on a different footing from assets like land or building. (iv) If an assessee derived income from a commercial asset which is capable of being used as a commercial asset, then it is income from his business, whether he us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one as a landowner. Whether it is the one or the other must necessarily depend upon the object with which the act is done. If the dominant object of leasing out is incidental to and for the purposes of the assessee's business, the income would be business income. What has to be discovered is whether the property is subservient to the main business of the assessee". Adverting to the facts of the present case it would be necessary to refer to certain clauses of the partnership deed dated June 1, 1984 as well as the deed of retirement/dissolution dated January 1, 1985. Clause (1) of the partnership deed reads as under: "(1) The name and style of the partnership firm hereby constituted shall be 'M/s. Nijrang Packaging Industries', the goodwill to the business shall continue to belong exclusively to Nijrang Trust and party of the second part shall have no right, title or interest therein during the subsistence of this partnership or on dissolution thereof." Clauses (3) and (8) of the deed of retirement-cum-dissolution read as under: "3. That the party of the first part Nijrang Specific Trust hereby grants licence to the party of the second part Shri Bhalchandra Trust to use the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
