TMI Blog1986 (12) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... further appeal, the Income-tax Appellate Tribunal also confirmed that order. Learned counsel for the assessee, Sri Ratnakar, contended that the mere non-starting of the manufacturing activity does not lead to the conclusion that the leased out machinery should not be considered as commercial asset and the exploitation of the machinery by the assessee by teasing it out is the appropriate mode of using the machinery for commercial purposes in the circumstances. Learned standing counsel for the Revenue contends that in the absence of any manufacturing activity, the asset cannot be considered to have the incidence of a commercial asset and, therefore, the question of assessability under the head " Business " does not arise. Learned counsel for the assessee at the outset referred to the decision of the Supreme Court in CEPT v. Shri Lakshmi Silk Mills Ltd. [1951] 20 ITR 451, wherein the principles regarding exploitation of the asset to the best advantage including letting out have been enunciated. In that case, the assessee was a manufacturer of silk cloth and was also dyeing silk yarn. During the concerned year, the assessee could not work the dyeing plant due to dearth of silk yar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as forced to let out its factory due to business losses. No doubt, the factory was a commercial asset because it was being run by the company itself. On principle, it is difficult to distinguish the said case from the present case. The mere fact that the assessee-company did not run the factory itself is no distinguishing feature because obviously the company could not run the business due to the absence of an industrial licence. Absence of the industrial licence was a legal bar to otherwise exploiting the business assets of the company. This does not mean that there was no business commercially or commercial assets as commonly understood. The assessee-company intended to run the factory for commercial or business purposes, but was prevented to do so by reasons outside its control. There is another aspect of the case that helps us to decide the question referred to us. No doubt, the company was floated as per its memorandum of association for the purpose of purchasing, erecting, constructing, setting up, acquiring and taking over flour mills, etc., and, for this purpose, the company constructed the mills which are now the subject-matter of this reference. But, in addition to thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the oil mill is assessable under the head ' Other sources ', it was held that on the facts the mill could be considered as a commercial asset and the income from the lease of the oil mill was income from business. In CIT v. Prem Chand jute Mills Ltd. [1978] 114 ITR 769, the Calcutta High Court set out the principles propounded time and again stating that in order to be business income, there must be evidence of exploitation of a commercial asset but in order that the income derived from the lease should be taxable, it must be shown that the lessor's intention was that during the period of the lease, the asset leased out must remain and be treated as a commercial asset and be exploited as such. This intention of the lessor has to be ascertained from the cumulative effect of all the terms of the lease and other material circumstances of the case. On the recitals in the lease deed, it was held that the attempts at settlement and the clauses in the lease deed indicated an intention on the part of the assessee to ensure that its asset retained its commercial character and to exploit it as such as to facilitate resumption of the commercial use of the asset, it was leased out and, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd used for the purpose of the business. The mere acquisition of an asset normally used for business or manufacturing activity does not make the asset commercial asset unless it is used for the said purpose. Therefore, the user is the primary requisite for labelling the asset as a commercial assets. It is not uncommon that the same asset is capable of yielding income by putting it into the stream of business activity or leasing it out. In situation, where the asset is leased out without exploiting the same for business or manufacture, such an asset cannot be treated as a commercial asset. The actual user acquires importance in a situation where the asset can be exploited for a dual purpose, i.e., both business and letting out. If the asset is merely let out without any trace of business activity, the question of considering the asset as a commercial asset does not arise. It may be that in certain situations, the leasing or letting out of the asset may be necessitated due to a lull in business activity or temporary cessation of manufacturing operations. The leasing out during this period should be considered as putting the commercial asset to the best use and in such circumstances, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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