TMI Blog1986 (3) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... aid mill from the intending purchaser. Thereafter, the assessee executed another deed on July 14, 1971, under which the said jute mill was again let out to another lessee for a period of 30 years with effect from May 1, 1969, with option to the lessee to have the said lease renewed for another period of 20 years at a stipulated rent of Rs. 28,000 per month for the first and the second year, Rs. 30,000 per month for the third and the fourth year and, thereafter, Rs. 32,000 per month for the rest of the succeeding term. The assessee was assessed to income-tax for the assessment years 1968-69 to 1971-72, the corresponding accounting years ending on 30th April of the calendar years 1968, 1969, 1970 and 1971. In the assessment years 1968-69 and 1969-70, the first lease executed by the assessee was in force. The Income-tax Officer noted in the order of assessment that subsequent to the expiry of the said lease, the assessee had again let out the jute mill to a lessee for a long period and that prior to the execution of the new lease, during an interval of above five months, no business had been also carried on by the assessee in the mill. The Income-tax Officer came to the conclusi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was difficult to work the mill and attempts at settlement were not successful was accepted. On the facts it was held by this court that the attempts for settlement and the clauses incorporated in the first deed of lease indicated an intention on the part of the assessee to ensure that its assets comprised of the said mill should retain their commercial character and that the same would be exploited as such. The lease was found to have been executed with the object of facilitating resumption of the commercial use of the assets by the assessee itself later. The income of the lease was held to be business income assessable under section 28 of the Income-tax Act, 1961 (" the Act "). It was held further that unabsorbed depreciation losses could be carried forward and set off against the income derived from letting out the commercial assets. On the authority of the aforesaid decision, it was contended on behalf of the assessee that the income received by the assessee under the renewed period of the first lease and also the income received from the second lease should also be, therefore, treated as business income and particularly so as the shareholders of the assessee did not intend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss for ever. Following the decision of this court in Prem Chand jute Mills Ltd.'s case [1978] 114 ITR 769, the Tribunal held that for the assessment years 1968-69 and 1969-70, the income of the assessee from letting out the jute mill should be assessed to tax as business income. For the said years, the assessee was also entitled to set off from such income the earlier years' business losses and unabsorbed depreciation, For the assessment years 1970-71 and 1971-72, the Tribunal found, however, that the matter stood on a different footing in view of the execution of the second lease by the assessee. In the second lease, there was no clause binding the lessee to become and continue to be a member of the IJMA for the period of the lease. There was also no clause directing the lessee to continue in a particular grouping, namely, group B in hessian. In the absence of such clauses which were present in the deed of the first lease and on the basis of which this court delivered its judgment for the assessment year 1962-63, it was held that from the second lease executed by the assessee it could be inferred that it was the intention of the assessee to part with the entire assets in the jut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of the assessment years 1970-71 and 1971-72: " Whether, on the facts and in the circumstances of the case and on a correct interpretation of section 56(2)(ii), section 57(ii) and section 32(2) of the Income-tax Act, 1961, the Tribunal was correct in holding that the assessee was entitled to carry forward and set off the unabsorbed depreciation pertaining to its business carried on in earlier years against its income of the present years although no business had been carried on during the present years ? " At the hearing, the learned advocate for the Revenue submitted that in view of the subsequent facts found by the Income-tax Officer and accepted by the Appellate Assistant Commissioner, namely, that the assessee, towards the end of the first lease, had intended to let out the said jute mill under a further lease and also that the assessee attempted to sell off the entire jute mill, sufficiently distinguished the instant case from the assessee's case prevailing in the assessment year 1962-63 decided by this court. In the decision for the said assessment year, it was submitted, it was found as fact that it was the intention of the assessee to retain the commercial character o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded to be taken by the assessee after the first lease came to an end were exploratory in nature and did not materialise in the relevant assessment years and, therefore, the same would not have any effect in the assessment years 1968-69 and 1969-70 when the first lease was in force. On the question of setting off of unabsorbed depreciation of the earlier years against the rental income of the assessee for the assessment years 1970-71 and 1971-72, the learned advocate for the assessee drew our attention to the following sections of the Act. " 32. (2) Where, in the assessment of the assessee (or, if the assessee is a registered firm or an unregistered firm assessed as a registered firm, in the assessment of its partners), full effect cannot be given to any allowance under clause (i) or clause (ii) or clause (iia) or clause (iv) or clause (v) or clause (vi) of sub-section (1) or under clause (i) of sub-section (1A) in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of sub-section (2) of section 72 and sub-section (3) of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was a significant difference between the different clauses of sub-section (2) of section 56. In clauses (ii) and (iii) which dealt with income from machinery, plant or furniture let out on hire, a specific mention was made of such income as not being chargeable to income-tax under the head " Profits and gains of business or profession ". In the other clauses of sub-section (2) of section 56, no such reference was made. The learned advocate submitted that only when letting out of plant, machinery or furniture failed to fulfil all tests of business, income from such letting out would become chargeable under the head " Income from other sources ". Under clause (ii) of section 57, it was provided that only in cases falling under clauses (ii) and (iii) of sub-section (2) of section 56 deductions under sections 30, 31 and 32 of the Act would be allowed. It was submitted that the said sections 30, 31 and 32 fell under Part B of the Act which dealt with the computation of income under the head " Profits and gains of business or profession ". It was contended that under clauses (ii) and (iii) of section 57 in cases of income arising out of hiring of machinery, plant and furniture, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actually allowed to him under this Act or the earlier Act or any Act repealed by that Act or under any executive orders. While defining the written down value, the Act provided for deductions actually allowed under any Act, current or repealed, and the definition of written down value was also applicable where the income of the assets was computed under the head " Income from other sources ". It was contended that if the unabsorbed depreciation of the earlier years when the income of the assets was being considered as income from business was not allowed to be adjusted in a subsequent year when the income from the assets were being treated as income from other sources, an anomaly would arise because there would be two separate determinations of the written down value, one with reference to the situation where income of the assets was assessed under the head " Profits and gains of business or profession " and the other when the income from the assets was assessed under the head " Income from other sources ". The same asset would have different written down values for the purpose of determining the income therefrom whether to be assessed under the head " Profits and gains of busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r part of the year, the assets were exploited under the first lease on the basis that the assets were commercial. It remained open for the assessee at any time to resume its business with commercial assets. For the above reasons, we answer the questions referred for the said assessment years 1968-69 and 1969-70 both in the affirmative and in favour of the assessee. The common question referred in respect of the assessment years 1970-71 and 1971-72 may now be considered. Section 57 permits deductions in accordance with the provisions of sections 30, 31 and 32 including sub-section (2) of section 32. It is not disputed that in the earlier years, depreciation was suffered by the assets involved, namely, the jute mill, and that such depreciation remained unabsorbed. The assessee was entitled to carry forward the said unabsorbed depreciation under section 32(2) without any reference to section 57. In the assessment years involved, the assessee earned income from letting out machinery and plant which was not chargeable to income-tax under the head " Profits and gains of business or profession " but was chargeable under the head " Income from other sources ". From such income, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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