TMI Blog1978 (3) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 1958, which led to the said industrial dispute. On the 6th July, 1959, there was an agreement under which the period from 29th July, 1958, to 31st December, 1959, was to be treated as the period of lay-off. The management agreed to reopen the mill on the 1st January, 1960, and work with full complement of working 165 looms within three weeks thereof. The management required finances of Rs. 6 lakhs for which an application was made to the State Government which the union of the workmen agreed to support. On 16th November, 1959, there was a meeting of the board of directors. In that meeting, it was found that it was not possible to start the mill from January, 1960, due to lack of funds. It was, therefore, decided that subject to the confirmation of the shareholders the mill should be given on lease. The managing director was authorised to carry on the negotiations therefor. The factory was given on lease to M/s. Barrackpore Industries Ltd. The lease related only to the jute mills. There were other properties belonging to the assessee consisting of rice mill, a workshop, a pattern shop, godown and staff quarters. These were excluded from the lease. Even with respect to the jute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment (subject as hereinafter mentioned) licence and marks held by the Lessor or in which the Lessor may be entitled in connection with the said Mill To Hold the same excepting all or any Jute Mills machinery a list whereof is set out in the Second Schedule hereto for the period of 5 years commencing from 1st day of January, 1960, with option for renewal for another five years as hereinafter contained Yielding And Paying therefor unto the Lessor an annual rent of Rs. 5,00,000 (Rs. five lakhs) payable in twelve equal monthly instalments of Rs. 41,666.67 each first of such monthly instalment to be paid on or before the 3rd day of each and every month succeeding the month for which such rent is due without any abatement or deduction whatsoever except as provided therein." Thereafter the lease went on to state that the lessee had agreed with the lessor to surrender the said jute mill and the machinery and power looms, as demised, under the said original deed of lease by relinquishing all the right, title and interest which the lessee held in respect of the same under the said lease upon the lessor granting a new lease in favour of the new lessee immediately after the execution of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rein." The new lessee covenanted with the lessor, inter alia, as follows: " Clause (v) : Not to make any major alterations or additions to the building and not to make major additions and/or replacements of machinery without the previous consent in writing of the Lessor which consent shall not be unreasonably withheld. (vi) To polish cleanse or oil the said plants machinery fixtures and other fittings with lubricating oil of good quality at such intervals as is usual and customary so as to keep them clean and free from rust and in good running order. (ix) The New Lessee shall perform and observe all the requisitions and restrictions imposed by the Indian Jute Mills Association Act and other Mills and bye-laws in connection with the factory or working thereof or under Act ordinance regulations or notifications for the time being in force notwithstanding that the same is addressed to Katihar Jute Mills Private Ltd. (x) To permit the Lessor and other persons whom it may authorise with or without previous notice to enter upon the demised premises at all times for the purposes of viewing and examining the state and conditions thereof and also of the power plants boilers f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inished goods raw materials store spare parts and moulds and other accessories at such rate as may be agreed upon between the parties." The lessor by the said lease also covenanted, inter alia, as follows: " (ii) To receive from the Insurance Company all such monies by virtue of Policy of Insurance and to pay the same to the New Lessee for being applied in rebuilding and reinstating the demised premises. (iii) At the expiration of the lease to take over jute in process at the market rate and will have the option to purchase the raw materials and stores at such price as may be agreed upon between the parties and to allow the New Lessee to store the articles not taken over in a godown free of rent till removal of the same by the New Lessee within 6 (six) months from the date of taking over and allow the New Lessee's representative look after the same and give all facility for removal thereof during the said period." The lessor further agreed as under: " (iv) The New Lessee shall hold all and any jute Mill Machinery particulars whereof are given to in the second schedule hereto solely as licensee during the subsistence of this Lease or any renewal thereof on the terms a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat in case of replacement of machinery or other capital expenditure the differences between the sale value of replaced machinery after modernisation and the capital outlay would be on the account of the Lessor and the additional rent would be calculated on the difference between the sale value of the replaced machinery and the capital outlay. The lease further stipulated as hereunder: "(xvi) All machinery scrapped or surplus after modernisation or declared by the New Lessee to be surplus at the commencement of the lease shall belong to and be removed by the Lessor within 6 months of the date of their being declared so surplus and till removal shall be stored by the New Lessee in a proper godown at the cost and risk of the Lessor." The ITO in making the assessment for 1962-63 treated the income from the lease as rental arising from other sources. He disallowed also a sum of Rs. 3,033 being legal expenses relating to the lease agreement as capital expenditure. The assessee did not raise any contention before the ITO, in this assessment, that the lease rental should be assessed under the heading "business" and not under the heading "other sources". The ITO had, therefore, no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to put off the premises and not to keep it for earning any income. It was, lastly, submitted that there was nothing on record to show that the memorandum of association of the assessee-company authorised the company to carry on the business of letting out. Counsel for the revenue drew our attention to several decisions, viz., the decision in the case of Narain Swadeshi Weaving Mills v. CEPT [1954] 26 ITR 765 (SC), in the case of Tripurasundari Cotton Press Co. Ltd. v. CIT [1966] 62 ITR 193 (AP), in the case of Bolla Tirapanna Sons v. CIT [1969] 71 ITR 209 (AP) and also in the case of New Savan Sugar Gur Refining Co. Ltd. v. CIT [1969] 74 ITR 7 (SC). He urged that the lease was for a long period. Indeed, according to him, the lease was for the same period as was the situation in the case of New Savan Sugar Gur Refining Co. Ltd. v. CIT [1969] 74 ITR 7 (SC), referred to hereinbefore. Counsel cited the above decision to urge that the lease was also for everything and the assessee had closed its business. Most of these decisions and the principles involved in respect of leasing by a company of its factory or its building were reviewed by this court in the case of Everest Hotels ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness and had put the commercial asset into cold storage. The desire of the company was to exploit that commercial asset, if possible, by itself and if not possible with the aid of someone else by leasing it out to him. That desire is evidenced by the fact that the company tried to raise money by loan from the Government and also by settling its disputes with the workers. Therefore, the intention to exploit the asset of the company as commercial asset was, in our opinion, manifest. Furthermore, the different clauses, as we have indicated above, manifested an intention on the part of the assessee to ensure that the mill was to be maintained in such a condition that the assessee on the expiry of the lease would be in a position to take it over and operate the mill. The different clauses, which we have set out hereinbefore, indicate the intention of the lessor to ensure that the asset is maintained as a commercial asset available for exploitation as such after the expiry of the lease. It is true that the original lease was for 5 years. But the second new lease was only for the unexpired portion of the original lease. It has also to be borne in mind that all the assets had not been le ..... X X X X Extracts X X X X X X X X Extracts X X X X
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