TMI Blog1951 (9) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... al allowed. - - - - - Dated:- 18-9-1951 - Judge(s) : MUKHERJEE., FAZL ALI., MAHAJAN JUDGMENT The judgment of the Court was delivered by MAHAJAN, J.---The sole controversy in this appeal centres round the point as to whether or not excess profits tax is payable on the sum of Rs. 20,005 received by the respondent from Messrs. Parakh Co. by way of rent for the dyeing plant let out to them during the chargeable accounting period. The respondent (Sri Lakshmi Silk Mills Ltd.) is a manufacturer of silk cloth, and as a part of its business it installed a plant for dyeing silk yarn. During the chargeable accounting period (1st January, 1943, to 31st December, 1943) owing to difficulty in obtaining silk yarn on account of the war it could make no use of this plant and it remained idle for some time. On the 20th August, 1943, it was let out to Messrs. E. Parakh Co. on a rent of Rs. 4,001 per month. The Excess Profits Tax Officer by his assessment order dated 11th June, 1945, included the sum of Rs. 20,005 realized as rent for five months, in the profits of the business of the respondent and held that excess profits tax was payable on this amount. This order was confir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and I will state the principle and the ratio again that if an assessee derives income from a commercial asset which is capable at the time of being used as a commercial asset, then it is income from his business, whether he uses that commercial asset himself or lets it out to somebody else to be used. But if the commercial asset is not capable of being used as such, then its being let out does not result in an income which is the income of the business. Mr. Justice Tendolkar concurred in this view and observed as follows :--- " The ratio of all these cases to my mind is that if there is a Commercial asset which is capable of being worked by the assessee himself for the purpose of earning profits and the assessee instead of doing so, either voluntarily allows someone else to use it on payment of a certain sum or is compelled by law to allow it to be used in such manner, then what he receives is income from business. But if the commercial asset has ceased to be a commercial asset in the hands of the assessee and thereafter he gets what he can out of it by letting it out to be used by others, then the rent he receives is not income from any business that he carries on. " T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is entitled to exploit it to his best advantage and he may do so either by using it himself personally or by letting it out to somebody else. Suppose, for instance, in a manufacturing concern the use of its plant and machinery can advantageously be made owing to paucity of raw materials only for six hours in a working day, and in order to get the best yield out of it, another person who has got the requisite raw materials is allowed to use it as a licensee on payment of certain consideration for three hours ; can it be said in such a situation with any justification that the amount realized from the licensee is not a part of the business income of the licensor. In this case the company was incorporated purely as a manufacturing concern with the object of making profit. It installed plant and machinery for the purpose of its business, and it was open to it if at any time it found that any part of its plant " for the time being " could not be advantageously employed for earning profit by the company itself, to earn profit by leasing it to somebody else. It is difficult to hold that the income thus earned by the commercial asset is not income from the business of the company that has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not an income of the business but must be held to have been derived from a source other than business and fell within the ambit of Section 12 of the Indian Income-tax Act, and on this income excess profits tax was not payable. He contended that the facts of this case were analogous to the case of Inland Revenue Commissioners v. Iles and it should be similarly decided. In that case the taxpayer carried on the business of sand and gravel merchant on certain land and at the same time he granted licences to three firms to enter his land and win gravel for themselves in return for which he received from them a royalty for each cubic yard of gravel taken away. It was held that the royalties were not part of the profits of the business because, in granting the licences, the taxpayer was exploiting his rights of ownership in the land and was not carrying on his business of a sand and gravel merchant. The income was held taxable as an income from an investment and did not fall under Schedule D which concerns profits earned from a trade. Mr. Chatterjee also laid emphasis on the observations of Lord Greene, M. R., in Croft v. Sywell Aerodrome Ltd., wherein the learned Master of the Rolls ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng gravel out of it, as at present advised in our opinion, would fall under Section 9 of the Indian Income-tax Act, as income earned, no matter by whatever method from land, and specifically dealt with by that section. The observations therefore made in Iles's case can have no apposite application to the case of a manufacturing concern letting out a part of its machinery temporarily which it cannot advantageously use itself. Mr. Chatterjee also laid stress on the decision of the Court of Appeal in Inland Revenue Commissioners v. Broadway Car Co., Ltd. In this case the company carried on the business of motor car agents and repairers on land held on lease from 1935 to 1956 at an annual rent of pound 750. By 1940 the company's business had dwindled under war conditions to such an extent that no more than one third of the land was required. In those circumstances the remainder was sublet for fourteen years at an annual rent of pound 1,150. The General Commissioner of Income-tax decided that the difference of pound 400 between the outgoing of pound 750 for the land retained and the incoming of pound 1,150 for the land disposed of was "income received from an investment," and, the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. We are therefore of the opinion that it was a part of the normal activities of the assessee's business to earn money by making use of its machinery by either 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. The High Court therefore was in error in holding that the dyeing plant had ceased to be a commercial asset of the assessee and the income earned by it and received from the lessee Messrs. Parakh Co. was not chargeable to excess profits tax. The result therefore is that we hold that the answer returned by the High Court to the question referred to it by the Tribunal was wrong and the correct answer to the question would be in the affirmative and not in the negative. The appeal is allowed but in the circumstances of the case we make no order as to costs. We have not thought it necessary to refer to all the cases cited at the Bar as none of them really is in point on the short question that we were called upon to decide and analogies drawn from them would not be helpful in arriving at our decision. Appeal allowed. - - TaxTMI - TMITax - Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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