LexCOMMISSIONER OF INCOME TAX, versus VIKRAM COTTON MILLS LTD.
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, COMMISSIONER OF INCOME TAX, v. VIKRAM COTTON MILLS LTD. DECEMBER 15, 1987 [SABYASACHI MUKHARJI AND S. RANGANATHAN, JJ.] Whether the income of the assessee company which lets out its assets temporarily is liable to tax as "profits and gains of business" or "Income from other sources"-Sections 10 and 12 of the Income Tax Act. The respondent, the assessee company, carried on business of manufacture of textiles. From the year 1949, the respondent started running into losses, resulting in the stoppage of its manufacturing acti· vity from December, 1953. In May, 1956, one of the creditors of the company filed a winding up petition in the High Court. One major creditor of the respondent company, in exercise of its powers under an English mortgage of the iv<ed assets of the company took actual posses- sion of the immovable properties hypothecated to the creditor. The High Court, with the approval of the assessee company and its cre- ditors, evolved a scheme whereunder the business assets of the company were let out on a rent of Rs.2,50,000 per year. The lease was for ten years with option of renewal for another ten years. The intention was that the various creditors wonld be paid out of the lease money. The lease money realised by the company for the assessment years 1957-58 to 1959-60 was assessed by the Income Tax Department under section 10 of the Income Tax Act under the head "Profits and gains of busi- ness". But in the subsequent assessment years, the Income Tax Officer held that income from the lease rent was liable to be assessed under the head "Income from other sources" under section 12 of the Act. The assessee company filed an appeal against the order of the Income Tax Officer. The Commissioner upheld the order of the Income Tax Officer. A B c D E F The assessee took the matter to the Income Tax Tribunal. The Tribunal directed the Income Tax Officer t0- treat the income arising out of the letting out of the assets as 'business income'. The matter then went to G the High Court. The High Court held that the income derived by the assessee company by way of the lease rent from the letting out of the assets during the years ending 3 lst December, 1959, 3 lst December, 1960, 31st December, 1961and3lst December, 1962, is assessible to tax under the head "profits and gains of business". Aggrieved by the deci- H sion of the High Court, the revenue appealed to this Court. 389 390 SUPREME COURT REPORTS [ 1988] 2 S.C.R. A Dismissing the appeal (as also the connected petitions for special leave), the Court, HELD: Whether a particular income received by the assessee as a result of the activities carried on by the assessee is business income or B rental income depends upon the manner of the exploitation of the assets of the assessee. It only varies from the facts and circumstances of each case. In each case, the intention has to be gathered as to whether the commercial asset was intended to be exploited by the assessee or whether it was intended to be used by letting it out for a temporary , period. From the facts and circumstances of the case, it appears that it -~ was a possible conclusion that the assessee intended that there should be l C a temporary suspension of the business for the purpose of re-cons- truction of the company and for that matter, there must be stopping of the user of the machinery by the assessee. It was a temporary lease though for to or 19 years on renewal, and after the expiry of the period, the property reverted hack to the assessee. It is pre-dominantly a mat· D ter of intention, which is an inference to be drawn from the relevant facts. All the relevant facts, it appears, have been considered by the Tribunal from the correct stand-point. The Tribunal found that the intention was not to part with the macltine but to lease it out for a temporary period as a part of exploitation. In such circumstances, it cannot be said that no business was carried on and the income derived from the machine letting out was only a rent income, and in the facts E and circumstances of the case, it cannot be said that such a finding was perverse or not sustainable. The High Court was right in the view it took. [398F; 399E-H; 400A-BJ Commissioner of Excess Profits Tax, Bombay City v. Shri F Lakshmi Silk Mills Ltd., 20 ITR 451; Commissioner of Income Tax, West Bengal v. Calcutta National Bank Ltd., 37 ITR 171; Narain Swadeshi Weaving Mills v. Com
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