Law: Income Tax Act, 1922

Section: 10,10(2)(vib),66(1),12,10(1),12(1),2(5)

Section 56, read with section 28(i), of the Income-tax Act, 1961 [Corresponding to section 12, read with section 10(1), of the India Income-tax Act, 1922] - Income from other sources - Chargeable as - Assessment year 1955-56 - Assessee-company was carrying on business of crushing sugarcane and gur refining - Apprehending loss, assessee decided to enter into a lease with 'S' - Under lease deed, consideration of lease was royalty payable on manufacture of sugar and molasses at rates prescribed in indenture of lease subject to minimum royalty ; existing machinery which was owned by lessor could not be removed, lessee would be entitled to set up additional machinery without interference from lessor and on termination of lease lessee would be entitled to remove same without causing any damage to property demised - Further lessors were under obligation to keep demised premises insured to full value and to repair and replace machines which were of capital nature - Whether on facts, it could be said be said that intention of assessee was not to treat factory etc ; as commercial concern during subsistence of lease and, therefore, royalty received by assessee was assessable as income from other sources and not as business income - Held, yes FACTS The assesses-company was carrying on the business of crushing sugarcane and gur refining. Due to increase in wages and levy of cess and deterioration in cane crops, the assessee apprehended a loss and suggested that the company's affairs should be put on a "less discouraging basis" by accepting the offer of a lease of the company as a running concern from 'S'. At an extraordinary general meeting of the shareholders of the assessee, it was decided to authorise the directors to enter into a lease with the said 'S'. By an indenture of 15-3-1948, the lease was executed. The consideration of the lease as described in of the indenture was royalty payable on the manufacture of sugar and molasses Under said indenture, the existing machinery which was owned by the lessor could not be removed ; the lessee would be entitled to set up additional machinery without interference from the lessor and on the termination of the lease the lessee…

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