Law:

Section:

Section 28, read with section 37 of Income-tax Act, 1961 – Business income – Chargeable as – Assessment year 1962-63 – Assessee-company having found it not possible to run its jute mill for want of funds decided to lease out mill to another company on annual rent – ITO treated said income as rental arising from other sources – He also disallowed legal expenses relating to lease agreement as capital expenditure – Tribunal held that rental income was assessable as business income under section 28, and that amount spent in connection with lease agreement was an expenditure of revenue nature allowable under section 37 – On instant reference, it was seen that evidence on record did not indicate that assessee-company had ceased to carry on business and had put commercial asset into cold storage – It was also found that different clauses of these deed indicated that assessee wanted to maintain and to ensure commercial character of its assets – As per lease deed mill was to be maintained by lessee in such a condition that assessee on expiry of lease would be in a position to take it over and operate mill – Whether, having regard to aforesaid facts, Tribunal was justified in holding that lease rent was assessable as business income under section 28 - Held, yes - Whether, if on leasing out of business of company income earned was business income, then amount spent in connection with lease agreement was expenditure of revenue nature incidental to assessee's activities under section 37 – Held, yes FACTS The assessee-company was running a jute-mill. In view of the unsatisfactory financial position, the assessee initially decided to close down its mill and the notice issued in this behalf led to an industrial dispute. Later, the assessee agreed to reopen the mill, but could not arrange the required finance. Therefore, the factory was given on lease to another company on annual rent for a specified period after expiry of which it entered into a lease agreement with another company for a period of two years. The ITO in making the assessment for 1962-63 treated the income from the lease as rental arising from other sources. He also, disallowed legal expenses relating to the…

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