Law: Income Tax Act, 1961

Section: 28,56

(a) Income-tax----Other sources---Business---Business income on income from other sources---Lease of plant and machinery ---Company manufacturing and selling sugar---Directors deciding to sell plant and machinery because State Government was encouraging only cooperative societies engaged in such business---Lease-cum-sale agreement with cooperative society--- suit by shareholders y against proposed sale---Lease rent increased arid lease period increased to thirty years with option of further renewal for another thirty years ---Assessee had no intention of re-starting business---Income from lease was assessable as income from other sources and not as business income--¬Indian Income Tax Act, 1961, Ss.28 &. 56. The question as to whether the assessee was exploiting an asset as a commercial asset or as an income yielding property is predominantly a matter of intention is an inference to be drawn from the relevant facts. Where either by word or conduct, the assessee expresses its intention to go out of business by converting the commercial asset into property, the income that accrues to such an assessee can only be income froth other sources and not business income. The assessee-company was carrying on the business of manufacture and sale of sugar up to the end of the accounting year 1970-71 (assessment year 1972-73). On March 31, 1971, the sugar factory, machinery and the premises were leased out to S on a annual rent of Rs.3 lakhs. According to the assessee-company, the State Government was approached for financial assistance when it was made clear to the assessee-company that the State Government favoured only such sugar factories, which were not as co¬operative societies. Accordingly, the society was registered on December 21, 1970. Under the circumstances, a lease came to be executed on March 31, 1971. By the lease agreement, the entire sugar plant was leased out to the society initially for two years on an annual rent of Rs.3 lakhs. Under the agreement, the company intended to sell the Karkhana as a going concern on the expiry of the lease to the society. The lease dated March 31, 1971 was in effect, a lease-cum-sale agreement. The directors report for the…

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