Law:

Section:

Section 28(i), read with section 57, of the Income-tax Act, 1961 - Business income - Chargeable as - Assessment years 1979-80 to 1981-82 - Assessee-company, under an agreement, obtained partially constructed premises from a HUF on lease and hired it out to bank - According to Assessing Officer said activity resulted in assessee-company receiving rental income as income from other sources - For arriving at this conclusion, ITO primarily relied upon object clause of memorandum of association, as, according to ITO, said clause did not permit assessee-company to carry on business of hiring out properties - Whether since rent received and rent paid by assessee-company had established that assessee had undertaken business venture and it was only because of systematic activities that assessee-company carried on that it was in a position to earn a handsome rent after paying rent at lower rate, rental income from bank was taxable as business income and not as income from other sources - Held, yes FACTS The assessee-company entered into an agreement with HUF whereunder a portion of the partially constructed premises was taken on lease at monthly rent for which the assessee-company had advanced Rs. 6 lakhs at the rate of 6 per cent to the HUF so as to enable the said HUF to construct other floors of the same building. The assessee rented out said portion to a bank. However, in fact, the assessee-company advanced loan of Rs. 8.50 lakhs instead of Rs. 6 lakhs, thus resulting in additional loan to the tune of Rs. 2.50 lakhs. The ITO was of the view that the assessee-company had rented out the leased premises to the bank and the said activity resulted in the assessee-company receiving rental income as income from other sources. For arriving at this conclusion, the ITO primarily relied upon the object clause of the memorandum of association, as, according to the ITO, the said clause did not permit the assessee-company to carry on business of hiring out properties. The ITO further found that the assessee-company had borrowed funds from bank at the rate of 15 per cent and had advanced the amount of Rs. 8.50 lakhs to the HUF out the aforesaid funds. Thus, according to him, the…

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