1984 PLP (Trib (PTD)

MIAN ADDUL KHALIQ (MEMBER).-In this further appeal relating to assessment year 1975-76 the assessee feels aggrieved of the order of the learned A. A. C. of Income-tax, A .Range, L .

2. The assessee, a Private Limited Company, owned a flour mill. The assessee neither filed return nor made any appearance before the I. T. O on the fixed date despite proper service of notice under section 22 (4) of the Repealed Income-tai Act, 1922 (hereinafter referred to as the 'Act'). The I. T. O. while processing ex parte assessment on 25-10-1977 assessed the assessee's income under section 12 (1) of the Act. It eras held that as per photo copy of lease agreement dated 8-5-1974 available on the assessment record, the assessee had leased out the Boar mill to Mete G. T. C., a registered firm, for a consideration of Rs. 30,000 per month. On this basis the assessee's lease income was determined at Per.. 3,60,000 and therefrom after allowing depreciation at Rs. 1,86,317 balance income was worked gut at Rs. 1.73,

683. The assessee brought-forwarded loss at Rs 5,15,611 was found to be inclusive of business loss of Rs. 1,49,534 for the charge year 1973-74. The I. T. O. held that upto the charge year 1973-44 the assessee was running the flour mill which was leased out from charge year 1974-75 onwards. Due to alleged change in the line of business, business loss of the cement year 1973-74 was not adjusted against lease income. Balance depreciation loss of Rs. 2,66,077 was allowed determining thereby the as assessee's not loss for the year under consideration at Rs. 92,

394. On appeal, the learned A. A. C. maintained the I. T. O.'s action of assessment of the assessee's income under section 12 (1) of the Act. It was held that even on perusal of lease deed, it was a case of simple involving no element of business income Assessment of lease incomes under section 12 (1) of the Act was maintained with the result that business loss of the preceding years was not allowed.

3. The assessee's A. R. contended that the departmental officers erred in assessing income under section 12(1) as against section 10 of the Act It was stated that in the immediately preceding assessment year 1974-75 whey the flour mill was leased out under a different agreement, income therefrom was assess as "business income" and brought-forwarded business loss was also allowed. The assessee's A. R. submitted that even for the succeeding assessment year 1976-77 through 1978-79 income accrued on .the basis of same lease agreement, has been assessed as business income. On the basis of clauses 11,16 and 19 of the lease-deed dated 8-5-1974, the case of the assessee's A. R. was that control and management of the Sour mill having remained with the assessed lease income of the flour mill was a business income. It was stated by the assessee's A. R. and rightly so, that the assessee was the best judge to exploit its commercial assets for the best advantages and that could be done either by using the com mercial ascots personally or by letting out the same to somebody else. The D. R. in his turn, submitted that by leasing put the dour mill for a period of four years, the assessee could not be deemed to be in physical possession and as such no business income could accrue therefrom. When confronted with the department's own treatment given to the assessee for the im mediately preceding as well as the succeeding assessment years, wherein, income from leasing out the flour mill was assessed as business income, the D. R. could not controvert the factual position.

4. After giving careful consideration to the submissions of the par ties, we are clear in our mind that the treatment meted out by the officer below in assessing the assessee's income under section 2 (1) of the Ac is erroneous. In the immediately preceding assessment year when flour mil was leased out on the basis of another agreement, lease income accrued therefrom was assessed as business income for the succeeding three as sessment years income accrued to the assessee on the basis of same leas agreement as of the year under review, having been assessed under section 10 of the Act, there was no justification for giving a step-motherly treat ment for the intervening year. Merely on that score treatment of the offi cers below is untenable. The assessee's income is to be assessed under section 10 of the Act with the resultant effect that brought-forwarded business loss of the earlier year is allowable. Even on legal score, we have no hesitation in holding that by merely leasing out the flour mill for some period nature of the assessee's business do not change. The mill being running was commercial asset of the assessee who was fully entitled to exploit its commercial assets for best advantages. This could have been either by running the mill personally or by letting out the same to somebody else. In a case reported as (1951) 20 I T R 451 it was specifically held by the Supreme Court that the yield of income by a commercial asset is the profit of the business irrespective of the manner in which that asset is exploited by the owner, of the business. He is entitled to exploit to his best advantage and tray do so either by using it himself or by letting it out to somebody else. In (1948) 16 I T R 98, the High Court emphasized the principle that if an assessee derives income from a commercial asset which is capable, at the time of being used as a commercial asset, then it is the income from his business. irrespective of the fact whether the commercial asset is per sonally used or is let out to party. The only exception therein made was that if the commercial. asset is not capable of being used as such, by the assessee himself, then its being leasing out to others does not result in an income which could be termed as business income. In another case reported as (1957) 31 I T R 99, where a ginning and oil factory was leased out by the assessee fixing the rent on the basis of actual working of the factory, the assessee's nature of income was held to be business income. In (1958) 34 1 T R 155, it was held as under :-- "An assessee carrying on business utilises certain assets as business or commercial assets. With the help of these assets, the assessee carried on its business and makes profits: There is another way by which the assessee may also make profits out of these assets. Instead of carrying on business itself, it may permit some - one else to use these assets and carry on the sane identical business. Even in such a case, the activity of the assessee would be a business activity. It would be, carrying on the same business through a differ ent instrumentality. It is not necessary that is order that the income of the assessee should be business income, it should be produced by the assessee utilising the business assets itself. So long as those assets are used as business assets, it is irrelevant whether the basiness assets are exploited and used by the assessee itself or someone else". In these circumstances, we hold that by letting out the plant of the flour mill which was a running commercial asset, the assessee's activity did not fall outside the purview of section 10 of the Act and income derived from commercial asset, though, not used by the assessee itself was a busi ness income. The assessee was thus fully entitled to claim set off of the business loss of the earlier year against profits realised during the year under review when the four mill was leased out.

5. As a result, the impugned orders are modified and the I.-T. O. is directed to allow the assessee's - claimed business loss of Rs. 1,49,

534. The appeal succeeds accordingly. M. Z. M. Appeal allowed.