Case: Commissioner Of Income-Tax U.P. Lucknow Vs. The Maheshwari Devi Jute Mills Ltd. Kanpur

or by letting it out to others, consideration received for allowing the transferee to use that asset is income received from business and chargeable to income-tax. In support of his contention counsel relied upon the Judgment of this court in Commissioner of Excess Profits Tax Bombay City v. Shri Lakshmi Silk Mills Ltd., 1951-20 ITR 451 : (AIR 1951 SC 454 ). In Shri Lakshmi Silk Mills Ltd. case, 1951-20 ITR 451 : (AIR 1951 SC 454 ) the assessee Company was a manufacturing concern and had for the purpose of its business installed a plant for dyeing silk yarn. For a part of the chargeable period the Company could not secure silk yarn and its plant remained idle. The Company then let out the plant and the question arose whether rent received by the Company was chargeable to excess profits tax as profit of the business or was income from other sources and therefore not chargeable to excess profits tax. It was held by this Court that if a commercial asset is incapable of being used as such, rent received by letting it out to others is not income of the business. But an asset acquired and used for the purpose of the business does not cease to be a commercial asset of that business as soon as it is temporarily put out of use or is let out to another person for use in his business or trade. Receipt by the exploitation of a commercial asset is the profit of the business, irrespective of the manner in which the asset is exploited by the owner of the business, for the owner is entitled to exploit it to his best advantage either by using it himself personally or by letting it out to somebody else. What was let out in Lakshmi Silk Millscase, 1951 20 ITR 451 : (AIR 1951 SC 454 ) was the dyeing plant which continued to remain the property of the Company and it was temporarily let out when the assessee was unable to use it. Receipt from a commercial asset when it is capable of being used by the assessee but is not so used because of circumstances which necessitate cesser of its use would undoubtedly be income, where the asset remains the property of the assessee and user of the asset is given to another person. If in the present case, for the hours which the respondent was unable to use its looms the respondent had permitted some other person to work the looms, profits received for permitting such user would be income. But the distinction between that case and the present case arises from the peculiar nature of the transaction in "loom-hours". "Loom-hours" cannot from their very nature be let out while retaining property in them, for there can be no grant of a temporary right to use "loom-hours"."Loom-hours" are the asset of the respondent, but temporary user of the "loom-hours" cannot be granted. The transaction in this case is of sale of "loom, hours". There is no doubt that when a businessman disposes of his capital for whatever reason, unless it is a part of his circulating capital, the receipt is capital and not income which is taxable. 6. Distinction between revenue and capital in the law of income-tax is fundamental. Tax is ordinarily not levied on capital profits; it is levied on income. It is well settled that sale of stock-in-trade or circulating capital or rendering service in the course of trading results in a trading receipt; sale of assets which the assessee uses as fixed capital to enable him to carry on his business results in capital receipt. 7. Our attention was invited to a judgment of the Allahabad High Court in Maheshwari Devi Jute Mills v. Commissioner of Income-tax, U. P. Lucknow, I.T. Misc. Case No. 177 of 1960 dated 13-9-1962 (All) in which a Division Bench of the Allahabad High Court answered a similar question relating to taxability of payments received for sale of "loom-hours" by the respondent in an assessment year with which we are not concerned in these appeals. The Court in that case ignoring the view in the judgments under appeal held that "loom hours" did not form the fixed profit-making structure of the respondent and it was not correct to say that the capital structure of the business was 220 looms multiplied by the number of hours per week for which the machinery was entitled to work. The "loom-hours" had in the view of the Court nothing to do with the capital structure of the business and there was nothing to show that the defect in the preparatory section which rendered the "loom hours" unutilisable was permanent. It was always open to the respondent to acquire the necessary yarn from outside and thereby utilise the remaining quota of "loom-hours" in manufacturing jute, and if the respondent preferred not to procure yarn and chose to sell the surplus "loomhours" and thus ensure profit for itself without incuring any risk, the receipt by disposal of a commercial asset was profit of the business irrespective of the manner in which that asset was exploited by the owner of the business. In the view of the High Court the respondent was entitled to exploit the asset to its best advantage; it may do so either by utilising it personally or by letting it out to somebody else, and the sale of a part of its quota of "loom-hours" amounted to exploitation of its capital asset and the receipt obtained therefrom was income. The surplus "loom-hours" were disposed of and no interest remained therein with the respondent there was no exploitation of the "loom-hours" by permitting user while retaining ownership. Receipt by sale of "loom-hours" must therefore be regarded in this case as a capital receipt and not income. 8. in our judgment the High Court was right in holding that the receipts from sale of "loomhours" were in the nature of capital receipts and were not taxable.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]6. Distinction between revenue and capital in the law of income-tax is fundamental. Tax is ordinarily not levied on capital profits; it is levied on income. It is well settled that sale of stock-in-trade or circulating capital or rendering service in the course of trading results in a trading receipt; sale of assets which the assessee uses as fixed capital to enable him to carry on his business results in capital receipt7. Our attention was invited to a judgment of the Allahabad High Court in Maheshwari Devi Jute Mills v. Commissioner of Income-tax, U. P. Lucknow, I.T. Misc. Case No. 177 of 1960 dated 13-9-1962 (All) in which a Division Bench of the Allahabad High Court answered a similar question relating to taxability of payments received for sale of "loom-hours" by the respondent in an assessment year with which we are not concerned in these appeals. The Court in that case ignoring the view in the judgments under appeal held that "loom hours" did not form the fixed profit-making structure of the respondent and it was not correct to say that the capital structure of the business was 220 looms multiplied by the number of hours per week for which the machinery was entitled to work. The "loom-hours" had in the view of the Court nothing to do with the capital structure of the business and there was nothing to show that the defect in the preparatory section which rendered the "loom hours" unutilisable was permanent. It was always open to the respondent to acquire the necessary yarn from outside and thereby utilise the remaining quota of "loom-hours" in manufacturing jute, and if the respondent preferred not to procure yarn and chose to sell the surplus "loomhours" and thus ensure profit for itself without incuring any risk, the receipt by disposal of a commercial asset was profit of the business irrespective of the manner in which that asset was exploited by the owner of the business. In the view of the High Court the respondent was entitled to exploit the asset to its best advantage; it may do so either by utilising it personally or by letting it out to somebody else, and the sale of a part of its quota of "loom-hours" amounted to exploitation of its capital asset and the receipt obtained therefrom was income. The surplus "loom-hours" were disposed of and no interest remained therein with the respondent there was no exploitation of the "loom-hours" by permitting user while retaining ownership. Receipt by sale of "loom-hours" must therefore be regarded in this case as a capital receipt and not income8. in our judgment the High Court was right in holding that the receipts from sale of "loomhours" were in the nature of capital receipts and were not taxable.