Case: Commissioner of Income Tax Vs. Vikram Cotton Mills Limited

though by no means determinate, scope. There the assessee, which was a banking company in a large way of business, owned a six-storeyed building, where its offices were located on the ground floor and a part of the sixth floor, while the rest of the building was let out to tenants. The question was whether the income realised by the assessee by way of rent for the portion of the building let out was liable to excess profits tax and could be included in the profits of the business under rule 4(4) of the First Schedule to the Excess Profits Tax Act, 1940. It was held that the realisation of rental income by the assessee was in the course of its business in prosecution of one of its objects in the memorandum. It depends in the facts and circumstances of each case.In New Savan Sugar and Gur Refining Co. Ltd. v. Commissioner of Income Tax, Calcutta, 74 I.T.R. 7, this Court w as dealing with a case, where the appellant-company was carrying on the business of crushing sugarcane and gur refining. Its managing agents wrote a letter addressed to its shareholders referring to the alarming increase of Government interference in the affairs of this sugar industry in Bihar and the increase of wages of the workers, the levy of a cess and deterioration in cane crops and advising the acceptance of an offer of the lease of the company as a running concern. Thereafter examination, it was found that the cumulative effect of different clauses of the deed suggested that the assessee would have no concern with the production of the company. It was therefore held that the terms of the lease deed that the intention of the appellant was to part with the entire machinery of the factory and the premises with the obvious purpose of earning rental income and not to treat the factory and the machinery as a commercial asset during the subsistence of the lease. 9. In each case the intention has to be gathered as to whether the commercial asset was intended to be exploited by the assessee or whether it was intended to be used by letting it out for a temporary period. It depends upon the facts an d circumstances of each case. The circumstances of the instance case were as follows as appears from the statement of the case: "The assessee-company incurred losses in its business of manufacture of textiles from the ye ar 1949. On account of heavy losses, its manufacturing activities were stopped from December, 1953. By 1956, colossal loss had accumulated. Its liabilities had amounted to Rs.26 lakhs as against the capital of Rs.11 lakhs. A winding-up petition was filed in the Allahabad High Court by the creditors. M/s. Jawala Prasad Radha Krishan in February 1954. The Industrial Finance Corporation was one of the creditors of the company and the company had a liability of Rs.12.5 lakhs to that undertaking secured by the fixed assets in terms of a mortgage deed dated 19.12.1950. The Punjab National Bank had advanced a loan of Rs.6.5 lakhs to the company by movable assets of the company such as cotton, cloth and yarn. The Industrial Finance Corporation had taken physical possession of the immovable properties of the company on 12th July, 1954, on the companys failure to pay off its debts to the I.F.C. The High Court thereafter approved a scheme, by an order dated 21. 5.1956 whereby the assets and the entire business of the assessee-company were let out to M/s. General Fibres Dealers (Pvt.) Ltd., Calcutta, at a least rent of Rs.2, 50, 000 per year. The management of the assessee company was transferred to a Board of Trustees appointed by the High Court pursuant to the scheme referred to above. According to the terms of the lease dated 7.7.1956 with the lessee, the General Fibres Dealers (Pvt.) Ltd., the assets of the company were let out for an initial period of ten years, with a right given to the lessee to exercise the option for a further period of ten years. The assesse-company had maintained a skeleton staff thereafter." In the context of these facts, it appears that it was a possible conclusion that the assessee intended that there should be a temporary suspension of the business for the purpose of reconstruction of the company and for that matter there must be stoppage of the user of the machinery by the assessee. It was temporary lease though for 10 or 19 years on renewal years and after the expiry of the period the property reverted back to the assessee. It is pre-dominantly a matter of intention. Intention is an inference to be drawn from the relevant facts. All the relevant facts, it appears have been considered by the Tribunal from the correct standpoint, i.e. Ordinary prudent businessman or as in England it used to be "man on the top of the platform omnibus.", or "directors arm chair". 10. If on that test a plausible conclusion has been drawn-no objection can be taken. 11. On that basis applying the correct principle the Tribunal found that the intention was not to part with the machine but to lease it out for a temporary period as a part of exploitation. In such a circumstance, it cannot be said that no business was carried on and their income derived from the machine letting was only a rent income. There was a temporary suspension of business for a temporary period for an object to tide over the crisis condition. There was never any act indicating that the assessee never intended to carry on the business. 12. In the background of these principles and in the facts and circumstances of the case so found, we cannot say such a finding was either perverse or not sustainable. 13. In the aforesaid view of the matter, the High Court was right in the view it took and the appeals must accordingly fail and are dismissed with costs. 14.

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

Explanation:
0[ds]In the context of these facts, it appears that it was a possible conclusion that the assessee intended that there should be a temporary suspension of the business for the purpose of reconstruction of the company and for that matter there must be stoppage of the user of the machinery by the assessee. It was temporary lease though for 10 or 19 years on renewal years and after the expiry of the period the property reverted back to the assesseeIt is pre-dominantly a matter of intention. Intention is an inference to be drawn from the relevant facts. All the relevant facts, it appears have been considered by the Tribunal from the correct standpoint, i.e. Ordinary prudent businessman or as in England it used to be "man on the top of the platform omnibus.", or "directors arm chair".If on that test a plausible conclusion has been drawn-no objection can be takenOn that basis applying the correct principle the Tribunal found that the intention was not to part with the machine but to lease it out for a temporary period as a part of exploitation. In such a circumstance, it cannot be said that no business was carried on and their income derived from the machine letting was only a rent income. There was a temporary suspension of business for a temporary period for an object to tide over the crisis condition. There was never any act indicating that the assessee never intended to carry on the businessIn the background of these principles and in the facts and circumstances of the case so found, we cannot say such a finding was either perverse or not sustainableIn the aforesaid view of the matter, the High Court was right in the view it took and the appeals must accordingly fail and are dismissed with costsIt was therefore held that the terms of the lease deed that the intention of the appellant was to part with the entire machinery of the factory and the premises with the obvious purpose of earning rental income and not to treat the factory and the machinery as a commercial asset during the subsistence of the lease.