COMMISSIONER OF EXCESS PROFIT TAX BOMBAY CITY vs. SRI LAKSHMI SILK MILLS LTD.
What did the Supreme Court hold?
The Supreme Court reversed the Bombay High Court's decision, holding that the rent received by the assessee for the dyeing plant was income from business and thus assessable to excess profits tax. The Court reasoned that an asset acquired and used for the purpose of business does not cease to be a commercial asset merely because it is temporarily out of use or let out to another. The income generated from such an asset, irrespective of how it is exploited by the owner, is profit of the business. The Court distinguished this from situations where a commercial asset has fundamentally ceased to be capable of being used as such. The principle established is that if an assessee derives income from a commercial asset capable of being used as such, it is business income, whether used by the assessee or let out. The High Court's view that the asset must be in a condition to be used by the assessee at the time of letting was rejected. The judgment noted that no general principle applies to all cases, and each must be decided on its circumstances. Sutherland v. Commissioners of Inland Revenue was relied upon.
What were the facts?
The assessee, Sri Lakshmi Silk Mills Ltd., a silk cloth manufacturer, installed a dyeing plant as part of its business. During the chargeable accounting period (January 1, 1943, to December 31, 1943), war-related difficulties in obtaining silk yarn rendered the plant idle. In August 1943, the plant was leased to another company, Messrs. E. Parakh & Co., for a monthly rent. The Excess Profits Tax Officer included Rs. 20,005, representing five months' rent, in the assessee's business profits, deeming it liable for excess profits tax. This assessment was upheld by the Appellate Assistant Commissioner and the Income-tax Tribunal. The Tribunal referred the question of whether this rental income constituted business profits for excess profits tax purposes to the High Court of Bombay.
What were the issues?
1. Whether, in the circumstances of the case, the assessee's income of Rs. 20,005 is profits from business within the meaning of section 2(5) of the Excess Profits Tax Act and therefore liable to excess profits tax? Assessee's Contention (as inferred from the High Court's reasoning and the Supreme Court's reversal): The assessee likely argued that since the plant was idle and could not be used by them as a commercial asset, the rent received was not income from their business. They might have relied on the High Court's reasoning that if a commercial asset has ceased to be usable by the assessee, letting it out does not result in business income. Revenue's Contention: The Commissioner argued that the dyeing plant was a commercial asset of the assessee's business for profit generation. Any income derived from this asset, regardless of whether the assessee used it directly or let it out to another for use, constituted business income for excess profits tax purposes. They contended that the inability of the assessee to use the asset did not change its nature as a commercial asset.
Which sections of the Income-tax Act were involved?
Section 2(5)
AI-generated summary — verify with the full judgment below
i 1 The Supreme Court Reports. COMMISSIONER OF EXCESS PROFIT TAX BOMBAY CITY v. SRI LAKSHMI SILK MILLS LTD. [ SAIYID FAZL ALI, MEHR CHAND MAHAJAN AND MuKHERJEA JJ.] Excess Profits Tax Act (XV of 1940), s. 2 (5)-"lncome from business"-Manufacturing company-Rent o:f plant and machin· ery let out to others-Whether income from business.
The respondent, a company formed for the purpose of manu- facturing silk cloth, installed a plant for dyeing silk yarn as a part of its business.
During the chargeable accounting period (1st January, 1943, to 31st Decembell, 1943) owing to difficulty in obtaining silk yarn on account of the war, it could make no use of this plant and it remained idle for some time. In August, 1943, the pl_ant was let out to' another company on a monthly rent.
The question being whether the income received by the respond- ent company in the year 1943 by way of rent of this plant was income from business and assessable to excess profits tax, the High Court of Bombay held that, as the assessee was not able to use the plant as a commercial asset, it had ceased to be a com- mercial asset. in the assessee's hands and the rent received was not income
The order continues below.
Read the full judgment
A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.
The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.
Recent GST High Court judgments
Search GST case law →- Jharkhand Contractors Association Thro Its President- Pramod Kumar vs. Bharat Coking Coal LTD. Thro Its Chairman Cum Managing DirectorJharkhand · 13 Oct 2026
- M/S Isc Processors Private Limited vs. Superintendent,Range-Iv, Burrabazar Div, CGST And Cx, Kolkata (N) Commissionerate And AnrCalcutta · 13 Oct 2026
- M/S Raashi Constructions vs. The Assistant Commissioner Of Commercial TaxesKarnataka · 13 Oct 2026
- M/S Bidasaria Fenster Solutions vs. The State Of BiharPatna · 13 Oct 2026
- Amit Agency vs. Commissioner, CGST And CxPatna · 13 Oct 2026
