DY. C I T (ASST.) vs. SODIUM METAL PVT. LTD.

Facts

The assessee, Sodium Metal Pvt. Ltd., engaged in manufacturing sodium metal and transportation, filed its return for AY 1990-91 declaring an income of Rs. 25,17,082. The Assessing Officer (AO) passed an order under Section 143(3). The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the assessee's appeal. The revenue appealed to the Income Tax Appellate Tribunal (ITAT), which partly allowed the revenue's appeal. The present appeal is filed by the revenue against the ITAT's order dated September 24, 1999, which partly allowed the revenue's appeal.

Held

The High Court held that the income from lease rent should be treated as business income and not income from other sources. It referred to various High Court decisions which laid down that lease rent derived from the exploitation of a commercial asset is business income. The court also noted that the machinery and plant eligible for relief under Section 32A or Section 33 would still be available even if exploited by another person. The expression 'wholly used' does not mean 'exclusively used'. The court agreed with the CIT(A) and the Tribunal that the income of the assessee was business income. The revenue failed to demonstrate how the findings of the CIT(A) and Tribunal were bad in law or on facts. Therefore, the appeal was dismissed, and both questions of law were answered in favour of the assessee.

Key Issues

1. Whether, on the facts and in the circumstances, the Tribunal erred in law by allowing deduction under Section 32AB on lease rent income, treating it as business income? The revenue contended that both the CIT(A) and the Tribunal erred in allowing deduction under Section 32AB on lease rent and interest income from debentures, treating them as business income. The revenue argued that the lease rent was income from other sources and not eligible for deduction under Section 32AB. 2. Whether, on the facts and in the circumstances, the Tribunal erred in law by deleting the addition made on account of lease rent received from letting out land, building, and machinery to M/s Tide Industries, which was taxed under the head 'income from other sources'? The revenue argued that the leasing out of the factory was not part of the company's main business object, which was manufacturing sodium and other chemicals. The revenue also contended that the interest income from debentures was not business income as the funds were borrowed for investment.