M/S.T.R.MILLS PVT. LTD.,BANGALORE vs. INCOME TAX OFFICER, BANGALORE

Per Shri Vijay Pal Rao, J.M. : This appeal by the assessee is directed against the order dt.25.06.2014 of Commissioner of Income Tax (Appeals)-III, Bangalore for the Assessment Year 2006-07.

4. Before the Tribunal, the learned Authorised Representative of the assessee has submitted that the assessee has leased out its business asset being factory premises due to the reason that the textile business of the assessee was discontinued. He has further contended that due to the recession in the business the assessee discontinued the business of textile mill and let out the factory building. He has further submitted that the leasing out of the plant and machinery and building is provided as business activity of the assessee as per Article of Association and Memorandum of Association. He has referred to Clauses 14 to 17, 37 to 39 of Memorandum of Association and submitted that in accordance with the clauses of Memorandum of Association leasing out the plant, furniture, etc to commercial undertaking is a business activity of the assessee. Thus the lease rental of commercially leased out the premises is business income of the assessee. In support of his contention, he has relied upon the decision of Hon'ble Supreme Court in the case of Chennai Properties & Investments Ltd. Vs. CIT 373 ITR 673 and submitted that Hon'ble Supreme Court after considering the Memorandum of Association of the said company containing main objects as well as incidental or ancillary objections held that letting of property is business of the assessee and therefore it was rightly disclosed the income under the head “Income from Business”.

Therefore once the assessee has closed his business activity then the rental income of the factory building cannot be treated as business income. He has further submitted that the letting out of the property and machinery is not the main business object of the assessee as in the case of Chennai Properties &

Investments Ltd. Vs. CIT (supra) therefore the Hon'ble Supreme Court decision is not applicable in this case.

i) Professional Marketing Group. ii) Frontline Marketing. iii) Indras Agency. It is also not disputed that leasing of plant and machinery, godown, and building is one of the business objects of the assessee company as per the Article of Association and Memorandum of Association. It is not the case of the assessee that it has temporarily closed the business activity due to some lull, but the business of textile mill has been permanently discontinued. Therefore the business asset of the assessee company were let out to different persons.

Since the assessee has received the rentals from letting out of not the building structure only but it is a factory premises including all fittings and fixtures.

Therefore in the facts and circumstances of the case, when the business asset of the assessee is let out but after discontinuing the business activity of the textile mill then the rental income cannot be treated as income from house property however the same would be assessed as income from other sources.

Since the factory building was neither acquired nor held by the assessee for the purpose of letting out but it was held by the assessee for its textile business which was discontinued then for the claim of business income cannot be accepted. Accordingly, in view of the above discussion, the Assessing Officer is directed to assess the rental income as income from other sources and allow the deductions as per Section 57 of the Act as well as the expenditure on maintenance of the company in existence.