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1987 Supreme(SC) 981
SUPREME COURT OF INDIA
SABYASACHI MUKHARJI AND S. RANGANATHAN, JJ.
Commissioner of Income-tax, Lucknow, Appellant
Versus
M/s. Vikram Cotton Mills Ltd., Respondent.
Civil Appeal No. 689-692 (NT) of 1975 with S.L.P. (C) No. 5324 and 5325 of 1978, D/- 15-12-1987.
A.Subhashini, D.GUTPA
Headnote:
Mortgage of fixed of assests - Appeals by special leave arise from the judgment and order of the Allahabad High Court at the instance of the revenue – Income-tax Appellate Tribunal, Bombay Bench, referred the following question of law for the opinion of the Allahabad High Court – "Whether, on the facts and in the circumstances of the case, the income derived by the assessee company by way of lease rent from the letting out of its assets during the years is assessable to tax under the head profits and gains of business or under the head Income from other sources"? – Assessee company was a limited company – It carried on the business of manufacture of textiles the assessee company started running into losses – At the end, the position was that as against the capital of the accumulated liabilities of the assessee company amounted – Because of this the assessee company stopped its manufacturing actively – State of affair continued till when one of the creditors of the company filed a winding up petition in the High Court. M/s. Industrial Finance Corporation, who was one of the major creditors of the company had in exercise of its powers under an English mortgage of the fixed assets of the company taken actual physical possession of the immovable properties hypothecated to them –Held, 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 a temporary lease though for 10 or 19 years on renewal and after the expiry of the period the property reverted back to the assessee – It is predominantly 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 taken – 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 – 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 – Appeals dismissed
Judgement
SABYASACHI MUKHARJI, J.:- These appeals by special leave arise from the judgment and order of the Allahabad High Court at the instance of the revenue. The Income-tax Appellate Tribunal, Bombay Bench, referred the following question of law for the opinion of the Allahabad High Court :-
(The question related to the assessment years 1960-61, 1961-62, 1962-63 and 1963-64).
"Whether, on the facts and in the circumstances of the case, the income derived by the assessee company by way of lease rent from the letting out of its assets during the years ended 31-12-59, 31-12-60, 31-12-61 and 31-12-62 is assessable to tax under the head profits and gains of business or under the head Income from other sources"?"
2. The assessee company was a limited company. It carried on the business of manufacture of textiles. From 1949, the assessee company started running into losses. At the end of Dec. 1953, the position was that as against the capital of Rs. 11,00,000/- the accumulated liabilities of the assessee company amounted to Rs. 26,00,000/-. Because of this the assessee company stopped its manufacturing actively from December, 1953. This state of affair continued till 21-5-56 when one of the creditors of the company filed a winding up petition in the High Court. M/s. Industrial Finance Corporation, who was one of the major creditors of the company had in exercise of its powers under an English mortgage of the fixed assets of the company taken actual physical possession of the immovable properties hypothecated to them. Under S. 13, companies Act 1913, the High Court with the approval of the assessee company and the creditors evolved a scheme where under the business assets of the assessee company were let out to M/s. General Fibres Dealers (Pvt.) Ltd., Calcutta on Rs. 2,50,000/- per year rent. The lease was for ten years with an option of renewal for another ten years. The intention, it was contended, was that the various creditors would be paid out of the lease money. The management of the assessee company was transferred to a Board of Trustees appointed by the High Court. The lease money realised by the assessee company for assessment years 1957-58 to 1959-60 was assessed by the Department under S. 10, I.-T. Act, under the head profits and gains of business. But in subsequent assessment years the I.-T.O. held that the income from the lease rent was liable to be taxed under the head income from other sources under S. 12 of the Act. The assessee company took the matter up in appeal. It was urged before the Commissioner that the assets of the company were exploited and there was no intention of the assessee to discontinue the business activities. The assets of the company were let to the lessee with the principal object of liquidating a colossal liability and extricating itself from financial crises. The Commissioner, however, upheld the finding of the I.-T.O. The assessee company then took the matter to the tribunal. The Tribunal found :-
1. There was nothing on record to indicate that the assessee company was formed to let out its plant and machinery on hire.
2. On account of financial crisis, the assessee company found it advantageous to let out the machinery for a temporary period of ten years to the lessee.
3. The assessee company was able to liquidate its liabilities at the end of such period and regain the physical possession of its assets.
4. The assessee company was able to persuade its creditors not to make any distress sale of the machinery taken over by the Industrial Finance Corporation with a view to salvage the company from its total extinguishment.
5. At the end of the lease period, the assessee company did not dismantle the assets and did not sell away or otherwise dispose of the assets.
3. It appears that the maintenance of the assets by the company meant that the company had intention to restart manufacturing of textiles. The Tribunal inferred that the intention of the company in letting out its assets was to exploit the co
