Receipts from letting out of plant and machinery to contractors during the construction phase of a business are not taxable as income.

1. This is a batch of fourteen taxation cases out of which Taxation Cases Nos. 34 to 40 of 1977 have been referred for our opinion at the instance of the Commissioner of Income-tax, Bihar II, Patna, and Taxation Cases Nos. 41 to 47 of 1977 have been referred at the instance of the assessee. All these cases relate to the same assessment years, namely, assessment years 1965-66 to 1971-72, and the references have been made under Sec.256(1) of the Income-tax Act, 1961 (hereafter referred to as "the Act"). Since the points involved in all these cases are identical or similar in nature, this judgment will govern all of them. In the fitness of things, however, we think Taxation Cases Nos. 41 to 47 of 1977 be taken up first and, thereafter, Taxation Cases Nos. 34 to 40 of 1977 can be dealt with. Six questions have been referred for our opinion out of which questions Nos. 1 and 2 are at the instance of the assessee and they are identical for all the assessment years under consideration. Questions Nos. 3 to 6 which form the subject-matter of Taxation Cases Nos. 34 to 40 of 1977, at the instance of Revenue, are apart from the questions referred at the instance of the assessee which, as already observed earlier, are identical in so far as the Revenue is concerned. Question No. 3 is the subject-matter for the assessment year 1965-66 only. Questions Nos. 3 and 4 relate to the assessment years 1965-66 to 1969-70, questions Nos. 3 to 5 are common for the assessment years 1965-66 to 1969-70 and question No. 6 relates to the assessment year 1971-72 only.

2. The facts of the case are culled out from the statement of the case as submitted by the Tribunal under Sec.256(1) of the Act, which may well be described hereinafter. The assessee is a corporation with 100 per cent. share with the Government. It is a Government of India undertaking. It was assessed in the status of a company. The assessee-company, namely, Bokaro Steel Limited, Bokaro Steel City, was incorporated on January 29, 1964, when the certificate of incorporation was given by the Registrar of Companies. The object of the company was to construct and own an integral iron and steel works. During the years under consideration, construction of the factory and installation of their mains for starting the iron and steel work had not been completed and no business was started. While marching towards its goal, however, the asses-see-company had reaped certain gains. There were certain receipts which the assessee grouped under " miscellaneous income " in the various years. These were set off by the assessee-company against the expenses of the year and the balance expenses were then capitalised. Returns were filed by the assessee-company showing nil income for each of the seven years under consideration, The Income-tax Officer asked for the break-up of the " miscellaneous income " and on examination of the same, considered that some of these receipts called for being charged to tax. There were receipts from property let out to outsiders (contractors employees), hire charges received from the contractors for the use of plant and equipment let out to them, interest on advances to the contractor, interest on short-term deposits, miscellaneous income, royalty, land-rent and liquidated damages received from the contractors. The assessees contention, however, was that these receipts were not taxable as these were incidental to the assessees business, of construction and that these had gone merely to reduce the cost of construction. It was also contended that the business of the assessee-company had already commenced with its incorporation under the Companies Act. The Income-tax Officer, however, considered that the manufacturing operation of the assessee-company had not yet started, as it was still at the construction stage and that it was not correct to say that the assessee-companys business had already started. The Income-tax Officer observed that there was no continuous business activity,