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High Court Of Calcutta
Y. R. Meena, Prabir Kumar Samanta
COMMISSIONER OF INCOME-TAX - Appellant
Versus
SHREE SHEW SHAKTI MILLS (P.) LTD. - Respondent
Income-Tax Reference 103 Of 1992
Decided On : 04/29/1999
INCOME TAX - Business income - Storage charge from leasehold land, interest on loan, depreciation on flat, and maintenance expenditure - Whether assessable under the head 'business' - Interpretation of relevant provisions - Rental income from superstructures constructed by the assessee on leasehold land is assessable as business income - Interest received on loan to a single party is not business income - Depreciation on a flat used for business purposes is allowable if the assessee owns the flat - Maintenance allowance for the flat is allowable even if the flat is not owned by the assessee.
Fact of the Case:
The assessee, a company, constructed a factory shed and started an oil mill. However, due to heavy losses, the oil mill was closed and the machinery was sold. Subsequently, the assessee let out the open space and godown to different parties and earned rental income. The assessee claimed that the rental income was from business, but the Income-tax Officer disallowed the claim on the ground that the assessee was not the owner of the plot of land. The assessee also received interest on a loan advanced to Kedar Nath Mohanlal, which was treated as income from other sources by the Income-tax Officer. The assessee claimed that the interest income was from business, as it had advanced loans to various parties. However, the Tribunal found that the assessee had advanced the loan only to Kedar Nath Mohanlal and that this single instance of advance of money could not be treated as the assessee having a money-lending business. The assessee also claimed depreciation on a flat used for business purposes and maintenance allowance for the flat. The Commissioner of Income-tax (Appeals) allowed both claims, but the Tribunal set aside the depreciation allowance on the ground that the flat was not owned by the assessee.
Finding of the Court:
The court held that the rental income from the superstructures constructed by the assessee on the leasehold land was assessable as business income, as the assessee was the owner of the superstructures and had let them out to different parties for a limited period. However, the court held that the interest received on the loan to Kedar Nath Mohanlal was not business income, as the assessee had advanced the loan to only one party and this single instance could not be treated as the assessee having a money-lending business. The court also held that the depreciation on the flat used for business purposes was allowable if the assessee owned the flat, but since the flat was not owned by the assessee, the depreciation allowance was not allowable. However, the court held that the maintenance allowance for the flat was allowable even if the flat was not owned by the assessee.
Issues: 1. Whether the rental income from the superstructures constructed by the assessee on the leasehold land was assessable as business income. 2. Whether the interest received on the loan to Kedar Nath Mohanlal was business income. 3. Whether the depreciation on the flat used for business purposes was allowable. 4. Whether the maintenance allowance for the flat was allowable.
Ratio Decidendi: 1. The court held that the rental income from the superstructures constructed by the assessee on the leasehold land was assessable as business income, as the assessee was the owner of the superstructures and had let them out to different parties for a limited period. The court relied on the fact that the assessee had constructed the superstructures and had let them out to different parties for a limited period, and that in previous years, the rental income from those structures had been treated as income of the assessee from business. 2. The court held that the interest received on the loan to Kedar Nath Mohanlal was not business income, as the assessee had advanced the loan to only one party and this single instance could not be treated as the assessee having a money-lending business. The court relied on the fact that the assessee had not provided any evidence to show that it had advanced loans to various parties, and that the Tribunal had erred in accepting the assessee's claim without any evidence. 3. The court held that the depreciation on the flat used for business purposes was allowable if the assessee owned the flat, but since the flat was not owned by the assessee, the depreciation allowance was not allowable. The court relied on the fact that the flat was registered in the name of a director and not in the name of the assessee, and that the assessee had not provided any evidence to show that it owned the flat. 4. The court held that the maintenance allowance for the flat was allowable even if the flat was not owned by the assessee. The court relied on the fact that the flat was used for business purposes and that the maintenance allowance was necessary for the upkeep of the flat.
Final Decision: 1. The court answered the first question in the affirmative, holding that the rental income from the superstructures constructed by the assessee on the leasehold land was assessable as business income. 2. The court answered the second question in the negative, holding that the interest received on the loan to Kedar Nath Mohanlal was not business income. 3. The court answered the third question in the affirmative, holding that the depreciation on the flat used for business purposes was allowable if the assessee owned the flat, but since the flat was not owned by the assessee, the depreciation allowance was not allowable. 4. The court answered the fourth question in the affirmative, holding that the maintenance allowance for the flat was allowable even if the flat was not owned by the assessee.
( 2 ) WHETHER, on the facts and in the circumstances of the case, the Tribunal was correct in law in upholding the order of the Commissioner of Income-tax (Appeals) that interest received on loan to Kedamath Mohanlal would be assessable under the head 'business' ?
( 3 ) WHETHER, on the facts and in the circumstances of the case, the Tribunal was correct in law in upholding the finding of the Commissioner of Income-tax (Appeals) that depreciation on the flat 'rajhans' and the maintenance expenditure for the name would be deductible as business expenditure ?"2. The assessee has constructed a factory shed and started an oil mill. As he suffered heavy losses, he closed the oil mill and even sold the machinery installed for the business. Thereafter the assessee-company let out the open space and godown to different parties and earned rental income. The claim of the assessee was disallowed only on the ground that the assessee is the owner of the superstructure on the leasehold land and not the owner of the plot of land. 3. It is immaterial whether the assessee is owner of a plot of land or not but admittedly he is the owner of the superstructures on the land which were constructed by the assessee and were let out to different parties for a limited period for the year under consideration and even in the earlier years and in those years rental income from those structures was treated as income of the assessee from business. Therefore, whether the plot of land was registered or owned by the assessee is immaterial to ascertain whether the rental income is from the business or not. Accordingly, we answer the first question in the affirmative, that is, in favour of the assessee and against the Revenue.
( 4 ) THE next question raised in this reference is whether the interest received on loan to Kedar Nath Mohanlal should be assessed as business income. Before the Assessing Officer the assessee has claimed that the assessee has received the interest of Rs. 19,500 from Kedar Nath Mohanlal on the amount which he has advanced to the aforesaid firm in the earlier years. The Income-tax Officer treated this interest income as income from other sources. Learned counsel for the assessee argued that the assessee has advanced loan to various persons/parties, therefore, the Tribunal has treated this interest as income from the business. No names of the parties have been given but only on the claim of the assessee, the Tribunal has accepted the fact that the assessee has advanced loan to various parties. But if we read carefully again the assessment order itself, the facts are very clear that the assessee has claimed interest of Rs. 19,500 receivable from Kedar Nath Mohanlal. Nowhere has the assessee claimed before the Assessing Officer that the interest of Rs. 19,500 is receivable from various parties. Thus the finding of the Tribunal is perverse and when the amount is advanced only to one party in the earlier years, the sole instance of advance of money cannot be treated as the assessee is having money-lending business.
( 5 ) LEARNED counsel for the assessee also submits that if the assessee has advanced money from the business fund, then interest should be treated as income from the business. There is no such finding by any of the authorities that advance to Kedar Nath Mohanlal is from the business fund. In the absence of that finding it cannot be held that the interest income receivable from Kedar Nath Mohanlal be treated as income from business. Accordingly, we answer the second question in the negative, that is, in favour of th
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