If a company ceases its business activity and lets out its godowns, the rental income therefrom is assessable as income from house property and not as income from business.

Pritpal Singh, J.

1. The assessee company, namely, Hindu Cotton Press Company Limited, Anaj Mandi, Ambala City, has filed this petition under Section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as " the Act"), desiring this court to refer the following questions of law to the High Court :

" (i) Whether, on the facts and in the circumstances of the case, the activities of the company in letting out its factory godowns, when not in use, as in the past and on contractual basis, constitutes functioning of the company within its objects as provided for in the memorandum and articless of association of the company ?

(ii) Whether, on the facts and in the circumstances of the case, the income out of the letting out of the companys godowns from time to time is income from business, i.e., exploitation of commercial assets of the company or income from house property ?

(iii) Whether, on the facts and in the circumstances of the case emerging from the evidence and material on record, the finding recorded by the Tribunal that the assessee company after 1974 had completely stopped its business activity with no prospect whatsoever of its resumption of such business activity is vitiated in law being perverse ?

(iv) Whether the expenses incurred by the company for the year under consideration in the maintenance of office, establishment, chowkidar, stationery, electricity, audit and directors fees, etc., are admissible expenses against the income of the company for the year under the circumstances ?

(v) Whether, on the facts and in the circumstances of the case, the company is entitled to set off and adjustment of brought over losses of the previous year as determined by the Income-tax Officer ? "

2. The petitioner was carrying on the business of ginning cotton and pressing it into bales. It had installed machines for this purpose and had also constructed godowns for the storage of the raw materials as well as the finished goods. It let out some of the godowns and derived a rental income of Rs. 33,696 during the assessment year 1977-78. In the return filed for this assessment year, the petitioner-company included this rental income as a part of the income from business. The Income-tax Officer did not agree with this plea and held that the rental income was income from house property. This view was confirmed on appeal by the Commissioner of Income-tax (Appeals) and on further appeal by the Income-tax Tribunal. The petitioner-company thereafter moved an application under Section 256(1) of the Act requiring the Income-tax Appellate Tribunal to state the case and refer the aforementioned questions of law to the High Court for its opinion. The Tribunal, however, declined the application holding that no question of law arose out of its appellate order. This necessitated the petitioner-company to file the instant petition under Section 256(2) of the Act.

3. It may be noticed that in all the above questions, the sole controversy centres round the point as to whether - or not the aforementioned rental income of the petitioner-company was assessable under the head " Income from house property " and not as " Income from business ". The Income-tax Officer in his order dated January 30, 1980 (annexure P-3), held that during the assessment year 1974-75, the petitioner-company had sold away some of its ginning machines with a view to close down its business. No business was carried on by the company thereafter and then the godowns were let out during the assessment year 1977-78 by which a rental income of Rs. 33,696 was derived. The Income-tax Officer observed that during the relevant assessment year, what had happened was not a temporary cessation of business activity but a complete stoppage of the same and, consequently, the letting out of the godowns did not give rise to " Income from business ". The Commissioner of Income-tax (Appeals), on appeal filed by the petitioner-company, looked further into the facts of the case and held th