Temporary leasing out of a part of a commercial asset does not convert that part of the commercial asset into house property, income from which could be calculated as income from property only.

Gokal Chand Mital, J.

1. The Income-tax Appellate Tribunal, Chandigarh Bench, has referred the following question for the opinion of this court :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the rental income derived by the assessee-company for the assessment years 1971-72, 1973-74 and 1974-75 from letting out of a part of the factory building constituted business income ?"

2. Anand Rubber and Plastics (P.) Ltd., Faridabad, the assessee, is a private limited company incorporated in the year 1963. The objects of the company included manufacture of all types of rubber goods from natural and synthetic rubber components, mattresses, pillows, sheets and solutions, etc. To carry out the objects, the assessee installed a plant for the manufacture of cycle and rickshaw tyres, rubber sheets, etc. The factory premises consisted of three portions, the main building, the front shed and the rear shed. The main building comprised an area of 12,500 sq. feet, the front shed 6,000 sq. feet and the rear shed 4,000 sq. feet. In the first few years, the assessee incurred heavy losses due to various difficulties and the quality of the products being not up to the mark. As a result, it ran into financial difficulties. To curtail the losses, the production was reduced with the result the rear shed became surplus and to reduce the business losses, the rear shed was given on lease for a period of 11 months on a monthly rent of Rs. 1,480 to Maheshwari and Co. P. Ltd., vide lease deed dated September 1, 1970. For the assessment year 1971-72, the rental income of Rs. 10,720 was shown as a part of business income but the Income-tax Officer treated the rental income as income under the head "Property" and after allowing 1/6th for repairs, the balance was included in the taxable quantum.

3. For the assessment year 1972-73, the rental income was shown by the assessee under the head "Business" and this time the Income-tax Officer accepted the assessees claim.

4. For the next two assessment years 1973-74 and 1974-75, the assessee claimed the rental income as business income but the Income-tax Officer did not accept it and after allowing permissible deductions from the rental income for repairs, etc., the same was treated as income under the head "Other sources" and not as business income. For the years 1971-72, 1973-74 and 1974-75, the assessee took the matter in appeal before the Appellate Assistant Commissioner who accepted the contention of the assessee and held that by giving the factory premises on lease, the assets did not cease to be commercial assets and treated the rental income as income from business. Against the aforesaid, the Revenue came up in appeal before the Tribunal. On consideration of the matter, the Tribunal recorded the following findings :

"We have heard the parties and considered the matter. We are of the view that the Department does not have a strong case and the assessee must succeed. The learned Departmental representative was not in a position to controvert the facts as stated by learned counsel for the assessee. It is not disputed that the assessee had run into heavy losses. In fact, while computing the income for the year 1973-74, the Income-tax Officer adjusted a sum of Rs. 23,537 from the brought forward losses of the earlier years and in 1974-75, the brought forward loss was Rs. 2,30,474. In 1974-75, the resultant business loss was computed by the Income-tax Officer at Rs. 1,08,600. We are inclined to agree with the Appellate Assistant Commissioner that a temporary leasing out of a part of the commercial asset would not convert that part of the commercial asset into house property, income from which could be calculated as income from property only. The assessee had relied on a number of decisions before the Appellate Assistant Commissioner. In fact, there could be no dispute that in such circumstances, the hire income from letting out of a part of the commer