| The Tax Publishers2020 TaxPub(DT) 2798 (Coch-Trib) INCOME TAX ACT, 1961
Section 14
Lease rental income on letting out of plant, etc., in connection with rehabilitation of sick company was taxable under the head business income and not as income from other sources as there was no intention of letting out plant, building, machinery and licence to anyone rather it was to retain commercial viability.
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Head of income - Business income or income from other sources - Lease rental income on letting out of plant, etc., in connection with rehabilitation of sick company to retain commercial viability -
Assessee-company commenced the business but on account of poor financial viability assessee incurred losses and, eroded entire net worth and was declared sick company under Sick Industrial Companies Act, 1956. A rehabilitation scheme was prepared and sanctioned by Board for Industrial and Financial Reconstruction. Scheme envisaged joint operation of the plant on an irrecoverable lease of eight years in consideration of lease rentals; which has been extended from time-to-time. Assessee declared such lease rental income under the head business income. AO taxed the same as income from other sources under section 56(2)(ii). Held: There was no intention of letting out plant, building, machinery and licence to anyone. When assessee entered arrangement with Apollo, intention was to exploit commercial assets through expertise and derive income. There was no sale of assets or retrenchment of employees or even surrender of any licenses, registration, etc. As per the agreement, it was responsibility of assessee to recruit labour for running the plant and meet all labour law requirement in respect thereof, to purchase fuel and power required for running the plant, ensure that plant was properly insured, maintain the plant in working condition, undertake its repair and maintenance, etc. The expenses so incurred by assessee for said responsibilities, were reimbursed by Apollo to it on actual basis. The production by assessee was in the name of Apollo and that too, to retain commercial viability in operations and augment financial position and at the same time bring about modernization and expansion in the plant. Therefore, lease rental income was taxable under the head business income and not as income from other sources.
REFERRED :
FAVOUR : In assessee's favour.
A.Y. : 2014-15
IN THE ITAT, COCHIN BENCH
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