COMMISSIONER OF INCOME-TAX Vs. PATHY CINE ENTERPRISES

JUDGEMENT

(1.) IN this appeal directed against the order dated 17.3.2006 of the Tribunal made in ITA No.1249/Mds/2004, the following questions were formulated as substantial questions of law arising for consideration: (i)Whether in the facts and circumstances of the case, the Tribunal was right in holding that income from hiring of air conditioners to its directors as "income from business" ? and (ii)Whether in the facts and circumstances of the case, the Tribunal was right in holding that the exercise of power under Section 263 of the INcome Tax Act by the Commissioner of INcome Tax was erroneous ?"

(2.) 1. To learn as to how these questions arose, we may refer, in brief, to the facts of the case: The relevant assessment year is 2000-2001. The assessee admitted the lease rent received from M/s.Blue Star Ltd., as "income from house property" after allowing the statutory deductions. The assessee also admitted "net loss" of Rs.5,75,580/- as "income from business" derived from the business of hiring of air conditioners. The Assessing Officer accepted the income as shown in the return. 2.2. Alleging under assessment of income by the assessee, the Commissioner of Income Tax issued a notice dated 8.1.2004 under Section 263 of the Income Tax Act (for brevity, "the Act"), to show cause as to why the order of assessment should not be revised, thereby proposing to treat the income derived from the hiring of air conditioners to the marriage halls belonging to the Directors of the assessee/company as "income from other sources". 2.3. In response to the said show cause notice, the assessee submitted that the only business of the assessee from its inception since two decades was leasing of air conditioners and the lease was initially made to M/s.Blue Star, Chennai and M/s.Syndicate Bank, Chennai and after expiry of the lease to these two concerns, the assessee/ company leased out the air conditioners for use in the marriage hall owned by one of Directors and therefore, there was a continuous business activity of leasing of machinery during the previous year ending 31.3.2000 and consequently, the expenditure debited to the income and expenditure account were actually incurred wholly and exclusively for the conduct of the business. 2.4. The Commissioner, however, in his order dated 5.3.2004, held that the assessee never had carried on any organised and systematic activity of the business of hiring of air conditioners and refused to grant the statutory allowance under the head "income from house property" and held that the expenses claimed have no nexus with rental income from hiring of air conditioners and accordingly, treated the income from hiring of air conditioners as "income from other sources". 2.5. On appeal by the assessee, the Tribunal, appreciating the explanation offered by the assessee, that the assessee/company was pursuing the business as per the main object clause of its memorandum of association and that the assessee has been doing the same line of business and submitting its returns consistently on the same basis for nearly two decades, came to the conclusion that the only difference which arose is that earlier the air conditioners were hired to other parties and during the impugned assessment year, the assessee had hired the air conditioners to marriage hall run by one of its Directors and as a consequence, set aside the revision order under Section 263 of the Act. Hence, the above appeal raising the substantial questions of law referred to above.

(3.) THAT apart, it is well settled in law vide Smt.Kavit Sanghi v. CIT,[1982] 133 ITR 48 that, in the absence of any material to show that the air conditioning plant was not acquired by the assessee as a commercial asset and was acquired for any other purpose by the assessee, the income derived from the hiring of the air-conditioning plant was chargeable as profits and gains from business and not as income from other sources.