COMMISSIONER OF INCOME-TAX Vs. GOLDEN ENGINEERING WORKS

JUDGEMENT

(1.) The Commissioner of Income-tax, Jalandhar, has filed this petition under Section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as the Act), for issuing a mandamus directing the Income-tax Appellate Tribunal, Amritsar Bench, Amritsar (hereinafter referred to as the Tribunal), to refer the following question of law to this court for its opinion :

(2.) The assessee is a registered firm, deriving income from manufacturing and repair of gears used in rubber factories and flour mills. During the course of assessment proceedings, it was found that the assessee had shifted its factory building from Adda Bastian to Basti Bawa Khel, Jalandhar. The building situated at Adda Bastian was given on rent and the rental income received was Rs. 1,06,525. The assessee showed this income under the head "Income from business or profession" whereas the Assessing Officer held that it was income from house property. The Assessing Officer accordingly did not consider the rental income for the purpose of salary paid to partners under Section 40(b) of the Act and disallowed the claim of salary made at Rs. 71,245. He also disallowed depreciation of Rs. 9,851 claimed in respect of let out property.

(3.) The assessee carried an appeal before the Deputy Commissioner of Income-tax (Appeals), Jalandhar. The appeal was accepted and the order of the Assessing Officer was set aside. It was held that the rental income was to be assessed under the head "Income from business or profession". The assessee was originally carrying on business in the building situated at Adda Bastian from where it was shifted to a new place due to commercial expediency and business exigencies and the old premises were leased out with a motive to reduce "the burden of expenditure and to reduce the loss. The old premises were being used by the assessee commercially by letting out to some other party. Since the business premises was leased out as a commercial asset, the rent receipt was assessable under the head "Business income".