Income Tax Appellate Tribunal - Hyderabad
G.V. Rattaiah And Co. vs Income-Tax Officer on 30 June, 1986
Equivalent citations: [1986]19ITD89(HYD)
ORDER
T.V. Rajagopalarao, Judicial Member
1. The assessee is common in all these three appeals. These appeals relate to the assessment years 1979-80 to 1981-82, respectively. These appeals filed by the assessee arose out of independent orders passed by the Commissioner (Appeals), Hyderabad, dated 6-8-1985 for the assessment years 1979-80 and 1980-81, and against the order of the same authority dated 18-11-1985 for the assessment year 1981-82. The common question involved in these appeals is whether the lease amount derived by the assessee-company should be considered as income from business as contended by the assessee-company or should it be considered as income from other sources as contended by the revenue. In order to resolve the common issue arising in these appeals we have taken up these appeals together and dispose them of by a common order for the sake of convenience.
2. The facts relevant for appreciating the point at issue may be summarised as under :
The assessee-company was doing business as dealers and exporters in tobacco. The assessee-company was incorporated in 1969 that is the assessment year 1970-71 for which the previous year is the calendar year. For the assessment year 1974-75 the previous year ended on 31-12-1973. From its inception till 31-12-1973, the assessee carried on its own business as dealers and exporters of tobacco. Briefly stated, the business of the assessee is that it purchases Virginia Tobacco from the growers or agriculturists, cure it, grade it, pack different grades of tobacco and 'sell' it in India to cigarette manufacturers or export it outside India to cheroot and cigarette manufacturers of several countries including USSR and China. Thus, the assessee does business in Virginia Tobacco as manufacturers, dealers and exporters. The assessee set up a factory as well as its office in three acres of land situated in D. No. 148-B of Agathavarapadu village bearing assessment No. 217 of Agathavarapadu Gram Panchayat situated on outskirts of Guntur town, on Mangalagiri Road. The assessee was having buildings, sheds and other structures like godowns, redrying factory and machinery like laboratory, furniture, fittings, water storage tank, conveyer system, trucks and trollies, etc., in those premises. The office building of the assessee was also situated in that premises. According to the assessee all the above constitutes infrastructure for carrying on its business either as dealers or exporters of Virginia Tobacco. Further, it is the case of the assessee that in the assessment year 1974-75 it had incurred heavy losses, inter alia, due to labour strike in that year and also there occurred a fire accident due to internal combustion. Tobacco stock of few lakhs of rupees was destroyed in the said fire accident and consequently the assessee-company fell in dues to the tobacco growers or ryots. Further, the managing director of the company was elected as M.L.A. and engaged in political activities. He did not find sufficient time to carry on the business of the assessee-company in order to steer it out of its financial difficulties. The assessee-company thought that it would be more advantageous to exploit the business assets belonging to it by leasing them out, rather than continuing the business itself. It is the further case of the assessee that it was never intended to abandon doing business itself altogether for all the times to come. On the other hand, it wanted to resume its business on its own after it came out from its financial straits. With that end in view, the assessee let out its whole business set up, firstly, to Viswabharat Agro Products (P.) Ltd., Guntur in 1974. The lease was initially for three years with an option to the lessee to renew the same within one month from the expiry of the initial lease period. In fact, the said option was exercised by the lessee and the same lease was extended twice, each time for a span of three years. Thus, the last of the lease agreements with Viswabharat Agro Products (P.) Ltd., Guntur, was entered into on 14-4-1980. From the impugned orders of the learned Commissioner (Appeals) as can be seen from para 2(i) of his order that in 1982 the business assets of the assessee were given on lease to another concern, namely, Gogineni Tobacco (P.) Ltd. for a period of five years. In the paper book containing 36 papers filed on behalf of the assessee, copy of the lease deed dated 14-4-1980 executed by the assessee in favour of Viswabharat Agro Products (P.) Ltd. was also filed before us. It is stated that the lease agreements of 1974 and 1977 executed in favour of the same lessee contain similar terms as found in the lease deed dated 14-4-1980. So is the case with the lease agreement executed in 1980 in favour of Gogineni Tobacco (P.) Ltd. For reasons more than one it is essential to note the main stipulation of the lease deed dated 14-4-1980 for correct appreciation of the point in controversy. Para No. 4 in the preamble of the lease deed states as follows :
Whereas the lessee, which is a company registered under the Companies Act, and carrying on business in tobacco are desirous of taking on lease the said land, water storage tank, furniture, scales, conveyer system, laboratory and office building, etc., under the terms and conditions mentioned below, for their tobacco business and the said lessor has agreed to give on lease, the said property detailed in the Schedule appended hereto, the parties hereunto have agreed to execute this indenture.
Annual rent was fixed at Rs. 85,000 to be paid by the lessee to the lessor or his nominee, Andhra Bank Ltd., Guntur. It is also said that the demised property mentioned in the schedule of the lease deed in detail was delivered possession. Lease was to commence for three years from 14-4-1980. The expenses required for repair and maintenance of redrying factory laboratory, furniture, fittings, etc., are to be deducted from out of the annual rent of Rs. 85,000 payable to the lessor or by the lessee before the end of June every year. Expenses for overhauling the laboratory. required for redrying and packing processes, so as to keep them in perfect working condition and suitable to requirements of U.K. orders shall be borne by the lessor at the time of this agreement. But, during the course of running and working of the machinery whenever expenses for repairs exceed Rs. 1,000 they should be borne by the lessee and if the amount of such repair exceeds Rs. 1,000 the lessor is to bear such expenses. The buildings, sheds and other structures of the lessor standing on the land demised, shall be after due white/colour washing and painting at the time of this agreement by the lessor at his expenses, should be maintained by the lessor at his own cost in good and leak-proof condition. If the lessor fails in his duty of meeting the expenses for repairs of maintenance of building, etc., the lessee is entitled to call upon the lessor to discharge the duties and if after giving sufficient notice depending upon the emergency, the repair can be carried out by the lessee and expenses can be deducted from the lease amount. The lessor shall at his own expense, cause the buildings, laboratory, sheds and structures, furniture and all equipment detailed in the schedule insured in his own name, against fire risk and emergency risk insurance and shall pay the premiums due from time to time. The schedule mentioned in the lease deed comprised of particulars of the assets leased. It comprised of the land admeasuring three acres, surrounded by compound fence, together with office buildings, water storage tank, conveyer system, trucks and trollies, weighing machine, laboratory and other machinery, furniture, fittings, etc., in the premises and buildings, godowns, etc. In 1977 November cyclone the assessee's godowns and factories were worst affected. It may be mentioned that the assessee-company besides having the tobacco business as dealers and exporters also ran a cotton ginning factory from assessment year 1976.
3. Even the business of cotton ginning factory was stopped as losses were sustained in the running of the cotton ginning factory. In the directors' report dated 29-6-1981 provided at page 11 of paper book filed on behalf of the assessee, it was mentioned that cotton ginning machinery was sold away last year and the cotton pressing machinery was sold in this year and the profit on the sale of machinery which was estimated at about Rs. 80,000 was credited into profit and loss account. In the directors' report dated 30-6-1980 provided at page 9, it was stated that the company did not utilise the cotton ginning factory nor was there any demand for leasing out the same. For that reason the cotton ginning and pressing machinery was sold and proceeds were credited to the Andhra Bank Ltd., towards repayment of loan. Copies of the directors' report submitted on 8th and 9th November at general meetings of the shareholders, held on 30-6-1980 and 29-6-1980, respectively, were filed at pages 9 and 11 of the paper book. At the 8th November general meeting shareholders were informed as follows :
Your directors are happy to inform you that they are getting orders for export of tobacco. Taking the above facts, your directors are hopeful that company will be able to earn much more profits and thereby wipe off the carried forward losses.
At page 13 of the paper book, the assessee provided copy of the letter dated 12-2-1980, whereby the Tobacco Board informed the assessee that it was registered as a dealer in tobacco and its registration certificate was numbered as TB/Dealer/80/489. Page No. 15, disclosed that the assessee was granted registration as a dealer in tobacco for 1980, that is from 30-1-1980 to 31-12-1980. At page 17, again the assessee-company was recognised and was registered as a dealer with the Tobacco Board for the year 1984 that is 1-1-1984 to 31-12-1984. At page 25, again a copy of the certificate of registration granted to the assessee-company as a 'Dealer' for the year 1986 that is from 1-1-1986 to 31-12-1986 was provided. At page 27 of the paper book, the assessee provided copy of the letter dated 15-2-1986, whereby the Tobacco Board intimated the assessee that it was granted registration as a dealer under No. TB/Dealer/86/79 and the certificate was forwarded along with the said letter. At pages 29 to 31, copy of the letter addressed by the assessee-company on 2-1-1986, to the General Manager 'Andhra Bank', Central Office, Hyderabad for sanctioning of terms loans of Rs. 10 lakhs and open cash credit of Rs. 15 lakhs was provided. The sum and substance of the said letter was that the assessee-company revived their unit to a large extent and they proposed to carry on the business activity in tobacco through supplies to domestic cigarette manufacturers initially and to exporters gradually, and they expect that they would conduct their business operations on profitable lines. At page 33, the assessee provided copy of the letter dated 7-3-1986, addressed by the Local Manager of the Andhra Bank, forwarding the assessee-company's application dated 28-2-1986 to Head Office, Hyderabad. At page 35 of the paper book is licence granted in Form L. 2 (Tobacco) by the Central Excise Department authorising the assessee to carry on business as dealers and exporters in tobacco during five years ending 31-12-1990 in the demised premises. The licence was granted on 9-2-1986 by Superintendent, Central Customs and Excise, Guntur. In the assessment order dated 13-8-1984, for the assessment year 1980-81, the ITO held that the assessee derived income from purchases and sale of tobacco on small scale and commission on tobacco, besides rents from office building, godown, machinery, etc. A sum of Rs. 2,645 was said to be the income derived by the assessee from its tobacco business and a sum of Rs. 1,08,973 was said to be the commission earned by the assessee on tobacco as per profit and loss account. So also in the assessment year for 1981-82, the ITO clearly stated as follows ;
The assessee claimed to have purchased little quantity of tobacco from agriculturists at Rs. 33,386 and sold it for Rs. 73,702 clearing a gross profit of Rs. 40,316. Commission of Rs. 3,70,452 has been received from Audinarayana & Co., and Indian Tobacco Co. of Guntur. The assessee sold the tobacco without grading or processing it.
In the above set of circumstances, the assessee claimed that it had retained the whole of the infrastructure essential to carry on the business in Virginia Tobacco as dealers and exporters intact and it had never abandoned the idea of resuming its own business at any time. It was waiting only for appropriate moment to again enter and do its own business. The assets which were let out were commercial assets and in whichever fashion the said commercial assets were exploited by the assessee, the income derived thereon should only be assessed as business income. Up to and including the assessment year 1978-79 which is the immediately preceding assessment year to the three assessment years under consideration, the department itself considered the lease amount derived by the assessee as part of the business income and assessed the same as such. However, for reasons better known to the ITO, he had taken a different stand for the three assessment years under consideration and the requests of the assessee to carry forward the losses of earlier years was not considered, but was turned down. Shri A. Satyanarayana, the learned advocate for the assessee, stated before us that the ratio of the Supreme Court decision in the case of CEPT v. Shri Lakshmi Silk Mills Ltd. [1951] 20 ITR 451 applies to the facts of the case. He also submitted that the decision of the Hon'ble Supreme Court in New Savan Sugar & Gur Refining Co. Ltd. v. CIT [1969] 74 ITR 7, is distinguishable on facts and the ratio thereon does not apply to the facts on hand. He also argued that the decision of the Andhra Pradesh High Court in the case of CIT v. Aryan Industries (P.) Ltd. [1982] 138 ITR 718 is quite opposite and worthy to be considered while appreciating the argument, whether, there was abandonment or intention to resume business present with the assessee.
4. Shri A. Satyanarayana, the learned advocate admitted that some of the documents now furnished by him in the paper book filed before us, were either not available to be filed before the lower authorities, or as they were crucial documents which were essential for a just disposal of the case, and, therefore, though not filed before the lower authorities, they should be now admitted and considered while disposing of the second appeal. He further submitted that all new material now he submitted are public documents, the correctness of which cannot be doubted nor their veracity impeached. Shri A. Satyanarayana, the learned advocate cited the following authorities for the proposition, that when the document filed is crucial and essential for giving a just decision it cannot be admitted even at the second appellate stage by invoking Rule 29 of the Income-tax Appellate Tribunal Rules, 1963 ('the Rules') which are quite in pari materia with the provision of order 41, Rule 27 of the Code of Civil Procedure, 1908-CIT v. Kum. Satya Setia [1983] 143 ITR 486 (MP), Jeypore Timber & Veneer Mills (P.) Ltd. v. CIT [1982] 137 ITR 415 (Gauhati), Atlas Cycle Industries Ltd. v. CIT [1982] 133 ITR 231 (Punj. & Har.), CIT v. Steel Cast Corpn. [1977] 107 ITR 683 (Guj.), CIT v. Tuttapullan Estates [1976] 104 ITR 418 (Mad.) and 8 ITR 367 (sic.).
In support of his proposition that the period of lease is not a criteria to determine whether there is abandonment of business or not, the learned advocate cited decision of this Tribunal passed in the case of Sukman Khan and Mahaboob Khan [IT Appeal No. 510 (Hyd.) of 1984, dated 31-1-1986].
5. As against the above arguments advanced by the learned advocate for the assessee, the learned senior departmental representative, Shri P. Pradhan mainly relied upon the impugned order of the Commissioner (Appeals). He also argued that the facts as well as ratio of the Hon'ble Supreme Court in New Savan Sugar & Gur Refining Co.'s case (supra) are quite near to the facts now before us, and, therefore, the ratio of that decision was correctly made, applicable by the lower authorities and, hence, the impugned orders do not call for any interference from us. He further stated in the statement of the case accompanying the return for the assessment year 1978-79, the rental income is shown is part of business income. However, the assessment year 1979-80, there was no other income returned except rental income.
6. We have gone through the impugned order, paper book filed on behalf of the assessee, respective arguments advanced as well as the authorities cited on both the sides and after evaluating the arguments put forward on both the sides, we are inclined to agree with the arguments advanced on behalf of the assessee-company for the following reasons :
We like to call the demised premises and machinery under the lease as 'assets of the assessee-company' for the sake of brevity. The assets of the assessee-company were in a fit condition to be commercially exploited or to use as business assets and they were first leased out in 1974. It is not the case of the revenue that the assets of the assessee-company were not in a fit condition to be used by businessman engaged in tobacco trade or export. Even though there are some repairs, alterations or additions to be made for the laboratory the assessee-company, as lessor, undertook the responsibility of meeting the expenses and make it fit and keep it in a perfect condition and suitable to the requirements of U.K. orders. Therefore, there is no doubt in our minds to come to the conclusion that the assets of the assessee-company were fit to be used as commercial assets at the time of the first lease in 1974. The learned Commissioner (Appeals), appeared to have sustained the findings of the ITO that the lease amount should be considered as part of the income from other sources, firstly, for the reason that the assessee had not worked out the machinery or plant in the last 12 years, and, secondly, that an examination of the liabilities of the assessee as on 31-12-1974 and 31-12-1983 showed no deduction whatsoever and, therefore, the argument that the assets were temporarily leased out to clear the outstanding and that the assessee-company was exploiting its assets through somebody else for a temporary period does not hold water. Therefore, it is clear that one of the grounds for considering the lease income as 'income from other sources' was that the assessee-company was not in a fit condition to carry on tobacco trade or export business itself or personally because of its weak financial position. This ground does not seem to be legally correct. The argument which was felt to be sound, and acceptable by the Hon'ble Supreme Court in Shri Lakshmi Silk Mills Ltd.'s case (supra) was that the nature of commercial assets was not effected simply because if a particular person is unable to make use of them and the inability of the assessee-company to make use of its commercial assets in certain circumstances do not in any way affect the nature of the assets and cause any infirmity in the assets itself. The assets of the assessee-company were fit to be used only by a businessman engaged in the tobacco business or its export. The assets of the assessee-company also were let out only to persons engaged in such business. That means the lessee, namely, Viswabharat Agro Products (P.) Ltd., who took on lease the assets of the assessee-company from 1974 to 1982 or Gogineni Tobacco Co. (P.) Ltd., who had taken the assets of the assessee-company for lease from 1982 to 1987 were either traders in Virginia tobacco or exporters. Admittedly, they made use of the assets of the assessee-company only in tobacco business. The case considered by the Supreme Court in Shri Lakshmi Silk Mills Ltd.'s case (supra) was a case where the dyeing plant hitherto used by Lakshmi Silk Mills was leased out to a person engaged in dyeing jute. Thus, the Supreme Court case is an extreme case, where the assets of the assessee-company was put to a different use or fashion; it was used for dyeing silk yarn by the assessee himself prior to leasing out. Whereas, the case before us is a straight one. The asset? of the assessee-company appear or put to use for the same purposes both before and after lease. The second ground, namely, that the lease was not a temporary phase and it is likely to continue even after 1987, there is no likelihood of the assessee-company resuming its old business as 'dealers' and 'exporters' of Virgina tobacco does not appear to be firmly based on facts. Further, the dictum of the Supreme Court in 20 ITR 147 (sic) that in whichever fashion the business assets are exploited, the income derived thereon should partake character of business income, was not at all doubted as incorrect by the decision of the same Court in New Savan Sugar & Gur Refining Co. Ltd.'s case (supra). Now let us firstly examine the situation on facts. The assessee filed before us a copy of assessment orders dated 17-11-1979 for the assessment year 1977-78 and dated 16-3-1981 for the assessment year 1978-79 of the assessee-company. In the assessment year for 1978-79 the loss return in trade of tobacco filed by the assessee-company was accepted. In both the assessments depreciation was allowed on buildings, godowns, laboratory equipments, trollies, etc., all of which form part of the assets of the assessee-company leased out under Section 32(1) of the Income-tax Act, 1961, It is common knowledge that depreciation on building machinery, plant and furniture would be allowed only when they were used for the purpose of business or profession. Therefore, the very fact that depreciation was allowed in both these years on many items of the assets of the assessee-company leased out would inferentially show that the ITO recognised those assets as business assets and it logically follows that the income derived from the business assets should be treated as business income. Therefore, the stand of the assessee was that the lease amount was considered as business income till the assessment year 1978-79 and there is no reason, why the character of the said income should be treated differently from the assessment years 1979-80 to 1981-82.
7. Shri A. Satyanarayana, the learned advocate of the assessee, repeatedly contended before us that the assessee-company never abandoned the idea of resuming its business by making use of assets of the assessee-company and this important aspect in this case distinguishes this case from the case considered by the Hon'ble Supreme Court in New Savan Sugar & Gur Refining Co. Ltd.'s case (supra). Firstly, let us see the facts placed to substantiate this contention. The penultimate para of the director's report dated 30-6-1986, a copy of which furnished at page 9 of the paper book filed by the assessee is as follows :
Your directors are happy to inform you that they are getting orders for export of tobacco. Taking the above facts, your directors are hopeful that the company will be able to earn much more profits and thereby wipe off the carried forward losses.
Similar portion of the director's report is also available in the director's report dated 29-6-1981, copy of which is furnished at page 11 of the paper book. At page 13 copy of the letter addressed to the assessee-company by the Tobacco Board, granting certificate of registration as a dealer, was forwarded to it through letter dated 12-2-1980. The actual copy of the form of certificate of registration was found at page 15 of the paper book. Similar copy of certificate of registration as a dealer was granted to the assessee-company for the year 1984 that is from 1-1-1984 to 31-12-1984 was furnished at page 17. Similar certificate of registration as a dealer for 1986 was furnished at page 25 of the paper book filed on behalf of the assessee. The forwarding letter accompanying the certificate of the registration for 1986 was furnished at page 27 of the paper book. On 2-1-1986 the assessee addressed a letter to the General Manager, Andhra Bank, Central Office, asking for a term loan of Rs. 10 lakhs and open cash credit of Rs. 15 lakhs. Copy of the letter is furnished at pages 29 and 31 of the paper compilation and it clearly states in the said letter that though they were not able to conduct any business operations during the last ten years, they have earned some commission by securing export orders to local tobacco exporters, and as such, they have been able to keep up regular contacts with many tobacco importers in USSR and China. The assessee intimated to the Andhra Bank, that they have revived their unit to a large extent and they proposed to carry on their business activity in tobacco through supplies to domestic cigarette manufacturers initially and to exports gradually. They expressed confidence that their venture who yield profitable returns. Their request for loan was forwarded to the Central Office by the local branch of the Andhra Bank by their letter dated 7-3-1986. Ultimately, on 7-2-1986/9-2-1986, the Central Excise Authorities had granted L. 2. licence to carry on wholesale trade to the assessee-company in the demised premises on Mangalagiri Road. L. 2. No. 19/86.90 is the licence and it was granted for five years ending with 31-12-1990. For the assessment year 1980-81, the ITO while completing the assessments clearly admitted that the assessee derived income from purchase and sale of tobacco on a very small scale and also derived income from commission on tobacco, besides getting rents from office buildings, godown and machinery. For 1981-82 assessment, the ITO clearly admitted that the assessee purchased tobacco worth Rs. 33,386 and sold it for Rs. 73,702, thus, getting a gross profit of Rs. 40,316. So also, the assessee got a commission of Rs. 3,70,452 from Audinarayana & Co. as well as from Indian Tobacco Co. of Guntur.
8. From the above material it is sought to be contended by Shri A. Satyanarayana, the learned advocate of the assessee that the assessee never abandoned the idea of doing the business in tobacco, but it was only bitting time in order to come out of woods before again starting to conduct business on a larger scale with the assets of the assessee-company. Ultimately, in 1986 it cleared all the debts previously due to the Andhra Bank and they applied for a fresh loan to the extent of Rs. 25 lakhs with a view to start the business as a dealer and exporter of Virginia tobacco in the demised premises at Mangalagiri Road. No doubt these are subsequent, events but they are very essential to know the intention of the assessee-company whether it wanted to abandon the business and exploited its assets merely as property or whether it wanted to resume its business and enjoy its assets as commercial assets. It is no doubt true that these materials were not placed before the lower authorities, but according to him all these materials would clinchingly prove the intention of the assessee-company that it wanted to resume its business in the leased premises are very crucial in order to give a just decision of the case and, therefore, they can be admitted, even at second appellate stage by the Tribunal as the documents produced by him were either licences or forwarding letters or letters addressed to the Andhra Bank, the genuineness or veracity of which documents is above board and, therefore, they can be acted upon safely. In support of his contention he had cited before us the decision of the Madhya Pradesh High Court in Kum. Satya Setia's case (supra), in which it is held as follows :
Held that under Rule 29 of the Appellate Tribunal Rules, 1963, which was in part materia with order 41, Rule 27 of the Civil Procedure Code, 1908, it was within the discretion of the appellate authority to allow the production of additional evidence if the said authority required any document to enable it to pass orders or for any substantial cause. Even if the assessee had failed to file the modified agreement before the ITO and the A AC, the Tribunal had jurisdiction in the interest of justice to allow the production of a crucial document. Therefore, the Tribunal was correct in law in admitting fresh evidence in the form of the subsequent agreement dated November 15, 1967, though the document was not produced before the lower authorities and also in holding that the document was not a fabricated one.(p. 487) The learned advocate had cited Jeypore Timber & Veneer Mills (P.) Ltd.'s case (supra), Atlas Cycle Industries Ltd.'s case (supra), Gujarat Steel Caste Corpn.'s case (supra), Tuttapullam Estates' case (supra) and 8 ITD 367 (sic.) (supra) in support of the same contention. Out of cited cases we do not find Gujarat Steel Caste Corpn.'s case (supra) and Tuttapullam Estates' case (supra) relevant for the purpose. After considering the nature of the documents, we hold that they are material and crucial documents which would throw light on the intention of the assessee-company to resume its old business and, therefore, we hold that the documents now furnished in the paper book, though they are afresh evidence are very much essential for a just decision of the case and as such we admit them under rules 11 and 29 of the Rules. We hold that the nature of new material is such that there is no scope to doubt their truth or veracity. The new material consisted of licences granted by either Tobacco Board or by the Superintendent Central Excise. We further hold that having regard to the dates of the new material they were not available on the respective dates on which the assessment for the three assessment years now under consideration were completed. This is also one of the grounds which we will invoke to admit the new material into evidence. We hold that the above documents clearly proved that the assessee never abandoned the intention of doing its own business in the demised premises with the assets of the assessee-company as when favourable conditions exist and in fact in 1986 it had obtained requisite licences and it began resuming its business in the demised premises with the assets of the assessee-company.
9. In our opinion, the decision relied by the revenue, namely, New Savan Sugar & Gur Refining Co. Ltd.'s case (supra) is distinguishable on facts. Firstly, the dictum of the Hon'ble Supreme Court in Shri Lakshmi Silk Mills Ltd.'s case (supra) was not disputed by the subsequent Supreme Court decision in New Savan Sugar & Gur Refining Co. Ltd.'s case (supra). They only distinguished the same in the later Supreme Court case. The findings of the Supreme Court in New Savan Sugar & Gur Refining Co. Ltd.'s case (supra) on considering the various clauses of lease deed before it were as follows :
... On a scrutiny of all the clauses of the indenture of lease, our conclusion is that the intention of the assessee was to part with the entire machinery of the factory and the premises with the obvious purpose of earning rental income. It was not the intention of the assessee to treat the factory and machinery, etc., as a commercial concern during the subsistence of the lease. ...(p. 14) From the above, we hold that it was the intention of the assessee to treat the demised premises as well as the assets of assessee-company as it is business assets throughout the period of lease and it had never abandoned the idea of resuming its business after finding favourable atmosphere. Now the question remains whether leasing out the commercial assets for a period of 12 years would by itself amount to abandonment of its business. Firstly, we have to hold that the assessee never abandoned its business. It was purchasing tobacco and selling it, of course without grading and processing it in a small way. It was also earning huge commission amounts by purchasing tobacco for others, namely, Mettapally, Audinarayana and Indian Tobacco Co. It was also getting commission by finding export market to other tobacco dealers and exporters and, thus, it was maintaining contacts with many of the importers of tobacco in USSR and China. Shri A Satyanarayana, the learned advocate for the assessee cited before us the Andhra Pradesh High Court's decision in Aryan Industries (P.) Ltd.'s case (supra) the significance of this decision is, that it had considered both the Supreme Court decisions dealt with by us in this case. It was also held that while the length of the lease period is undoubtedly a relevant circumstance in finding out the intention of the assessee, it is not conclusive. In that case, though the commercial assets of the assessee were leased for 18 years still the Andhra Pradesh High Court on a consideration of all the facts and circumstances of the case held that there was nothing on record to show that the assessee expressed its intention to discontinue its business altogether, and, therefore, it had treated the lease income 'as business income'.
10. From all the above, we have to hold that though the lease was for a period of 12 years in these appeals the lease income should not be considered under any other head of income than 'Business', especially when there was no intention on the part of the assessee to abandon its business.
11. In the result, the impugned order passed by the Commissioner (Appeals) are set aside and we direct that the lease income for these three assessment years should be treated as 'part of business income' of the assessee and the business losses determined as per assessments of earlier years should be carried forward and set off to the extent permissible. Thus, appeals filed by the assessee, are, accordingly allowed.