A.N.Sen, J. - (1.) In this reference under Section 256(1) of the Income-tax Act, 1961, the following two questions of law have been referred to this court: "1. Whether, on the facts and in the circumstances of the case, the rent received from the factory sheds and electric installations belonging to the assessee was assessable either under Section 28 or under Section 56(2)(iii) of the Income-tax Act, 1961 ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the rent from non-factory buildings including godowns should be assessed under the head 'Business' and not under Section 22 of the Income-tax Act, 1961 ?"
(2.) The statement of the case Prelates to the assessment years 1962-63 to 1964-65, the corresponding accounting years being the calendar years 1961, 1962 and 1963, respectively. The statement of the case sets out the relevant facts which may, however, be indicated. The assessee-company was incorporated on July 31, 1959, and closed its accounts on December 31, 1960. In the assessment year 1961-62, the assessee derived income from ground rent and the same was assessed under the head "Other sources". For the assessment years 1962-63 to 1964-65, the assessee claimed that the entire rental income should be assessed under the head "Business". The Income-tax Officer computed the total incomes for these years as under : JUDGEMENT_245_ITR103_1976Html1.htm While doing so, the Income-tax Officer treated the rental income either as from property or as from other sources.
(3.) In appeal, the Appellate Assistant Commissioner has found that in the assessment year 1962-63, the assessee derived income from letting out factory sheds (assessed by the Income-tax Officer under the head "Property") and lease-rent from the letting out of the open plot of lands (assessed by the Income-tax Officer under the head" Other sources"). In the assessment year 1963-64, some godowns constructed on the open lands were also let out and this year the lease-rent from the godowns and from the factory sheds was assessed under the head "Property". He further found that the factory lands and godowns were hired out to--(1) Messrs. Bombay Hardware Mart, (2) Messrs. Ajmera Engineering Works, and (3) Messrs. West Bengal Pipe Dealers. According to the assessee, one of the main objects of the company was manufacture of pipe fittings and that it was in pursuance of this object that it, constructed factory sheds fitted with electrical installation. The manufacturing business could not be started for want of certain machinery for which it had obtained import licences. It was claimed that the assets which were let out were the assessee's commercial assets and the income derived therefrom was assessable under the head "Business". The Appellate Assistant Commissioner held that the assessee was yet to start its manufacturing business and because the assets had been let out in the meanwhile, they had not yet become commercial assets so that the rental income was correctly assessed under the head "Property". For the assessment year 1964-65 the Appellate Assistant Commissioner passed a similar order confirming the assessment under the head "Property". Further appeal was preferred by the assessee before the Tribunal against the order of the Appellate Assistant Commissioner. Before the Tribunal the assessee relied on its objects (1) to (3) of the object clauses of its memorandum of association and the said object clauses read as follows ; "(1) To carry on the business of manufacturers, importers, exporters, distributors and dealers of pipes, tubes and fittings, iron and steel materials, hardware goods, machineries and plants, mill stores, metals and metal products, scraps, tools and implements, tubewell and boring requisites, minerals and such other articles. (2) To purchase, take on lease or in exchange or otherwise acquire lands, buildings, or estate or any interest in or rights connected with any such lands, buildings or estate, to erect or construct office premises, workshops, factories and mills for the manufacture of pipes and fittings and hardware goods and all articles which form parts of such pipes and fittings and hardware goods and the machineries which are and may be necessary for the manufacture and to prepare such articles. (3) To erect, construct and purchase or otherwise acquire any land, houses, buildings and premises, offices, workshops, factories and mills and any fixed or movable machinery, tools, engines, boilers, plants, implements patterns, stock-in-trade and patent rights convenient to be used in or about the trade or business of manufacturers of pipes, fittings, etc., engineers, founders, smiths or machinists, or for any other business of the company.";