Whether the income earned by the assessee-company on letting out the sheds should be assessed as income from property or from business?

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Xyz ltd, has constructed 50 sheds in an industrial estate and leased these out to selected and qualified entrepreneurs, who would manufacture some of the ancillaries for the assessee-company. Besides, the assessee-company also provides several facilities to the ancillary units such as free technical advice for the setting up of units, training of workers for nominal charge,inspection and other services at cost and supply of raw material at cost including overheads. The lessees have agreed to permit the assessee-company’s agents, security staff and workers to enter the premises at any time to view the condition thereof. Discuss whether the income earned by the assessee-company on letting out the sheds should be assessed as income from property or from business.

Held

The mere ownership of property does not determine the nature of the return from it. The user of the property is also a determining factor. In the given case, the intention of the assessee is not to earn income from property as such, but to secure a continuous supply of components to keep up its own production, the components being manufactured under its guidance and scrutiny. Thus, the dominant purpose of letting out of accommodation is to carry on its business more efficiently and smoothly. It can be said that the assessee is in occupation of the premises so let out for the purpose of its own concern, i.e. by hiring out the sheds with a view to manufacturing component parts to be used by the assessee itself in its own production and, therefore, income derived is not from the exercise of property rights but is income derived from carrying on its own business.

Refercase- CIT vs Hindustan Machine Tools Ltd.

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