Upadhya, J.:— The questions referred for the opinion of this Court are—

1. Whether on the facts and circumstances of this case the oil mill is a commercial asset?

2. Whether from the facts and circumstances of this case the income arising out of the letting out of the oil mill is an income from business within the meaning of Section 2(5) of the Excess Profits Tax Act and hence taxable under the Act?

2. This case relates to assessments under the Excess Profits Tax Act for the chargeable accounting periods ending 12th September, 1945 and 31st March, 1946. The assessee runs a flour mill and during the chargeable accounting period immediately preceding those in question in this case he constructed an oil mill but instead of running it: himself leased it out to Messrs Krishan Mohan Bhuvan Shah. The rent received was subjected to income-tax under the Income-tax Act and there is no dispute about that assessment. The Excess Profits Tax Officer subjected that income from lease to tax under the Excess Profits Tax Act, treating it as income from business on which alone excess profits tax could be levied. The assessee's appeal to the Appellate Assistant' Commissioner was unsuccessful as the learned Assistant Commissioner held that the oil mill was a ‘commercial asset’ and income therefrom was income within the meaning of the Excess Profits Tax Act. This view was upheld by the Income-tax Appellate Tribunal. At the request of the assessee the questions mentioned above have been referred under Section 66(1) of the Income-tax Act read with Section 21 of the Excess Profits Tax Act for the opinion of this Court. In making the reference the facts set out in the statement of the case were rather meagre and all the facts which were found or admitted and which would have enabled the Court better to answer the questions referred were not stated. A supplementary paper-book was therefore submitted on behalf of the assessee which contains copies of the Appellate order of the Tribunal and the two orders of the Appellate Assistant Commissioner relating to the two chargeable accounting periods an question.

3. The Appellate order of the Tribunal does not contain a detailed statement of the facts again. The assessee's contention in appeal appears to have been that the income from the hire of the Oil mill was income from other sources and was not taxable under the Excess Profits Tax Act. The Tribunal, however expressed its concurrence with the view by the Appellate Assistant Commissioner who had found that the amount in dispute had been received by the assessee by hiring a commercial asset. The Tribunal also mentioned that it appears that allowance had been made against the income-received as rent. The Tribunal referred to the decision of the Bombay High Court in Shies Laxmi Silk Mills Bombay v. Commissioner of Excess Profits Tax Bombay, (1948) 16 ITR 98 : (AIR 1949 Bom. 12) and observed that the decision in that case fully covered the present case.

4. The Appellate Assistant Commission, has mentioned in his order dated Oct. 8, 1949, relating to the chargeable accounting period ending 12th Sept. 1945, that

“the calculation of the capital employed in the business is also inclusive of the capital invested in setting up these mills.”

He also found that

“There was no difficulty or incapacity on the part of the assessee which would not have enabled them to work the mills.”

A further fact which is very material was found by the learned Assistant Commissioner when be said—

“It was out of the capital employed in this business (he means the flour mill business) that money was found for setting up these mills.”

In his order relating to the other chargeable accounting period the learned Assistant Commissioner observed that the assessee had himself started working these oil mills during that chargeable accounting period and took the view that this Tael strengthened the inference that these mills were in fact a ‘commercial asset’ within the meaning of the law.

5. Learned counsel for the assessee has contended that this statement of fact contained in the order of the Appellate Assistant Commissioner is incorrect. It is said that the chargeable accounting period ended on the 31st March, 1946 when the Act ceased to be in force. The learned counsel stated that the assessee had started running the mills himself during the previous year which ended on the 17th August, 1946, but not during the chargeable accounting period which ended on the 31st March, 1946. We are not in a position to say that the statement of fact contained in the Appellate order of the Assistant Commissioner is wrong. But assuming that the mill was rim by the assessee himself after 31st March, 1946 but before 17th August, 1946, the fact does appear to be that the mill was eventually run by the assessee himself and whatever be the evidentiary value of this conduct may have to be considered.

6. The facts therefore which are available to this Court are;

(1) That funds for setting up the oil mills were found out of the capital employed in the assessee's flour mill business.

(2) That there was no disability or incapacity on the part of the assessee preventing him from working the oil mill himself.

(3) That the assessee did run the oil mill him-self subsequently.

7. There is no material or finding to support the contention that the oil mill is not connected in any way with the main business of the assessee which was admittedly that of running a Hour mill. In the absence of any admitted fact or finding to prove that the oil mill was constructed with the object of letting it out on rent only, it appears difficult to resist the conclusion which the Excess Profits Tax authorities have drawn from the facts mentioned above. If a portion of the capital invested by the assessee in his business of running the flour mill was invested in setting up an oil mill and if the assessee did in fact eventually start running the oil mill himself, if it is not possible to say that the finding that the oil mill was a ‘commercial asset’ was wrong. The mere fact that during the relevant chargeable accounting periods the assessee did not run the mill himself might be due to some cause which was perhaps not known to the Excess Profits Tax Officer. The two periods fell during the second Great World War when several control orders were in force relating to oil, oil-seeds and running of oil mills.

8. The Excess Profits Tax Officer did not make any inquiry as to the reasons which might in fact have been responsible for the assessee not running the mill himself. But the fact that the assessee did not run the mill himself for a period is not sufficient to warrant a finding that though started from business capital it was not a ‘commercial asset’. Constructing a house or other building and letting it out on rent is a commonly known mode of investment. But the setting up of a regular oil mill with plant and machinery appears to be an extremely unusual mode of investment for earning rent or money. The business of the oil mill with plant and machinery had undoubtedly some affinity or similarity to the assessee's business of running a flour mill and it would not be too remote an inference to draw that in setting up this oil mill by investing a part of the capital of his flour mill business the assessee merely intended to expand his business. His subsequent conduct in running the mill himself lends support to this view.

9. In (1948) 16 ITR 98 : (AIR 1949 Bom 12), Tendolkar J., after a review of several English cases observed:

“The ratio of all these cases to my mind is that if there is a commercial asset which is capable of being worked by the assessee himself for the purpose of earning profits and the assessee instead of doing so, either voluntarily allows someone else to use it on payment of a certain sum or is compelled by law to allow it to be used, in such manner then that he receives is income from business. But if the commercial asset has ceased to be a commercial asset in the hands of the assessee and thereafter he gets what he can out of it by letting it out to be used by others, then the rent he receives is not income from any business that he carries on.”

10. When the case went up to the Supreme Court, Mahajan J., as he then was, observed in Commissioner of Excess Profits Tax, Bombay City v. Shri Lakshmi Silk Mills, Ltd., (1951) 20 ITR 451 at p. 455 : (AIR 1951 SC 454 at p. 456).

“The yield of income by a commercial asset is the profit of the business irrespective of the manner in which that asset is exploited by the owner of the business. He is entitled to exploit it to his best advantage and he may do so either by using it himself personally or by letting it out to somebody else.”

11. In Commissioner of Income Tax v. Calcutta National Bank Ltd., (1959) 37 ITR 171 : (AIR 1959 SC 928) the Supreme Court had occasion to set out the distinction between the meaning of the word “business” under the Excess Profits Tax Act and the word as used in the Income-tax Act. In that case the assessee, a Banking Company, owned a building where its offices were located on the ground floor and a part of the sixth floor and the rest of the building was let out to tenants. The question was whether the income from rent so earned was liable to excess profits tax and could be included in the profits of the business within the meaning of rule 4(4) of the First Schedule of the Excess Profits Tax Act, 1940. After considering the objects of the Company as set out in the memorandum of association, Sinha, J., as he then was observed:

“The realisation of rental income by the assessee was in the course of its business in prosecution of one of its objects in its memorandum and was therefore liable to be included in its business profits and was assessable to excess profits tax.”

12. Learned counsel for the assessee has invited our attention to the decision of the Supreme Court in Narain Swadeshi Weaving Mills v. Commissioner Of Excess Profits Tax, (1954) 26 ITR 765: (S) AIR 1955 SC 176). That was a case where a firm had ceased to carry on business as such. It was left with plant and machinery, etc. which it did not require and which ceased to be commercial assets in its hands. For the simple reason that it was not doing any manufacturing business at all this firm had put it out of its power to use the plant, machinery, etc. for it had no right in the lands and buildings where the plant, machinery, etc. had been installed. In these circumstances the assessee firm let out the plant, machinery, etc. to a Company. It was henceforth the Company which was carrying on business of manufacturing ribbons and laces and for that purpose hired the plant, machinery, etc. from the assessee firm.

13. The Court took the view that the case was distinguishable from tile case of Shree Lakshmi Silk Mills, (1948) 16 ITR 98 : (AIR 1949 Bom 12) mentioned above, and that the assessee firm's business having been entirely closed, it was not carrying on any trade or commerce at all and the rent earned by letting out the plant, machinery, etc. after the land and buildings had been sold to the Company could not be said to be the income from business. This case is in accord, if we may say so with respect, with several cases decided under the English Act where sterilised commercial assets have been considered to be incapable of producing income from business. The facts in the Shree Lakshmi Silk Mills case, (1948) 16 ITR 98 : (AIR 1949 Bom 12) and this case were that certain assets which were at one time admittedly commercial assets had ceased to be used for commercial purposes. In the Shree Lakshmi Silk Mills case, (1948) 16 ITR 98 : (AIR 1949 Bom 12) the Court took the view that the non-user was of a temporary character and the commercial asset whose income from, rent was in dispute could not be considered to be a sterilised commercial asset.

14. In the Narain Swadeshi Weaving Mills case, 1954 1926 ITR 765: (S) AIR 1955 SC 176) the Court took the view on the facts of that case that the asset had ceased to be a commercial asset. The main facts on which the decision was based were that the firm had ceased to carry on business, that the lands and buildings in which the plant and machinery had been set up had been sold to the Company to whom the plant and machinery were let out, that the plant and machinery were actually used by the Company which had purchased the land and building for its business purposes. The plant and machinery had thus been completely put out of commercial use so far as the assessee was concerned and because of the fact that it had stopped carrying on business and it had sold the land and buildings, the inference that the asset had ceased to be a commercial asset in the hands of the firm was upheld.

15. In the instant case we are not called upon to decide as to whether a commercial asset had ceased to be a commercial asset. The question is as to whether the oil mill was a commercial asset at all. It was a new mill admittedly built during a chargeable accounting period immediately preceding the two periods to which this case relates. The facts which would be relevant therefore to record a finding in the matter would be as to how and with what object and for what purpose this mill was set up. It has been found that the capital employed by the assessee in his flour mill business was used for setting up this oil mill. It has also been found that the oil mill was used subsequently by the assessee himself in his business. The contention is that the use of the business capital in this manner was merely an investment. This contention is difficult to accept in view of the extremely unusual character of the investment. As mentioned above, setting up an oil mill in a regular way is hardly a known form of investment of capital made with a view to earn rent alone. The similarity to the assessee's main business of running a flour mill also appears to be relevant.

16. It is not clear why the assessee did not run the oil mill himself earlier than during the last chargeable accounting period as mentioned by the Appellate Assistant Commissioner or soon thereafter as conceded by learned counsel for the assessee.

17. Learned counsel further argued that so long as the oil mill was not in fact used by the assessee for the purposes of his own business, it could not be treated as a commercial asset. User therefore, according to him, is essential to stamp an asset with the character of a commercial asset.

18. Where a person had admittedly invested some money in business and was running a floor mill with that capital, if he sets up an oil mill with a part of that capital and there is no evidence to show that in doing so he intended to or did in fact reduce his business capital, the inference drawn by the Taxing Authorities that the oil mill was only all asset produced by a part of the business capital and retained the character of the capital itself cannot be said to be unjustified. We are therefore of opinion that the oil mill was a commercial asset and the first question should be answered in the affirmative.

19. Section 2(5) of the Excess Profits Tax Act defines “business” as including any trade, commerce or manufacture or any adventure in the nature of trade, commerce or manufacture. Using a part of the capital already employed in a flour mill Business by setting up an oil mill was an expansion of his business: by the assessee and the in come earned by letting out the oil mill on hire for some time before starting to run it himself was, in our opinion, income from business. We would therefore answer the second question also in the affirmative.

20. The respondent is entitled to his costs which we assess at Rs. 200/-.

JE/MF.

21. Reference answered accordingly.