Rangarajan, J.:— The facts leading to this reference are as follows:
The assessee is a company engaged in the manufacture of textiles. It had a factory which was situated within a compound. In the same compound, the assessee constructed another factory building which was intended, designed and constructed for being run as a textile factory. It was within the factory premises and 10 miles away from Udumalpet. The Appellate Tribunal found that it cannot be ordinarily let out to strangers, because there will be none to take it on rent or run a factory there. The assessee-company let out that factory to its subsidiary for running a textile mill and received rent therefor. On these facts, the case of the Revenue was that the building has been let out by the assessee in its character as owner of the property and, therefore, the income should be assessed under the head “Income from property”.
2. The case of the assessee was that the property was a commercial asset and could have been exploited either by running a factory by itself or by letting it out, and since it was let out to its subsidiary for running a factory, the income derived therefrom should be treated as part of income from business.
3. The Appellate Tribunal accepted the assessee's case.
4. At the instance of the Revenue, the following question has been referred:
“Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the rent receipt of Rs. 1,40,000 from Messrs. Selvi Textiles (P.) Ltd., on letting out to them a building to be used as their factory building, should be assessed to tax under the head ‘Business’ and not under the head ‘House property’?”
5. Before us, learned counsel for the Revenue contends that no asset could be a commercial asset by its nature, and it became a commercial asset only by its use, and since the assessee has not itself used the building as factory, it cannot be regarded as having exploited the property as a commercial asset.
6. It was argued, relying on the decisions in Anaihar Traders and Estates (P.) Ltd. (No. 1) v. CIT, [1990] 186 ITR 175 (Mad); Commissioner Of Income-Tax v. Universal Plast Ltd., [1992] 197 ITR 1 (Cal); Ambica Tobacco Co. (P.) Ltd. v. CIT, [1988] 172 ITR 343 (AP) and Sultan Brothers (P.) Ltd. v. CIT, [1964] 51 ITR 353 (SC) that where the assessee derived rent by simply letting out the property, the income therefrom must be assessed under the head “Income from property”. It was also argued that the fact that the property was let out to a subsidiary becomes irrelevant because as far as the assessee is concerned, even the subsidiary must be construed to be a stranger.
7. On the other hand, learned counsel for the assessee relied on the decision in CIT v. Vania Silk Mills (P.) Ltd., [1978] 112 ITR 701 (Guj) and also on the decision in CIT v. Vikram Cotton Mills Ltd., [1988] 169 ITR 597 (SC), to contend that a commercial asset could be exploited even by letting it out where the assessee is unable or finds it inconvenient to utilise it in its own business. It was also submitted that since the Revenue has not challenged the finding of the Tribunal that the asset in this case was a commercial asset, the answer to the question should be in the affirmative.
8. The principle upon which this question was to be decided has been enunciated by the Supreme Court in Sultan's case, [1964] 51 ITR 353, 358, that “whether a particular letting is business has to be decided in the circumstances of each case. Each case has to be looked at from a businessman's point of view to find out whether the letting was the doing of a business or the exploitation of his property by its owner.”
9. Again, in the case of Vikram Cotton Mills Ltd., [1988] 169 ITR 597 (SC), it has been observed as follows (headnote):
“Whether a particular income is income from business or from investment must be decided according to the general commonsense view of those who deal with those matters in the particular circumstances and the conduct of the parties concerned.”
10. In Ambica Tobacco Co. (P.) Ltd. v. CIT, [1988] 172 ITR 343, the Andhra Pradesh High Court has also observed that (at page 348) : “the actual user acquires importance in a situation where the asset can be exploited for a dual purpose, i.e, both business and letting out. If the asset is merely let out without any trace of business activity, the question of considering the asset as a commercial asset does not arise”.
11. Thus, it is clear that it is only a letting out of a property simpliciter without anything more that Will fall under the category “income from house property”. But in a case like this where the assessee is already running a factory and has built another factory in its own compound and gives it on rent to a subsidiary for running a factory, it is not a case of letting out the property simpliciter. The object of the letting out is coloured by the relationship of the assessee with the subsidiary and takes on the characteristic of a business activity, because it is quite obvious that the letting out of the factory to the subsidiary is only to carry on the textile manufacturing activity through the subsidiary instead of directly by itself. Since the assessee was, as found by the Tribunal, exploiting the asset indirectly through the subsidiary instead of directly by itself in the business continued to be carried on by it, this case becomes an exception to the general rule that the income from a building should be assessed only. under the head “Income from property”. We, therefore, agree with the view of the Tribunal that the income derived by the assessee has to be assessed under the head “Income from business”. Our answer to the question is in the affirmative and against the Revenue with costs. Counsel fee Rs. 500.