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It is a trite law that so long as assets are used as business assets, it is irrelevant whether the business assets are exploited and used by the assessee itself or someone else. Where instead of carrying on the business itself, the assessee permits someone else to use the assets and carry on the identical business, then the activity of the assessee will be judged as a business activity.

In the case of CIT v. G V Rattaiah & Co. (119TAX493) the assessee was doing business as dealers and exporters of tobacco. The assessee leased out its premises and other assets for a period of 12 years. Both the ITO and the Commissioner (Appeals) held that the income from such lease is to be taxed under the head other sources.

Following the Supreme Court ruling in the case of Commissioner of Income-tax Vs. Aryan Industries (P.) Ltd. (138ITR718) the Tribunal held that though the lease was for a longer period, 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. In the case relied by the Tribunal the assessee leased out its factory for more than 22 years and the Apex Court held that as long as the assessee retained the character of an asset as a commercial asset and does not, either by word or conduct, express his intention to go out of the business by converting the commercial asset into property, the income that accrues to the assessee by the exploitation of such an asset by whatever process the assessee feels expedient to adopt, can be only business income and not income from other sources. Also the Court held that while the length of the lease period is undoubtedly a relevant circumstance in finding out in intention of the assessee, it is not conclusive. This case also offer clues to judge whether the assessee was exploiting the asset (factory) as a commercial asset or as an income yielding property which is the basis for choosing the head of income.

Thus what matters in any leasing arrangement is the conduct and intent behind such letting. The AP High Court upheld the finding of the Tribunal in this case (G V Rattaiah as per supra).

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