Sabyasachi Mukharji, J.
1. Whether the amount realised as a result of leasing out of the mill, Premchand Jute Mills Ltd., was income assessable under Section 28 of the Income-tax Act, 1961?', is the main question that falls for determination in this reference under Section 256(1) of the Income-tax Act, 1961. We are concerned with the assessment for the year 1962-63. The relevant previous year ended on the 13th April, 1962. The assessee-company had been carrying on business of manufacture of jute goods having been incorporated in 1938 with an issued capital of about rupees 40 lakhs. It was under the control of two families which held equally 93% of its shares. The mill had 604 looms and was being run by steam power, but orders had been placed for running the mills by electric power at the cost of Rs. 5.45 lakhs. It appears that quarrels arose among the members of the two families resulting in a practical deadlock in the management of the assessee-company. Since it was found impossible to work the mill due to these difficulties, an arrangement for leasing out the mill to M/s. Soorajmul Nagurmall was thought of in 1956. But this arrangement could not be put through. Three of the directors who did not belong to these groups applied to the Central Government on the 3rd of February, 1958, to intervene and direct an investigation into the affairs of the company. Due to the mediation of the Jute Controller the parties came to a settlement on the 7th March, 1958, as to the terms and conditions on which the mill were to be run. Therefore, it is apparent that the company's affairs were not very prosperous. Even earlier, these were none too good. The boilers in the mill had been deprecated by the inspector of boilers in 1946 and this had led to the closing of the factory for about one and a half years resulting in a loss of Rs. 19'02 lakhs by the 15th October, 1946. There were some profits thereafter till the 13th April, 1951, but there was again loss and as on the 13th April, 1956, the company's losses amounted to Rs. 33'72 lakhs which after adjustment against reserves still remained at Rs. 26'22 lakhs. These losses were partly due to high price of raw jute but mainly due to the quarrels between the parties and deadlock in the management. The situation did not improve even after the settlement. Thereafter, with effect from the 12th November, 1958, the mill was leased out for a sum of Rs. 32,000 per mensem. The lease was for a period of five years, with an option to the lessee to have it renewed for another five years which was exercised in 1963. We will have to refer to the lease in a little detail later. For the assessment years 1959-60, 1960-61 and 1961-62, the assessee was assessed on the amount of the lease rent derived by it treating the same as income derived from business. The Income-tax Officer in completing the assessment for the assessment year 1962-63, however, took a different view. He was of theopinion that in view of the continued period of unprofitable working, the directors had finally decided its closure and the lease rent should be assessed under Section 56 of the Income-tax Act, 1961. He referred to the complaint of the directors to the Ministry of Commerce and observed that the uneconomic running of the mill coupled with absolute and unworkable machinery had led the company to decide finally to stop its business. The Income-tax Officer thought that the terms of the lease deed also reinforced this conclusion. He completed the assessment accordingly and disallowed several items of expenditure as not allowable under Section 57 of the Act.
2. There was an appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner accepted the assessee's claim that the income derived after the 12th November, 1958, constituted income from business. But he was of the opinion that the business after that date was different from the business prior to that date. While, therefore, he allowed the revenue expenditure incurred by the company, he rejected the assessee's contention that the loss and unabsorbed depreciation relating to the period before the 12th November, 1958, and carried forward should be set off against either the subsequent business profits or the income from other sources.
3. There were appeals both by the revenue as well as by the assessee before the Tribunal. The Tribunal was of the opinion that the assessee-company continued to exploit the mill as a commercial asset though certain circumstances compelled it to let it out and not to run it as before. The Tribunal found that though there was a deadlock in the affairs of the company which had made it impossible to run it or even lease it out, this problem was solved in 1958. The company had no doubt suffered losses and its machinery was also not up-to-date. Yet it was resolved to raise a working capital somehow and run the mill. If the company had intended to go out of the business, the directors could have easily approved of the proposal for leasing out the mill which had been mooted previously but it was clear that they did not decide to do so and wanted to run the mill themselves. The company had also placed orders for electrical machinery to enable the running of the mill by electric power at a cost of about Rs. 5 lakhs and the Tribunal observed that one could understand the desire of the company to continue to run the mill and at a profit, the differences having been resolved. The Tribunal considered the lease and the annual report of the directors and found that the company did not go out of the business altogether. On a perusal of the terms of the agreement and the background of the lease, the Tribunal was of the opinion that the assessee's intention was that its commercial asset should be exploited as such. The Tribunal was, therefore, in agreement with the Appellate Assistant Commissioner that the income by leasing was assessable under Section 28 of the Income-tax Act, 1961. The Tribunal, however, did not agree with the Appellate Assistant Commissioner that the income, though from business, was from a different business after the 12th November, 1958. The Tribunal upheld the assessee's contention that the business of the assessee before and after the 13th November, 1958, was the same. In the premises it held that the assessee was entitled to carry forward and set off the unabsorbed depreciation and loss of the earlier years against the income of the present year which had been computed under Section 28 of the Income-tax Act, 1961. The Tribunal, therefore, dismissed the appeal on behalf of the revenue and the appeal of the assessee was allowed.
4. In the premises, under Section 256(1) of the Income-tax Act, 1961, the following two questions have been referred to this court:
'(1). Whether, on the facts and in the circumstances of the case, and on a proper construction of the relevant deed of lease, the Tribunal was right in holding that the income of the assessee was assessable under Section 28 of the Income-tax Act, 1961, and not under Section 56 thereof ?
(2) If the answer to question (1) is in the negative, then whether the Tribunal was right in holding that the assessee was entitled to carry forward and set off the unabsorbed depreciation and loss of earlier years against the income of the present year ?'
5. We are, therefore, concerned in this reference with two questions. What is the nature of the income derived by the assessee by leasing out of this mill premises Was it an income from the doing of a business or was it the income by it as enjoyment of a property as an owner thereof? Secondly, we have to consider whether the income that was received if it was an income from the business was the income from the same business that had been carried on by the assessee prior to the leasing out of the said mill premises. We have mentioned in brief the background of the facts which had been adverted to by the Tribunal. We may in this connection refer to the letter dated the 3rd February, 1958, to the Ministry of Commerce and Industry, Government of India, New Delhi, by some of the directors of the assessee-company in which the directors after stating, inter alia, that the loss of the company had been partially due to the high price of raw jute in relation to the market for manufactured goods, narrated the liabilities of the company, and thereafter wont on to say that for want of finance there was risk of the work of the mill being stopped with the result that about 2,500 workers of the mill would be thrown out of employment and there would be great commotion, agitation and chaos and the company's properties and assets in the mill might be destroyed. The directors, therefore, prayed that there should be thorough investigation by the Central Government underSection 15 of the Industries (Development & Regulation) Act, 1951, and for taking such steps as might be thought fit and proper after investigation.
6. The shareholders of the company agreed to certain settlement which is recorded in the letter to the Jute Controller dated the 11th March, 1958, which also indicated a desire to carry on the business by making a settlement of the disputes for the purpose of carrying on the business. In the directors' report for the year ended 1958 it was stated thatowing to constant trouble with the mill turbine for the last few years the production at the mill had been hampered and there was low production. It was further observed that the prices of raw materials were incompatible with those of manufactured goods. The directors, however, observed that although electrification was being carried out at the time, the management and the directors gave due consideration to the heavy loss the mill had suffered and proposed to lease out the mill, which, with approval, had been done on the 12th November, 1958, to Messrs. Kanoria Co. Ltd., at a monthly rental of Rs. 32,000 for five years with option for another five years. The lease terms which have been referred to by both sides may be adverted to in this connection. The recital stated that the lease was of the jute mill including its fixed and movable machinery save those excepted in the document together with the benefit and all quota rights and the Indian Jute Mills Association working time agreement, licences and marks held by the lessor and entitled to it in connection with the said mill. The lessee covenanted to keep the buildings comprised in the demised premises in good and proper condition and to keep the power-play boilers and all other machinery and apparatus in good working order; damage to fire, tempest, earthquake, air-raid or any other force majeure and reasonable wear and tear being excepted and to replace by suitable articles of similar type and manufacture all such parts thereof as would become broken, lost or worn out through misuse. The lease imposed upon the lessee the obligation to polish or clean or oil with lubricating oil of good quality the said plant, machinery, furniture and other fittings at such intervals as was usual and customary as to keep them clean and free from rust. It further imposed upon the lessee the obligation to use work and run the said mill and its machinery in a proper workmanlike and customary manner and to comply with requisitions, rules, bye-laws and regulations of the Government, municipality or any other local authorities or public bodies including the Indian Jute Mills Association as should be required. The lease stated that the lessee should perform and observe all the requisitions and restrictions imposed by the Indian Jute Mills Association on the lessor as a member in respect of the demised premises. It also imposed upon the lessee the obligation not to alter, take down or remove any machinery or fixture without the prior permission of the lessor provided that the lessee would be entitled to take down or remove anymachinery or fixture for the purpose of repair and/or replacement. Apart from the obligation of paying the employees' contribution and to keep in working order and not to transfer or sub-let, there was the obligation that at the expiry or sooner determination of the lease to deliver up possession of the demised premises together with all plant, machinery and fixtures in proper working condition, wear and tear, damage by fire, earthquake and other forced injury being excepted. The lessor covenanted to apply all moneys as soon as received by virtue of the policy of insurance for reinstating, rebuilding and restoring the demised premises and machinery with the said moneys as far as possible. It further imposed upon the lessor the obligation to purchase the entire jute-in-process at the mill at the then market rate or at the rate mutually agreed upon. The lessor, however, would not be in any way liable for any contract or commitment which the lessee might have entered and not fulfilled at the time of determination of the lease. The lease recited that the lessee would be at liberty to install roll forma in the mill if and when required up to an approximate sum not exceeding Rs. 3,00,000 and, at the expiry of the lease, the lessor shall take over the same at cost price less the usual depreciation but Without taking into account the development rebate. It further referred that before the purchase and installation of the roll forma, the lessee should intimate to the lessor the price at which and the name of the firm or the company from which the roll forma was to be purchased. In case such roll forma was to be purchased from any firm or company other than certain named firms, the lessee was obliged to obtain previous consent in writing from the lessor for the same. All other appliances including additional roll forma, tools and accessories that might be brought into or belong to the lessee should belong to the lessee and should be removed by the lessee prior to the expiry of the lease. It was further stipulated that the lessee should apply for membership of the Indian Jute Mills Association and if accepted should continue as member during the subsistence of the lease and should also be solely responsible for the demised premises. Clause 9 stated that in the Bemis Grouping, the Jessor company was in group--in Hessain. The lessee undertook and stipulated that it would not act in any way by which the said grouping might be lost. If at any time the lessor was demoted from the position it held, the lessee would be responsible and liable to compensate the lessor.
7. It is always a difficult question to determine whether a particular letting out by a company or business concern amounts to doing of a business or enjoyment of property as owner. Every such case must be decided on the facts and circumstances of each case. Judicial decisions only emphasise that it is important to find out the predominant intention of the parties in the background of all the surrounding circumstances of the case, Counselfor the asscssee contended before us that the finding in this case that the leasing out. of the mill premises by the assessee was exploitation of commercial assets was a finding of fact and that it had been held so by the Tribunal. Counsel submitted that such a finding was a finding of fact. It was urged that there being no specific question with regard to this, it was not possible for this court to go into the question of validity of that finding. Counsel for the revenue, however, rightly pointed out in our opinion, that whether a particular asset was a commercial asset or not and whether use of commercial asset was the exploitation of commercial asset or not, could not be said to be a finding on pure fact; it was a mixed question of law and fact. For determining whether an asset is commercial or otherwise, it is the use to which it is put that gives it the characteristic of being commercial or non-commercial asset. A building, a car or a house may be a non-commercial asset or commercial asset depending upon the purpose and the user of it. In this case, reliance was placed by counsel for the revenue on the decisions in the cases of Commissioner of Excess Profits Tax v. Shri Lakshmi Silk Mills Ltd. : 20ITR451(SC) , Narain Swadeshi Weaving Mills v. Commissioner of Excess Profits Tax : 26ITR765(SC) , Sultan Brothers P. Ltd. v. Commissioner of Income-tax : 51ITR353(SC) and New Savan Sugar & GUR defining Co. Ltd. v. Commissioner of Income-tax : 74ITR7(SC) . Counsel for the assessee, on the other hand drew our attention and relied mainly on the decision of the Bombay High Court in the case of Commissioner of Income-tax v. National Mills Co. Ltd. : 34ITR155(Bom) as also on the decisions in the cases of Lakshmi Industries (P.) Ltd. v. Commissioner of Income-tax : 41ITR645(Mad) , C. P. Pictures Ltd. v. Commissioner of Income-tax : 46ITR1181(Bom) and I. C. I. (India] P. Ltd. v. Commissioner of Income-tax : 83ITR710(SC) . Most of these decisions were reviewed by this court in the case of Everest Hotels Ltd. v. Commissioner of Income-tax [see page 779 (Appendix) (infra), judgment delivered on 18th January, 1973--Appeal from Original Order No. 537 of 1964], There the learned Chief Justice, after reviewing all these cases, formulated the following principles:
(1) In order to be a business income within the meaning of Section 10 there must be evidence of exploitation of commercial asset.
(2) Exploitation of a commercial asset does not necessarily mean exploitation by the assessee himself at all material times. The assessee may temporarily cause it to be exploited by another person against payment of consideration and for this purpose may also execute a lease for a fixed period even with clauses of option to renew.
(3) But in order that the income derived from the lease would be taxable under Section 10 it must be shown that the lessor's intention wasthat during the period of the lease the asset leased out must remain and be treated as a commercial asset and exploited as such.
(4) This intention of the lessor referred to above has to be ascertained from the cumulative effect of all the terms of the lease and other material circumstances.
8. Keeping the aforesaid principles in mind, we have to examine the facts of the instant case. It is true, as the counsel for the revenue rightly pointed out, that certain clauses which the Division Bench in that case was dealing with, were entirely different from the clauses of the lease in the instant case. Counsel for the revenue drew our attention to the decision of the Supreme Court in the case of New Savan Sugar & Gur Refining Co. Ltd. v. Commissioner of Income-tax : 74ITR7(SC) , wherein some of the terms of the lease were more in favour of the assessee but even then on the totality of the facts, the Supreme Court came to the conclusion that letting out was not doing of business but the enjoyment of a property by the owner. It is difficult and, in our opinion undesirable, to compare term by term the lease of one case with the lease or facts of another case. These cannot ever be in all respects the same. We have to find out, as mentioned before, the fact whether the intention of the assessee was that the asset should be treated as commercial asset and exploited as such. That can only be found out from the circumstances and the background of the facts leading to the leasing out of the property, the conduct of the parties prior to or at the time and the terms and conditions of the lease. In the instant case, we have noticed that the parties wanted to settle the deadlock ; there were heavy losses due to more than one factor, namely, quarrels between groups of directors and heavy costs ; they attempted a settlement through the mediation of the Central Government's investigation. These indicated not the desire not to carry on the business or wind up the business but to regularise the business and to carry on and to exploit commercial asset more fully and economically. Then there was an attempt of settlement through the Jute Controller which also, in our opinion, is consistent with this attitude. Then, we have to bear in mind that the company had in the meantime placed orders for electrification of power plant at heavy cost and the company had suffered several huge amounts of loss as indicated in the directors' report mentioned before. In the premises, making of trading profit without incurring loss, cannot be said to be inconsistent with the desire to maintain and exploit the asset. It is in this background that we have to examine the terms of the lease. We have mentioned the lease where the obligation, working time agreement and licence of the Indian Jute Mills Association and membership thereof were given to the lessee with further, obligation that the lessor was in one group and that group shouldbe maintained and if there was any alteration of the lessor's grouping, the lessee would be responsible for the same. Reading the various clauses of the lease which we have referred to before, in our opinion, the same indicated an intention of the lessor to maintain and to ensure that the asset retained its commercial character and was exploited as such and was used as commercial asset facilitating the resumption of the asset by the lessor by itself for the purpose of using it as a commercial asset. If that is the true intent and purpose of the lease, then in our opinion, the income from the instant letting out must be considered to be the income under Section 28 of the Income-tax Act, 1961. In the premises, we are of the opinion that the Tribunal came to a correct conclusion on this aspect of the matter.
9. The question No. 1 is, therefore, answered in the affirmative and in favour of the assessee.
10. On the second question, we are of the opinion that the Tribunal was in slight error in framing it. It is not quite right that if the answer to question No. 1 was in the negative then only the question whether the income was the income from the same business or otherwise arises. Even if the answer to the first question is in the affirmative, this controversy arises and indeed the Tribunal has gone into the question and expressed opinion on the same. We, therefore, reframe the question as follows :
'Whether the Tribunal was right in holding that the assessee was entitled to carry forward and set off the unabsorbed depreciation and loss of earlier years against the income of the present year ?'
11. The answer to this question depends upon the question whether the income derived from the letting out was the income from the same business in which loss had occurred previously. Counsel for the assessee drew our attention to the several decisions on the question as to whether the business of different activities carried on by the assessee should be considered the same business. Reliance was placed on the decision in the case of Mundul-poor Coal Co. Ltd. v. Commissioner of Income-tax 0043/1965 : 58ITR199(Cal) of this court and on the decision of the Supreme Court in the case of Standard Refinery & Distillery Ltd. v. Commissioner of Income-tax : 79ITR589(SC) . It is the that if there are different activities of two businesses whether the same result in the same business or not has to be found out by judging whether there is sufficient amount of interlacing or inter-connection or dovetailing between those two activities so as to be linked up and considered as the same. But this principle, in our opinion, would not apply in a case where income is by doing of business by the exploitation of the same asset which used to be exploited by the assessee himself prior to the period. The only difference is that the manner of exploitation is different, that is to say, previously the assessee himself used to run the mill and now the assessee exploited through the lease ; the income is the income of theassessee, the business of exploitation of the commercial asset and the assetbeing the same, the business income derived from the same, must beconsidered to be the same income. In the aforesaid view of the matter,the question No. 2 as reframed is answered in the affirmative and in favourof the assessee.
12. In the facts and circumstances of the case, each party will pay and bear its own costs.
13. I agree.