Rayat Sahakari Sakhar Karkhana Ltd. Vs ITO (ITAT Pune)
Temporary Letting ≠ End of Business: User Charges Are Business Receipts – ITAT Holds Sugar Factory Income as Business Income
Assessee-sugar factory had temporarily handed over crushing operations to Sahu SSK under a collaboration agreement dated 27.08.2009, receiving user charges linked to MT crushed. AO treated these receipts as “Income from Other Sources”, held that Assessee had ceased business, & denied set-off of brought-forward losses of ₹26,86,106.
CIT(A)-NFAC upheld the view, treating activity as passive income. Tribunal, after examining the agreement & audited financials, held that the arrangement was temporary exploitation of commercial assets to revive the business, not discontinuance. Tribunal relied on SC in CIT Vs Vikram Cotton Mills Ltd, observing that intention, not form, decides whether business continues; here, Assessee retained machinery, claimed depreciation, incurred admin, salary, interest & other business expenses of ₹1.54 crore, & maintained heavy working-capital/term-loan obligations—clearly indicating ongoing business. User charges (~50% of gross receipts) were integrally connected with core operations. Tribunal held income to be business income, not IOS, & allowed set-off of brought-forward loss.
Result: Appeal allowed; ₹26.86 lakh treated as business income & loss set-off permitted.
FULL TEXT OF THE ORDER OF ITAT PUNE
