TaxTMI 
TaxTMI 
2011 (6) TMI 681
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....etting out of its factory buildings. The assessee was put on notice that such rental was to be considered under the head "Income from house property", whereupon it was replied by the assessee that what was let out was not mere building or one or two items of plant but, the total facility itself. As per the assessee, it could not operate this facility temporarily due to sickness and pending approval of rehabilitation from BIFR, it had given it on licence basis. As per the assessee, since it had let out facilities only due to temporary operational and financial constraints, the receipts were to be treated as business income only. However, the Assessing Officer was not impressed. He held as follows : "The assessee stopped its business activities and started leasing out the factory buildings and it has been receiving lease rents. It has no intention to restart the business activity which is evident from the fact that it had stopped business way back in the year 2002-03 and it did not resume the business activity even as on date. The company was registered as sick company pursuant to the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985. As can be seen from the....
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....s. It was only using its assets through a third party to tide over financial difficulties, but possession of the business always remained with it. As per the learned Commissioner of Income-tax (Appeals), the assessee had not stopped its business permanently but owing to business exigencies, it had found it more advantageous to lease out the facility temporarily to a third party. He was of the opinion that the decision of the hon'ble apex court in the case of Vikram Cotton Mills Ltd. clearly supported the case of the assessee. He, therefore, directed the Assessing Officer to treat the income from letting out the assets as business income and also to allow deduction available against such business income. Now before us, the learned Departmental representative, strongly assailing the order of the learned Commissioner of Income-tax (Appeals), submitted that the learned Commissioner of Income-tax (Appeals) placed reliance mainly on the case of Vikram Cotton Mills Ltd. [1988] 169 ITR 597 (SC) which was overruled by a larger Bench of the hon'ble apex court in the case of Universal Plast Ltd. v. CIT [1999] 237 ITR 454 (SC). According to him, there was no intention for the assessee to resu....
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....ntion to resume operation of the refinery itself and whether the licencing was temporary in nature. Before that, it has to be mentioned that the Assessing Officer though in his order, part of which is reproduced at para 2 above, had mentioned that the amount of lease rental was to be treated as income from other sources, in his computation, considered it as "income from house property". Obviously, there is no question of the amount being considered under head income from house property. It was an indivisible licence of a unit inclusive of plant and machinery and personnel. Therefore, the Assessing Officer was aware that even if it was considered that the business activities were stopped, it would still have to be considered as "income from other sources". Coming to the question raised before us as to whether there was only a temporary lull in the business of the assessee and whether the licencing was temporary with the intention to resume operation by itself, it would be necessary to reproduce relevant clauses in the licence agreement dated December 20, 2006 mentioned supra : 1. SSIEL hereby grants a licence to the licencee for a period of three years on and with effect from the....
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....from the licencee. Where the cost is incurred by SSIEL in rectifying such loss, the same shall be reimbursed by the licencee within 7 days of being notified and any failure in this regard shall be deemed to be a breach of this agreement. 6. Both parties have agreed that the licencee shall directly incur and meet out all direct and indirect overheads including salaries, repairs and maintenance, and other expenses required for running of refinery and its associated facilities and the same shall be reviewed from time to time by both parties. Both parties agree to put in their best efforts to optimise the expenditure in order to improve the efficiency of operations and maximise the profit potential. This covenant on the part of the licencee to defray all the expenses during the tenure of this agreement shall operate notwithstanding the fact whether the licencee has utilised the facilities or not or has utilised the facilities to less than targeted levels of operation at any time during the tenure of this agreement. 7. The licencee has in addition to 6 above, agreed to pay to SSIEL, a licence fee as detailed below for the use of refinery facilities. Period Amount (Rs.) Year 1 3,00....
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....it is mentioned by the directors that revival would be possible only if support was forthcoming from the lenders during the implementation of the rehabilitation plan. Nevertheless, it is also mentioned by the directors at paragraph 2 of their report that they were confident of succeeding in the appeal before the appellate authority for industrial and financial reconstruction, which would facilitate revival of assessee-company's business operations. The assessee had filed an appeal before the appellate authority for industrial and financial reconstruction, challenging the rejection of its reference before BIFR, on January 17, 2006. Hence, contemplation of the assessee was always to revive its business and not to let its premises out permanently. The accounts were also prepared by them on a going concern basis. The assessee also had current assets which included inventory of Rs. 174.57 lakhs as seen from schedule 7 of its audited accounts statement for the relevant previous year. Such inventory included raw materials of Rs. 53.75 lakhs, work in process of Rs. 26.34 lakhs, finished stock Rs. 64.35 lakhs. No doubt, these were held at the same value from the previous financial year ende....