TaxTMI 
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2013 (9) TMI 238
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....red in holding that the income earned by the appellant firm from furnishing, providing and maintaining a commercial space, according to the requirements of the occupier, is to be assessed as income from "House Property" and income from "Other Sources" and not under the head "income from business" as claimed by the him. 3. Because one having deliberated and consciously holding, in the AY 2005-06, that the aforesaid income is taxable under the head "income from business" and the facts and circumstances remaining same, the Ld. AO was precluded and has erred in law in assessing the said income under the head "House Property" and other Sources". 4. Because after having made the assessment u/s 143(3) in the status of "Firm", the authorities below were not justified to change the head of income from "income from business" to "house property" or "other sources". 5. Because the appellant denies levy of interest U/s 234B of the Income Tax Act. 6. Because the order appealed against is contrary to the facts, law and principals of natural justice." ITA No. 292/Agra/2012 by the Assessee for A.Y. 2008-09:- "1. BECAUSE, on due consideration of the facts and in the circumstances of the case '....
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....ant'. 5(a) Because, on the facts and circumstances of the case the learned authorities below were not justified in taxing 'Receipts from maintenance charges' of Rs.10,04,016/- as 'Income from Other Sources' ignoring the facts of the case. (b) Because, in arriving of the conclusion the learned authorities below had taken a very rigid and conservative completed under section 143(3) could not have been denied in the year unless the operation of the assessment order is suspended/stayed. 6. Because, the claim of set off of brought forward of losses as found allowable in A.Y. 2005-06 in assessment completed under Section 143(3) could not have been denied in the year unless the operation of the assessment order is suspended/stayed. 7. Because, on the facts and circumstances of the case the learned 'AO' was not justified in disallowing the claim of interest on partners capital account amounting to Rs.11,57,542/-. 8. Because, after having made assessment under section 143(3) in the status of Firm, as claimed by the assessee the authorities below were not justified in making the change in the heads of income as there can be no valid partnership to share either 'House Property Income' or....
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....e assessee firm has furnished the said floor with Air Condition System and other miscellaneous amenities. The A.O. noticed that in the second agreement which is in fact consequence of the first agreement, the entire receipt of Rs.10,81,248/- is termed as receipts against furnishing. The third agreement executed on 16.12.2004, where assessee will have to maintain and upkeep the premises to thesatisfaction of the GAIL and the entire annual receipts of Rs.10,04,016/- were termed as maintenance receipt. The A.O. noticed that all these three receipts were claimed as business receipt by the assessee. The entire income was claimed to be taxed under the head "income from business & profession". 5. The A.O. noticed that in fact this is the case where assessee entered into the three separate agreements with the same person. All the three agreements, their terms and conditions, their receipts, their rights and obligations can be easily separated. At the very outset, it is clarified that it is not the case of composite rent, where rent is received on account of letting out the property and the service charges for various facilities along with the properties like lift, electricity, water, gas,....
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....ved on account of letting out the properties and services provided to lessee. This is the case where receipts are clearly identifiable and attributable to certain things, so, the issue raised by the ld. Counsel vide paragraph nos. 5 & 6 are not applicable in this case. As regards paragraph no.9, it is stated that the doctrine of Res-judicata or Estoppels does not apply to the Income-tax proceedings. They provided one more opportunity vide order sheet entry dated 18.09.2008 and the ld. Counsel stated that "receipts are to be treated as business income as submitted in details vide reply dated 08.09.2008. The A.O. noted that Hon'ble Supreme Court in the case of Shambhu Investment Pvt. Ltd. vs. C1T (2003) 129 Taxman 70 has stated the yard stick to decide the treatment of income i.e. whether it is to be taxed under the head "Income from Business & Profession" or income from "house property" is "the prime object or the intention of the assessee". The A.O. to ascertain the intention of the assessee, statement of partner Shri Prakhar Garg was recorded on 10.09.2008. 6. The A.O. found that it is unequivocally clear that the prime object of the assessee was to let out the property. The A.O.....
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....ject of the assessee, legal position as per the Income Tax Act and as per the agreement and finally on examination of books of account found that it is clearly established that the receipt under first agreement i.e. lease agreement receipts are to be taxed under income from "house property" not as "income from business & profession" claimed by the assessee. Second agreement 8. The A.O. noticed that in the second agreement the assessee has agreed to furnish the said third floor of the said building as per the requirement of GAIL. Thereby, the assessee has furnished and finished a vacant floor, installed Air Conditioner System and converted it into the office. The receipt against furnishing and finishing of Rs.10,81,248/- was treated as income from business & profession by the assessee firm. The second agreement was in fact consequence of first agreement and was executed after 14 days of first agreement. To examine how this income fall under the head income from business & profession, the books of account were examined by the A.O. and the statement of partner Shri Prakhar Garg was also recorded on 10.09.2008. 9. The books of accounts were examined by the A.O. with a view that any ....
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....ting & Stationery 530/- 2. Bank Charges & Commi. 5210/- 3. Audit Fee 6673/- 4. Postage exp. 200/- rd 1/3 of 12,613/- = 4,204/- 5. Conveyance 3,900/- 6. Building upkeep/ Nil maintenance exp. is reduced to Nil as it is deemed to have been allowed u/s 24 of I.T. Act, 7. Salary 42,000/- 8. Diesel Exp. 61,654/- 1,07,554/- 1,11,758/- Total income under business head 8,92,258/- Income from H.P. 2,02,199/- i.e 10,94,457/- Rounded of 10,94,460/-" 13. The assessee's claim of set off of brought forwarded loss of A.Y. 2005-06 amounting to Rs.20,13,103/- was not accepted by the A.O. observing that the same issue was involved in the A.Y. 2005-06. 14. The CIT(A) confirmed the order of the A.O. as under:- (Page Nos. 17 & 18) "2.2 I have gone through the assessment order and the submissions made by the appellant. As regards the first agreement, it is a simple case of renting a vacant property on rent/lease. As per provisions of section 22, the chargeability of income from house property is subject to the following conditions: The property shall consist of any building or land appurtenant thereto; (i) the assessee shall be the owner of the property and (ii) the property shall not be use....
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....a year, then the principle of consistency cannot be dragged to compel the AO to go on repeating such patent mistakes in future also. No principle of consistency can bind the assessee or the Revenue to go on repeating mistakes, once committed."" 15. The ld. Authorised Representative reiterated the submissions made before Revenue authorities and submitted that assessee firm came into existence vide Instrument of partnership dated 01.11.2004 (A.Y. 2005-2006) being into business as defined in Para-4 of Partnership Deed which is clear terms specifies the intention of the partners forming the partnership Firm and object of formation of Partnership. He submitted that the main object and the business of the Firm shall be to venture into business of real-estate and alike activities like giving properties on lease or sub-lease, providing annual maintenance contract for any type of facilities, providing generators on hire and providing invertors on hire etc. The ld. Authorised Representatives submitted that assessment for the first assessment year (A.Y.2005-06) of business came to be completed under section 143(3) of the Act by the Additional Commissioner of Income Tax, Range-4, who vide Ass....
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....or either fact or that being issue in a case or cases for a year or years should not be deviated from the same case or in other cases in subsequent proceedings unless there is change in the circumstances, justifying departure there from. The ld. Authorised Representative submitted that partners of the assessee firm came together and joined hands to do business and this intention of the assessee finds due mention in the partnership deed. The ld. Authorised Representative submitted that on perusal of Balance Sheet, Capital Account and Profit & Loss books of accounts of the assessee may reveal that assessee has undertaken the activities as a business, and fulfills all the conditions as are required to be fulfilled in order to get the income assessed under the head business. It is requested that statement of the partners were recorded by the Additional CIT, Range-4, during the course of assessment proceedings for Assessment year 2005-06, those statements are vital for adjudication of the issue under consideration and may kindly be seen. It also needs due consideration that the Commercial Complex as acquired by the assessee and construction expenses incurred thereon were largely met by ....
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.... is assessable under the head income from business, therefore, to maintain consistency a different view cannot be taken in the year under consideration and second aspect of the contention is merit of the case. So far as to examine first aspect of the contention of the assessee i.e. "consistency", we would like to refer certain judicial pronouncements which are as under:- C.K. GANGADHARAN & ANR. vs. COMMISSIONER OF INCOME TAX (2008) 304 ITR 61 (SC) - The relevant abstracts of the judgment are as under:- (Pages 63 to67) "In Bharat Sanchar Nigam Ltd. & Anr. vs. Union of India & Ors. (2006) 201 CTR (SC) 346 : (2006) 3 SCC 1, it was noted as follows : "20. The decisions cited have uniformly held that res judicata does not apply in matters pertaining to tax for different assessment years because res judicata applies to debar Courts from entertaining issues on the same cause of action whereas the cause of action for each assessment year is distinct. The Courts will generally adopt an earlier pronouncement of the law or a conclusion of fact unless there is a new ground urged or a material change in the factual position. The reason why Courts have held parties to the opinion expressed in....
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....llows: "16. We are unable to appreciate that objection raised against the prosecution of this appeal by the appellant or other SLPs filed in similar matters. Sometimes, as it was stated on behalf of the State, the State Government may not choose to file appeals against certain judgments of the High Court rendered in writ petitions when they are considered as stray cases and not worthwhile invoking the discretionary jurisdiction of this Court under Art 136 of the Constitution, for seeking redressal therefore. At other times, it is also possible for the State, not to file appeals before this Court in some matters on account of improper advice or negligence or improper conduct of officers concerned. It is further possible, that even where SLPs are filed by the State against judgments of High Court, such SLPs may not be entertained by this Court in exercise of its discretionary jurisdiction under Art. 136 of the Constitution either because they are considered as individual cases or because they are considered as cases not involving stakes which may adversely affect the interest of the State. Therefore, the circumstance of the non-filing of the appeals by the State in some similar matt....
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....State of West Bengal vs. Debdas Kumar 1991 Suppl. (1) SCC 138, wherein it was observed at para 5 as follows : "5. It is then contended that ss. 3(2) and (3) make distinction between the employees covered by those provisions and the employees of the aided schools taken over under s. 3(2). Until the taking over by operation of s. 3(4) recommendation is complete, they do not become the employees of the Government under s. 4 of the Act. The Government in exercise of the power under s. 8 constituted a committee and directed to enquire and recommend the feasibility to take over the schools. On the recommendation made by them, the Government have taken decision on 13th Jan., 1981 by which date the respondents were not duly appointed as the employees of the taken over institution. Therefore, the High Court cannot issue a mandamus directing the Government to act in violation of law." In CCE vs. Hira Cement (2006) 2 SCC 439 at para 24 the position was reiterated. In Chief Secretary to Government of Andhra Pradesh & Anr. vs. V.J. Cornelius & Ors. (1981) 2 SCC 347 it was observed that equity is not relevant factor for the purpose of interpretation. It will be relevant to note that in Karam....
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....abstracts of the judgment are as under:- (Pages 282 to 287) "The State respondents have raised a preliminary objection and contended that the plea of BSNL and the other petitioners including the Union of India is barred by res judicata because the issue has been decided by this Court inter parties in State of UP vs. Union of India (supra). The plea has been resisted by the petitioners on three grounds, viz., (i) that the issue of the legislative competence of States to impose sales-tax under Entry 54 of List II on transactions which are purely rendition of services, was not raised in that case, (ii) that the decision was without jurisdiction because of Art. 131 of the Constitution, and (iii) that every assessment year gave rise to a fresh cause of action. According to the petitioners in any event the decision requires reconsideration. In State of UP vs. Union of India & Anr. (supra), the two learned Judges of this Court had construed the definition of 'business', 'dealer', 'goods' and 'sale' under ss. 2(aa), (c), (d) and (h) of the U.P. Trade Tax Act, respectively, to come to the conclusion that the DoT was a 'dealer' under the U.P. Act. This Court also held that a telephone com....
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....nce, the validity of a taxing statute is impeached by an assessee who is called upon to pay a tax for a particular year and the matter is taken to the High Court or brought before this Court and it is held that the taxing statute is valid, it may not be easy to hold that the decision on this basic and material issue would not operate as res judicata against the assessee for a subsequent year. That, however, is a matter on which it is unnecessary for us to pronounce a definite opinion in the present case. In this connection, it would be relevant to add that even if a direct decision of this Court on a point of law does not operate as res judicata in a dispute for a subsequent year, such a decision would, under Art. 141, have a binding effect not only on the parties to it, but also on all Courts in India as a precedent in which the law is declared by this Court. The question about the applicability of res judicata to such a decision would thus be a matter of merely academic significance." (Emphasis, italicised in print, ours) After refraining from expressing any final opinion on the applicability of res judicata to assessment orders for successive years, the Court was quite unequiv....
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....on may be different and said : "Even if the said orders are passed under the same provisions of law, it may theoretically be open to the party to contend that the liability being recurring from year-to-year, the cause of action is not the same; and so, even if a citizen's petition challenging the order of assessment passed against him for one year is rejected, it may be open to him to challenge a similar assessment order passed for the next year. In that case, the Court may ultimately adopt the same view which had been adopted on the earlier occasion; but if a new ground is urged, the Court may have to consider it on the merits, because, strictly speaking the principle of res judicata may not apply to such a case. That, in fact, is the effect of the decision of this Court in the Amalgamated Coalfields Ltd. & Anr. vs. Janapada Sabha, Chhindwara (1963) Supp. 1 SCR 172.........In our opinion, the said general observations must be read in the light of the important fact that the order which was challenged in the second writ petition was in relation to a different period and not for the same period as was covered by the earlier petition." But as far as a challenge to the same assessme....
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....of action for each assessment year is distinct. The Courts will generally adopt an earlier pronouncement of the law or a conclusion of fact unless there is a new ground urged or a material change in the factual position. The reason why Courts have held parties to the opinion expressed in a decision in one assessment year to the same opinion in a subsequent year is not because of any principle of res judicata but because of the theory of precedent or the precedential value of the earlier pronouncement. Where facts and law in a subsequent assessment year are the same, no authority whether quasi judicial or judicial can generally be permitted to take a different view. This mandate is subject only to the usual gateways of distinguishing the earlier decision or where the earlier decision is per incuriam. However, these are fetters only on a co-ordinate Bench which, failing the possibility of availing of either of these gateways, may yet differ with the view expressed and refer the matter to a Bench of superior strength or in some cases to a Bench of superior jurisdiction. In our opinion, the preliminary objection raised by the State of UP therefore, rests on a faulty premise. The conte....
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....r dealing with the contention, the Full Bench expressed the following opinion: "The principle to be deducted from these two cases is that where the question relating to assessment does not vary with the income every year but depends on the nature of the property or any other question on which the rights of the parties to be taxed are based, e.g., whether a certain property is trust property or not, it has nothing to do with the fluctuations in the income; such questions, if decided by a Court on a reference made to it would be res judicata in that the same question cannot be subsequently agitated." One of the decisions referred to by the Full Bench was the case of Hoystead vs. Commissioner of Taxation (1926) AC 155 (PC). Speaking for the Judicial Committee, Lord Shaw stated : "Parties are not permitted to begin fresh litigations because of new views they may entertain of the law of the case, or new versions as to what should be a proper apprehension by the Court of the legal result either of the construction of the documents or the weight of certain circumstances. If this were permitted litigation would have no end, except when legal ingenuity is exhausted. It is a principle of ....
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....abstracts of the judgment are as under:- "The brief facts of the case are that the respondent, a company engaged in the manufacture and sale of paints, had, as a consistent practice, valued its goods-in-process and finished products exclusively at cost of raw materials totally excluding overhead expenditure. The justification for the practice, according to the respondent, was that the goods being paints had limited storage life and, if not quickly disposed of, were liable to lose their market value. For the assessment years 1963-64 and 1964-65, the Income-tax Officer held that there was no justification to recognise a practice of valuing stock otherwise than in accordance with the well-recognised principle of accounting which required the stock to be valued at cost (viz., raw material plus expenditure) or market price, whichever was lower. He, therefore, calculated the value of the opening and closing stocks by adding the overhead expenditure. The Appellate Assistant Commissioner confirmed that order. On appeal, the Appellate Tribunal held that there was no evidence to show that the goods in stock deteriorated in value and that there was no justification for excluding the overhead....
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....perly be deduced from the accounts maintained by the assessee, even if the accounts are correct and complete to the satisfaction of the Officer and the income has been computed in accordance with the method regularly employed by the assessee. What is to be determined by the Officer is a question of fact, i.e., whether or not income chargeable under the Act can properly be deduced from the books of account, and he must decide the question with reference to the relevant material and in accordance with the correct principles. It is not only the right, but the duty of the Assessing Officer to consider whether or not the books disclose the true state of accounts and the correct income can be deduced therefrom. It is incorrect to say that the Officer is bound to accept the system of accounting regularly employed by the assessee the correctness of which had not been questioned in the past. There is no estoppel in these matters and the Officer is not bound by the method followed in the earlier years. It is a well-recognised principle of commercial accounting to enter in the profit and loss account the value of the stock-in-trade at the beginning and at the end of the accounting year at co....
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....and conclusive between the parties only in relation to that year. Decisions given in an assessment for an earlier year are not binding either on the assessee or the department in a subsequent year. 18.2 In the case under consideration, let us see what the order of A.O. is for A.Y. 2005-2006 on which the assessee relied upon to follow by Revenue on principle of consistency. To appreciate the facts, we reproduce relevant abstract of the A.O.'s order for A.Y. 2005-2006 as under:- "4. This is the first year of business of the assessee firm which was constituted through partnership deed dated 01.11.2004. The assessee firm stated it is engaged in the business venturing into real estate and alike activities like giving properties on lease or sub-lease providing annual maintenance contract for any type of facilities, providing generators on hire and providing invertors on hire etc. 5. During the year the assessee has acquired (taken on long lease) a property G10/8 Padam Deep Tower Sanay Place Agra admeasuring 6925 sq. feet which it has leased to M/s Gas Authority of India Ltd., Agra for a monthly sum of Rs.96,540 per month. 6. Partners of the firm produced necessary documents in suppor....
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....ction 145 of the Income-tax Act, 1961. 18.4 The question in Radhasoami Satsang vs. CIT (Supra) was whether the Tribunal was bound by an earlier decision in respect of an earlier assessment year that the income derived by the Radhasoami Satsang, a religious institution, was entitled to exemption under sections 11 & 12 of the Act. The Court held that they are aware of the fact that strictly speaking res-judicata does not apply to income- tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year, unless there was any material change justifying the Revenue to take a different view of the matter. If we consider the facts of the case under consideration in the light of above judgment, we find that there were sufficient materials and changes before the A.O. for the year under consideration to decide the issue. The A.O. examin....
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....ies can terminate the agreement unless mutually agreed in writing for termination. The Agreement can however be extended for further period after 10 years on mutually agreed Terms & conditions. (4) That the second party will pay to the first party a sum of Rs.90,104/- (Rupees Ninety Thousand One Hundred Four only) per month as hiring charges of furniture etc. which shall be payable latest by 15th of next month. The charges shall be subject to an escalation of 20% every after 48 months. Payment of monthly charges shall be made by cheque and shall be subject to applicable tax deduction." 18.7 The relevant clause of partnership, of which copy has been placed at page nos.12 to 18, are reproduced as below:- (Page No.14 Paper Book) "4. That main object and the business of the firm shall be to venture into business of real estate and alike activities like giving properties on lease or sub lease, providing annual maintenance contract for any type of facilities, etc. However, all the partners shall have the liberty to step into new line of activities as may be mutually decided by all the three partners. Meaning thereby, the nature of business may be altered/amended with the mutual consen....
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....ssessee is the owner, other than such portion of such property as he may occupy for the purpose of any business or purpose carried on by him the profits of which are chargeable to income tax, shall be chargeable to income tax under the head"Income from house property". Income from other sources provides under chapter IV-F. Section 56 provides that income of every kind which is not to be excluded from the total income under this Act shall be chargeable to Income Tax under the head "Income from other sources", if it is not chargeable to Income Tax under any of the heads specified in section 14 items A to E. We find that the scheme of the Act is that income is to tax under appropriate heads of income as provided in the Act. The Apex Court in the case Commissioner of Income Tax vs. V. MR. P. Firm [1965] 56 ITR 67 (SC) had pointed out that the doctrine of "approbate and reprobate" is only a species of estoppel; it applies only to the conduct of parties. As in the case of estoppel, it cannot operate against the provisions of a statute. If a particular income is not taxable under the Income-tax Act, it cannot be taxed on the basis of estoppel or any other equitable doctrine. Equity is ou....
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....East India Housing & Land Development Trust Ltd. v. CIT [1961] 42 ITR 49 (SC) where it was observed that 'the income derived by the company from shops and stalls is income received from property and falls under the specific head described in section 9. The character of that income is not altered because it is received by the company formed with the object of developing and setting up markets'." (p. 358) In the case of Sultan Bros. (P.) Ltd. (supra), the assessee had leased out the building fully equipped and furnished to be used as a hotel, and the matter in issue was as to whether the income derived under that lease was taxable as business income or income from property, or income from other sources more specifically under sub-section (4) of section 12 of the Income-tax Act, 1922, which dealt with composite income in the case of letting out of furniture with building. The Court held that lease was a composite one and therefore, income so collected was to be dealt with under section 12(4). While so holding the Court observed that : "Because of the composite character of the income it becomes a new kind of income not covered by section 9, i.e., income not from ownership of the bui....
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.... case was situated on Park Street, Calcutta, and consisted of numerous residential flats and over a dozen shops. Those tenants in addition to paying rents, had to make separate payments which included charges for electric current, for use of lifts, for supply of hot and cold water, for arrangement for scavenging, for providing watch and ward and other amenities. The Apex Court proceeded on the basis that the assessee had two sources of income, one by way of rental income and the other from service charges. The service charges collected by the assessee was held by the Court to be income from business. The law laid down in the case of Karnani Properties Ltd. (supra) thus, was that rent derived from letting would be assessable as income from property. That decision is clearly in accordance with the decision of the Constitution Bench in the case of Sultan Bros. (P.) Ltd. (supra) which had approved the decision of the three Judge Bench in the case of East India Housing & Land Development Trust Ltd. (supra). S.G. Mercantile Corpn. (P.) Ltd. v. CIT [1972] 83 ITR 700 (SC) was a case of an assessee-company which had obtained a market place on lease and sublet portions of the same to diffe....
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....by an owner thereof, but not exploitation of business assets." (p. 454) On the facts of the case before it, the Court affirmed the findings of the High Court that income received by the assessee from the properties was not business income. This Court in the case of CIT v. V. Shanmugham [1984] 147 ITR 6921 on the facts of the case before it and without reference to any of the decisions of the Apex Court or this Court held that income derived by way of charges received from the changing body of occupants in lodging houses was to be assessed as business income. It was held that running of lodging house, on the facts of that case was not as owner of the property. In the case of Anaikar Traders & Estates (P.) Ltd. v. CIT [1990] 186 ITR 1752 this Court, after referring to the decision of the Apex Court in East India Housing & Land Development Trust Ltd.'s case (supra) as also the case of Lakshmi Silk Mills Ltd. (supra) and United Commercial Bank Ltd. v. CIT [1957] 32 ITR 688 held that the income derived from the letting out of buildings owned by the assessee whose object was acquisition and possession of property with the incidental object of selling or leasing the same was not income....
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....ouse" is defined in the Oxford Dictionary of English 10th Edition as : a building for human habitation especially one that is lived in by a family or by a small group of people consisting of ground floor and one or more number of storeys. The word 'house' in association with other words also has many other meanings. But, a commercial building is not regarded as a house. That, however, would not take the income from such buildings out of the ambit of section 22. Though it is not clear from the context as to why the Act describes income from property as income from house property, the substantive provision of law which creates the charge and obligates the person who receives such income to have it assessed under that head does not confine its application only to house property, but extends to all buildings whether such buildings is used as dwelling house or for other purposes. It has been held by the Supreme Court uniformly in all cases where the issue was the head under which the rental income from buildings is to be assessed, that such income is to be assessed under the head 'Income from properties/Income from house properties'. The earliest of these decisions is in the case of Ea....
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....49 (SC). . . ." (p. 704) After referring to the case of Karanpura Development Co. Ltd. (supra), which was a case of a lessee receiving rental income from its sub-lessee, the lease and sub-lease being coal mining leases, the Court observed thus : "So far as such assessees are concerned, who as part of their essential trading activity take lease of property and sublet parts thereof with a view to make profits, the dictum laid down above, in our opinion, would hold good and the profits would have to be treated as business income." Although it was held by the Constitution Bench in the case of Sultan Bros. (P.) Ltd. (supra) that whether a particular letting is business has to be decided in the circumstances of each case and that 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 an owner, in all the cases which have come before the Court involving commercial or residential buildings owned by the assessee it has been held that the income realised by such owners by way of rental income from a building, whether commercial building or residential house, is assessable under the....
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....The licensing not meant to be a temporary stop gap exploitation of commercial assets. It could not be in the contemplation of the assessee at the time it entered into the licence agreement to retain the assets any more as a commercial asset. Therefore, the High Court held that the licence fee could not be assessed as business income. On appeal to the Supreme Court, it w\s held as under:- "6. The question whether the amount earned by an assessee by leasing out the assets of the business would be an income from business carried on by it, has been the subject-matter of consideration by this Court as well as by various High Courts and it would be useful to refer to the judgments of this Court bearing on the issue. 7. In CEPT v. Shri Lakshmi Silk Mills Ltd. [1951] 20 ITR 451 (SC), the assessee-company was carrying on the business of manufacturing silk cloth and dyeing silk yarn. Due to lack of supply of silk yarn during the relevant period while keeping idle other plant and machinery, it let out dyeing plant for five months. The question which came up for consideration before this Court was whether the rent received from letting out the dyeing plant would fall under the head 'Income ....
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....rt found that the transaction of lease was quite apart from the ordinary business activity of the company, so it was impossible to hold that the letting out of the plant and machinery, etc., was at all a business operation when its normal business activity had come to a close. 9. In CIT v. Calcutta National Bank Ltd. [1959] 37 ITR 171 (SC), the case arose under the Excess Profits Tax Act. The assessee was a banking company. It owned a six-storeyed building of which only a part was under its occupation and the rest was let out to tenants. The question was whether the rent received from the tenants of the building was the business income of the company. The majority opinion was that realisation of rental income of the assessee was in the course of its business being in prosecution of one of its objects in its memorandum and was liable to be included in its business profits and was assessable to excess profits tax. That conclusion was reached on the premise that the term 'business' as defined in that Act was wider than the definition of that term under the Act. The minority, however, took a contrary view. 10. In Sultan Bros. (P.) Ltd. v. CIT [1964] 51 ITR 353 (SC), the assessee cons....
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....e High Court for winding up. The Industrial Financial Corpn., took possession of fixed assets under an English mortgage of those assets. The assessee-company had gone into losses and had stopped its manufacturing activity. Under the scheme evolved by the High Court under the Companies Act, the business assets were let out for ten years with an option for renewal for another ten years. The management of the company was transferred to a Board of Trustees approved by the High Court. The question which fell for determination was whether the rental income was assessable in the relevant assessment years as business income ? The findings of the Tribunal were that on account of financial crisis, the company found it advantageous to let out the machinery on hire for a temporary period and the company was able to liquidate its liability at the end of the lease period and regained possession of its assets; the company did not sell or otherwise dispose of its assets; there was nothing on record to show that the company was formed to let out plant and machinery on hire. The Tribunal came to the conclusion that the maintenance of the assets meant that the company had an intention to re-start the....
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....t factory and that it was just a make-shift transient alternative means of commercial exploitation of the commercial assets, so income from such letting could not be treated as the fruits of ownership simplicitor of the asset. The High Court also referred to various clauses in the agreement, particularly clauses 1, 2, 4, 7, 19, 20, 21 and 22 and concluded that 'licensee exercising its vested right of option to purchase the licenced premises, the assessee stands completely out in the cold'. The High Court recorded the following findings : "Therefore, it can very well be presumed that at the time the licence agreement was entered into, the intention of the ultimate outright sell out was already there. The assessee was already committed to the licensee for such a sell-out at licensee's pleasure and there is no means of the assessee falling back from that commitment. Therefore, it can very reasonably be inferred that the assessee in the case decided to go out of business as far as this particular factory was concerned. . . . The lease agreement is in fact a veiled agreement for lease-cum- sale . . . . We are of the opinion that the licensing is not meant to be a temporary stop gap ex....
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....or shall be entitled to terminate this agreement upon the expiry of the period of one month from the service of notice in writing by the licensor to the licensee to remove the breach or to make payment, as the case may be,m if the licensee fail to remove the breach or to make payment, as the case may be, within the said period. 16. If the licensee pass a resolution for winding up or are ordered to be wound up (except for the purpose of amalgamation or reconstruction) or if the licensee shall do or cause to be done or permit or suffer any act or thing whereby the licensor's right in the UPL factory and in the building, plant, machinery and equipment therein may be prejudiced or put in jeopardy, the licensor may without any notice determine this agreement and the licence and it shall thereupon be lawful for the licensor to enter upon and retake possession of the UPL factory." From a plain reading of the clauses noted above, what is clear is that they deal with a situation arising out of the breach of the terms of the agreement, entitling the licensor to terminate the agreement on the expiry of the period of one month from the service of the notice to the licensee. Clause 16 deals w....
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....estions referred to them, in favour of the revenue and against the assessee. These appeals are, therefore, dismissed with costs." Commissioner of Income-tax vs. Shambhu Investment (P.) Ltd. 249 ITR 47 [2001]/116 TAXMAN 795 (CAL.) The facts of the case and finding of the Court are as under:- "In this case the assessee, owner of certain furnished premises, let out the same to various persons or firms or organisations. Under the agreement, the assessee was to provide services like watch and ward staff, electricity, water and other common amenities. The income derived by the assessee from the said office premises was offered for taxation as business income and the same was assessed, accordingly, by the Assessing Officer. Subsequently, the Commissioner, invoking section 263, passed the assessment order and after giving hearing to the assessee, held that the same was erroneous and prejudicial to the interest of revenue and, therefore, remanded the matter to the Assessing Officer with a direction to assess the said income as property income. Aggrieved by the said order, the assessee preferred an appeal before the Tribunal and the Tribunal held that the order of the Assessing Officer wa....
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....e and last in the negative, then it has to be held that the lettings would be inseparable. (ii) National Storage (P.) Ltd.'s case (supra) : Three Judges' Bench of the Apex Court herein decided a case where the assessee had set up a film laboratory wherein the first floor had several vaults which were licensed to various film distributors for keeping the film negatives. The ground floor of the same building would be used only for the purpose of examination, cleaning, washing and rewinding of the films. The key of each vault was retained by the respective vault-holders. However, the key to the main gate was in the exclusive possession of the assessee. The fire alarm charges and other maintenance were paid by the assessee. While deciding the case, the Apex Court held that although it is a case of letting out such letting out was a 'complex one' and the return received by the assessee was not an income derived from exercise of the property rights only but was income received from carrying on an adventure or concern in the nature of trade and as such, such income is a business income. (iii) Admiralty Flats Motel's case (supra) : Here income of a partnership firm carrying on business ....
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....to be seen is what is the primary object of the assessee while exploiting the property. If it is found applying such test that the main intention is for letting out the property or any portion thereof, the same must be considered as rental income or income from property. In case it is found that the main intention is to exploit the immovable property by way of complex commercial activities, in that event it must be held as business income. In the light of the above, let us now apply such test in the present case. From the copy of the agreement produced before us it appears that the assessee has let out the furnished office at monthly rent payable month by month by the respective occupants. Services rendered to the various occupants according to the said agreement are not separately charged and the monthly rent payable is inclusive of all charges to the assessee. To decide this issue we cannot overlook the fact that the cost of the property was Rs. 5,42,443. A portion of the said property is used by the assessee himself for his own business purpose. The rest of the said property has been let out to the various occupiers as stated hereinbefore. It further appears that the assessee ....
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....various occupants by giving them additional right of using the furniture and fixtures and other common facilities for which rent was being paid month by month in addition to the security free advance covering the entire cost of the said immovable property. In view of the facts and law discussed above we hold that the income derived from the said property is an income from property and should be assessed as such. 9. In the light of our aforesaid discussion we answer question No. 1 in negative, i.e., in favour of the revenue and against the assessee. In fact there was a relationship of landlord and tenant between assessee and persons who hired office accommodation. 10. We answer question No. 2 also in the negative, i.e., in favour of the revenue and against the assessee. 11. Question No. 3 also, we answer in negative, that is, in favour of the revenue and against the assessee." 18.12 Hon'ble Delhi High Court in the case of R. Dalmia vs. CIT (1982) 137 ITR 665 (Del.) held that to determine the nature of transaction the dominant intention of the assessee has to be seen. If the intention is to embark or venture in nature of trade as distinguish from capital investment it would make....
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....tivity of carrying on the transactions must exist. But no test is decisive of the intention to carry on the business. In such cases general line of enquiry is to see whether a transaction that is said to have given rise to a taxable profit bears any of the "badges of trade". The Royal Commission sought to identify these "badges of trade" as follows (160 ITR page 77) - "(1) The subject-matter of the realization. While almost any form of property can be acquired to be dealt in, those forms of property such as commodities or manufactured articles, which are normally the subject of trading are only very exceptionally the subject of investment. Again property which does not yield to its owner an income or personal enjoyment merely by virtue of its ownership is more likely to have been acquired with the object of a deal than property that does. (2) The length of the period of ownership, Generally speaking, property meant to be dealt in is realized within a short time after acquisition. But there are many exceptions to this as a universal rule. (3) The frequency or number of similar transactions by the same person. If realizations of the same sort of property occur in succession over a....
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....into with a profit motive. Such motive must pervade the whole series of transactions effected by the person in the course of his activity. To infer from a course of transactions that it is intended thereby to carry on business ordinarily the characteristics of volume, frequency, continuity and regularity indicating an intention to continue the activity of carrying on the transactions must exist. But no test is decisive of the intention to carry on the business. In the light of all the circumstances and inference that a person desires to carry on the business may be raised. This decision, which was rendered in the context of the sales tax law, was relied upon and referred to in the context of the income-tax law in a judgment of the Supreme Court in Sole Trustee, Loka Shikshana Trust vs. Commissioner of Income-tax [1975] 101 ITR 234, 243-244. 18.16 Where the subject of letting out is the tenements, etc., as tenements, the income derived is from house property and is assessable under section 22. But if the subject matter of hiring out is a complex one, being not mere tenements as tenements but added with certain other articles, rights, asserts, etc., the question arises whether the i....
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....ing or sanitation, which are relatively insignificant and only incidental to the use and occupation of the tenements. 6. In cases where the income received is not from the bare letting of the tenement or from the letting accompanied by incidental services or facilities, but the subject hired out is a complex one and the income obtained is not so much because of the bare letting of the tenement but because of the facilities and services rendered, the operations involved in such letting of the property may be of the nature of business or trading operations and the income derived may be income not from exercise of property rights properly so called so as to fall under section 9 but income from operations of a trading nature falling under section 10 of the Act; and 7. In cases where the letting is only incidental and subservient to the main business of the assessee, the income derived from the letting will not be the income from property falling under section 9 and the exception to section 9 may also come into operation in such cases" 18.17 Hon'ble Allahabad High Court in the case of Rampur Industries Ltd. vs. CIT (1971) 82 ITR 23 (All), rental income from certain unused godowns der....
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....ete structure to the lessor. Apart from other payments, the assessee received to a certain sum for loss in respect of surrender of the lease right of the assessee to exhibit the films. The Tribunal held that, since the business itself had not come into existence, the said sum received by the assessee could not be assessed as revenue receipt. The Tribunal's view was upheld by the High Court. Applying the aforesaid principles to the facts of that case (201 ITR 208, 248 (Guj), the Gujarat High Court was of the opinion that the transaction of leasing out one building only to a third party was in no way connected with or ancillary to the business activity of the assessee. The assessee never wanted to exploit the asset as commercial asset for any commercial gain. It acted like a prudent owner of the property. On closure of the business, instead of permitting the building to lie idle, it leased out the same with a view to earning rental income. The Tribunal was, therefore, right in holding that the rental income was "Income from house property'. 18.20 The question whether the amount earned by an assessee by leasing out the assets of the business would be income from business carried on b....
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....assessee from the company could be legally treated as business profit liable to excess profit tax, Distinguishing Shri Lakshmi Silk Mills' case [1951] 20 ITR 451 (SC), it was pointed out that only a part of the business of the assessee therein, namely, dyeing silk yarn, was temporarily stopped owing to difficulty in obtaining silk yarn on account of war so that part of the assets did not cease to be commercial assets of that business and accordingly, the income from the assets would be the profit of the business irrespective of the manner in which that asset was exploited by the company. Noticing the facts in the case before the court that the assessee had already sold the land and building to the company ; it was not having any manufacturing, trading or commercial activity ; and let out the plant and machinery on an annual rent of rupees forty thousand and applying the common sense principle to the facts, this court found that the transaction of lease was quite apart from the ordinary business activity of the company, so it was impossible to hold that the letting out of the plant and machinery, etc., was at all a business operation when its normal business activity had come to a c....
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.... assessee had, however, the option to terminate the lease after the first two years which option was not exercised. The question was whether the income which arose to the assessee for the assessment year 1955-56 from the lease was assessable as income from business or income from other sources ? It was held, on an interpretation of the terms of the lease deed, that the intention of the appellant-assessee was to part with the machinery of the factory and the premises with the obvious purpose of earning rental income and not to treat the factory and the machinery as a commercial asset during the subsistence of the lease; the intention of the appellant was found to go out of the business altogether, therefore, the income was not assessable as business income. CIT vs. Vikram Cotton Mills Ltd. [1988] 169 ITR 597 (SC), is again a case arising under the Indian Income-tax Act, 1922. One of the creditors filed a petition in the High Court for winding up. The Industrial Finance Corporation took possession of the fixed assets under an English mortgage of those assets. The assessee-company had gone into losses and had stopped its manufacturing activity. Under the scheme evolved by the High Co....
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....period for which the assets are let out is a relevant factor to find out whether the intention of the assessee is to go out of business altogether or to come back and restart the same ; (4) if only a few of the business assets are let out temporarily, while the assessee is carrying out his other business activities, then it is a case of exploiting the business assets otherwise than employing them for his own use for making profit for that business,; but if the business never started or has started but ceased with no intention to be resumed, the assets also will cease to be business assets and the transaction will only be exploitation of property by an owner thereof, but not exploitation of business assets." 18.21 In the light of above discussions, if we consider the facts of the case under consideration, we notice that the admitted facts of the case are that the assessee is the owner of the property. The partner of the assessee firm admitted that the property was purchased to let out on rent to GAIL. These admitted facts have been noted from question nos.4, 9 & 10 of the statement recorded on 10.09.2008 of which abstract has been reproduced in this order in Para no18.8. The relev....
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....Limited Company incorporated with the object of dealing in properties. The main object of the company as contained in the memorandum of association was to carry on business of dealing and investment in properties, flats, warehouses, shops, commercial and residential houses. The ancillary object was to carry on business of leasing, hire purchase, renting, selling, re-selling or otherwise dispose of all forms of movable or immovable properties and assets including buildings, godowns, warehouses and real estate of any kind. The assessee purchased flats for trading purposes at the cost of Rs.4 crores. At the time of purchase the building needed major repairs and according to the assessee as it expected that the prices of flats would go up after completion of repairs, it made the purchases. It is then claimed by the assessee that the flat could not be sold because of recession in the market and hence it let out the flats on license basis for temporary period and earned monthly rental income as license fees. The assessee treated the said rental income as income from the business. The authorities below have concurrently found in favour of the revenue that the rental income cannot be treat....
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....company would not be relevant while determining the levy of taxes. The learned counsel for the appellant has questioned the correctness of the said finding by placing reliance on a judgment in the case of S.G. Mercantile Corpn. (P.) Ltd. v. CIT [1972] 83 ITR 700 (SC) wherein assessee company was dealing in property development and sub-letting of shops and stalls and the question arose as to whether income from sub-letting is a business income or otherwise. While holding that the income earned from the property is a business income it noted the reasons for the same. The principal reason was that since the appellant-company was not owner of the property or any part thereof there was no question of making the assessment under section 9 of the Act. It was held that the liability of tax under section 9 of the Income-tax Act of 1922 would be of the owner of the building or land appurtenant thereto. It is also held that in case the assessee is the owner of the building or land appurtenant thereto he would be liable to be taxed under section 9 even if the object of the assessee in purchasing the landed property was to promote and develop the market estate. Thus it can be seen even from the....