TaxTMI 
TaxTMI 
2013 (9) TMI 238
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....and in law, the authorities below have grossly erred 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 cons....
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.... able to assign any specific reason for not allowing the claim of the 'appellant'. 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....
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....ereby lessor, the assessee firm, was agreed to furnish 3rd floor as per the requirement of GAIL. The 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....
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....the foregoing paragraphs that the instant case is not the case of composite rent, where rent is received 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 tha....
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....e and did not provide any kind of services to the lessee. The A.O. after considering the intention/prime object 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 ....
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....9 (Cal.). The A.O. computed the income from other sources as under:- "Total receipt 10,04,016/- Less: Allowable expenditure: 1. Printing & 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: T....
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.... Revenue should not disturb such finding in the succeeding year. But this principle cannot be stretched beyond the context. If the AO has done something patently wrong in 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....
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....ata rule. The well-settled principle of consistency has been uniformly followed by Courts in the country to hold that the view adopted by the A.O. on a particular issue be it 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 ....
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....her sources. The contention of the assessee on the issue has got two aspects, first one is that the A.O. has already taken a view while completing assessment under section 143(3) for A.Y. 2005-2006 that income 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....
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....n the circumstances of this case, do so. This preliminary objection of the State of U.P. is therefore rejected." In State of Maharashtra vs. Digambar (1995) 4 SCC 683, the position was highlighted by this Court as follows: "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 indiv....
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...., had held that though an appeal was not filed against an earlier order, when public interest is involved in interpretation of law, the Court is entitled to go into the question'." In Ramdeo's case (supra) reference was made to 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 reitera....
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.... is in public interest to do so or for a pronouncement by the higher Court when divergent views are expressed by the Tribunals or the High Courts." BHARAT SANCHAR NIGAM LTD. & ANR. vs. UNION OF INDIA & ORS. (2006) 282 ITR 273 (SC) The relevant 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 constr....
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.... are considered in determining the liability for a given year, they can generally be deemed to have been considered and decided in a collateral and incidental way." After considering various earlier authorities on the issue, it was held that : "If for instance, 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 d....
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....uestion, before this Court was whether it was open to the appellant to challenge the validity of the same order of assessment twice by two consecutive writ petitions under Art. 226. The Court acknowledged that in regard to the orders of assessment for different years, the position 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 genera....
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....d that the second round was impermissible. 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 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 avail....
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....evenue should have felt bound by the previous decisions and no attempt should have been made to reopen the question. He relied upon some authorities in support of his stand. A Full Bench of the Madras High Court considered this question in T.M.M. Sankaralinga Nadar & Bros. vs. CIT (1929) 4 ITC226. After 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 ....
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....the question should be answered in the affirmative, namely, that the Tribunal was justified in holding that the income derived by the Radhasoami Satsang was entitled to exemption under ss. 11 and 12 of the IT Act of 1961." Commissioner of Income-tax vs. British Paints India Ltd. [1991] 188 ITR 0044 (SC) The relevant 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, calculate....
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....there from. It was, therefore, not only the right but the duty of the Income-tax Officer to act in exercise of his statutory power for determining what, in his opinion, would be the correct income. The question to be determined by the Assessing Officer in exercise of his power under section 145 is whether or not income can properly 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 be....
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....gs relating to a subsequent assessment. The reasons are that the purpose and the subject-matter of the proceedings in a subsequent year are not the same as those in a previous year. Because as a general rule the principle of res judicata is not applicable to decisions of Income-tax authorities, an assessment for a particular year is final 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....
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.... system of accounting, it was the duty of the Assessing Officer under section 145 of the Income-tax Act, 1961, to consider whether the correct profits and gains could be deduced from the accounts so maintained. If he was of the opinion that the correct profits could not be deduced from the accounts, he was obliged to have recourse to the proviso to section 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 change....
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.... Page no.57 Paper Book "(2) The period of this Agreement is 10 (Ten) years with effect from the date of actual possession of the furniture etc. by the Second Party. There shall be a lock in period of 72 months, commencing from the date of signing of this agreement or date of possession of the furniture etc. whichever is later. During the lock in period none of the parties 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 bus....
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....28 provides that the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year are assessable under the head profits and gains of business or profession. Income from house property is assessable under Chapter IV-C. Section 22 provides that the annual value of property consisting of any buildings or land appurtenant thereto of which the assessee 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....
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....to acquire land and buildings and to turn the same into account by construction and reconstruction, decoration, furnishing and maintenance of them and by leasing and selling the same. The activity contemplated in the aforesaid object of the company, assuming it to be a business activity, would not be itself turn the lease in the present case into a business deal. That would follow from the decision of this Court in 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-....
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....e Court considered the question as to whether rendering of service to tenants by the company which owned a building and whose object was to own and let out building, by supplying electric current, hot and cold water, maintaining lifts and providing other amenities would constitute business activity of the assessee and, therefore, assessable under section 10 of the Income-tax Act, 1922. The building owned by the assessee in that 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 de....
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....usiness assets are let out temporarily, while the assessee is carrying on his other business activities, then it is a case of exploiting the business asset 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." (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 C....
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....he 1922 Act to "Income from house property". However, section 22 of the Act does not refer to "House Property" despite it's caption. The language employed in the section shows that the income referred to therein is not necessarily income from houses. It is income from property 'consisting of any building or hands appurtenant thereto of which the assessee is the owner'. The word "building" is not confined in its scope only to dwelling houses. "House" 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 it....
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....tting up markets thereon. The income derived by such a company from the tenants of the shops and stalls constructed on the land for the purposes of setting up market would not be taxed as 'business income' under section 10 of the Act, to which a more detailed reference would be made hereafter, but under section 9 of the Act. A concrete instance of this type is afforded by the case EastIndia Housing and Land Development Trust Ltd. v. CIT [1961] 42 ITR 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 ea....
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....n of the ultimate outright sell- out was already there. The assessee was already committed to the licensee for such a sell-out at the licensee's pleasure and there was no means of the assessee falling back from that commitment. Therefore, it could 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 was in fact a veiled agreement for lease- cum- sale. . . . 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. ....
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.... 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 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 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 inco....
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....y and the premises with the obvious purpose of earning rental income and not to treat the factory and the machinery as commercial asset during the subsistence of the lease; the intention of the appellant was found to go out of business altogether, therefore, the income was not assessable as business income. 12. CIT v. Vikram Cotton Mills Ltd. [1988] 169 ITR 597/ 36 Taxman 1 (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 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 ....
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....siness; 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. 13. Now adverting to the facts of UPL case, the High Court referred to the findings of the Tribunal that the leasing out of the factory was not a sequel to the assessee's decision to go out of the business in respect of the subject 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 ....
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....if any, in case of workmen retrenched or retired after the termination of the licence : Provided, however, that on the termination of the licence, the licensee shall be liable for any retrenchment compensation payable to workmen on account of removal by them of any plant and machinery acquired and installed by the licensee. 15. In the event of the licensee committing a breach of any of the terms of this Agreement or making default in payment as provided in clause 2(ii) of any two quarterly instalments, the licensor 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 prej....
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....usiness asset and not as the owner of the property." 15. On considering these findings, the High Court answered the question referred to it in favour of the revenue. On the face of these findings, it cannot but be concluded that the assessee had dismantled its business never to return back to it. Applying the aforesaid principles, it has to be held that the answer recorded by the High Court to the question referred to it is correct in law. 16. In the result, we hold that both the High Courts were right in answering the questions 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 inco....
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.... issue the Apex Court gave a guideline that to come to a conclusion one has to find out answer on three issues, namely; (A) Was it the intention in making the lease - and it matters not whether there is one lease or two, i.e., separate leases in respect of furniture and the building - that the two should be enjoyed together? (B) Was it the intention to make the letting of the two practically one letting ? (C) Would one have been let alone, and a lease of it accepted without the other ? If the answers to the first two questions are in the affirmative 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....
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....ngs, fixtures, etc., and letting out for limited period for marriage ceremony and other social functions has been considered by the Madras High Court as business and not letting out. (viii) Mukherjee Estate (P.) Ltd.'s case (supra) : In this case, the Court has directed assessment of income from display of signboards as income from 'other sources'. Taking a sum total of the aforesaid decisions it clearly appears that merely because income is attached to any immovable property cannot be the sole factor for assessment of such income as income from property. What has 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 furnis....
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....ted, without the other ? As we have discussed hereinbefore that it is composite table space let out to various occupants, the amenities granted to those occupants including the user of the furniture and fixtures are attached to such letting out and the last question, in view of the same, must be answered in the negative. Applying the said test we hold that by the said agreement the parties have intended that such letting out would be an inseparable one. 8. Hence, we hold that the prime object of the assessee under the said agreement was to let out the portion of the said property to 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 land....
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....t for sport or pleasure. Whether or not a person carries on business in a particular commodity must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transaction must ordinarily be entered 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 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....
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....TC 1 (SC), in taxing statutes, the word "business" is used in the sense of an occupation, or profession which occupies the time, attention and labour of a person, normally with the object of making profit. To regard an activity as business there must be a course of dealings, either actually continued or contemplated to be continued with a profit motive, and not for sport or pleasure. Whether or not a person carries on business in a particular commodity must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transaction must ordinarily be entered 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 r....
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....ich he is the owner, the income derived is income from property chargeable under section 9 irrespective of whether the operations are carried on by a company one of whose objects or even the sole object is to indulge in the activity of earning income from house property. Thus, where house property is given on lease or licence basis for earning income therefrom, the true character of the income derived is income from property falling under section 9. The said character is not changed and the income does not become income from trade or business if the hiring is inclusive of certain additional services such as heating, cleaning, lighting 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 operatio....
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....on business income. When the business itself has not come into existence, it cannot be considered to be a business income and, therefore, cannot be a revenue receipt. Hon'ble Rajasthan High Court in the case of CIT Vs. Official Liquidator, Golecha Property, (1994) 207 ITR 576, 578 (Raj). In that case, the assessee-company took on lease a property for construction of a cinema theatre. Without completing the work of construction of the cinema theatre, the assessee- company went into liquidation due to financial difficulties. The official liquidator was pressed by the creditors of the company to surrender the plot of land along with the incomplete 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 leasin....
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....assessee was income from business and was chargeable to excess profits tax. In Narain Swadeshi Weaving Mills vs. CEPT [1954] 26 ITR 765, a Constitution Bench of this court considered a similar question which also arose under the Excess Profits Tax Act, 1940. In that case, the assessee-firm was carrying on manufacturing business. A public limited company was incorporated to take over the business from the assessee-firm. The company purchased the building of the assessee-firm and took over from it the plant and machinery on lease at an annual rent. One of the questions that fell for consideration there was whether the lease money obtained by the 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 ....
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.... formulated the principle thus "Whether a particular letting is business, has to be decided in the circumstances of each case. Each case has to be looked at from the 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 New Savan Sugar and Gur Refining Co. Ltd. v. CIT [1969] 74 ITR 7 (SC), the appellant- company was carrying on the business of crushing sugarcane and gur refining. The building, machinery and plant of the factory mill were leased out initially for a period of five years with three options to renew for similar periods on the part of the lessee. The 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 t....
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....he above discussion, the propositions may be summarised as follows: (1) no precise test can be laid down to ascertain whether income (referred to by whatever nomenclature, lease, amount, rents, licence fee) received by an assessee from leasing or letting out of assets would fall under the head "Profits and gains of business or profession" ; (2) it is a mixed question of law and fact and has to be determined from the point of view of a businessman in that business on the facts and in the circumstances of each case, including true interpretation of the agreement under which the assets are let out ; (3) where all the assets of the business are let out, the 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 inte....
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....ion of the assessee was to earn the rent of property and not to earn profit by running a business. (a) Lease Receipts 90104/- per month Rs.10,81,248/- (b) Maintenance Receipts 96540/- per month Rs.11,58,480/- (c) Furnishing Receipts 83668/- per month Rs.10,04,016/- Rs.32,43,744/- Plus Rs. 5,031 TDS on Diesel Rs.32,48,775/-as shown 18.24 The facts of the case under consideration are identical to the facts of the judgment of Hon'ble Bombay High Court in the case of Mangla Homes (P) Ltd. vs. Income Tax Officer, 325 ITR 281 (Bom.). The facts of Mangla Homes (P) Ltd. vs. Income Tax Officer, 325 ITR 281 (Bom.) are that the assessee is a Private 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, wareho....
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....essable under section 9 and not under section 10 of the Income-tax Act, 1922. It was observed in that case that merely because the owner of the property was a company incorporated with the object of owning property, the incidence of income derived from the property owned could not be regarded as altered, the income came from directly and specifically under the head "Property" than income from business. Relying upon the said judgments the authorities below have found that the income received by the appellant-assessee from the shop is indisputably an income from property and hence concluded that character of the income is not altered merely because the flat is temporarily leased out. The object of the 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 ....
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....re being no merit in the appeal same stands dismissed. 18.26 In the case under consideration the A.O. has examined all the agreements and found that the first agreement i.e. lease agreement clearly shows that the property was obtained to give on rent. On examination of the second agreement, the A.O. noticed that this second agreement was in fact consequence of the first agreement and was executed after 14 days of first agreement. On perusal of books of account, the A.O. noticed that the assessee did not provide day-to-day services as no such expenses have been found incurred by the assessee. The A.O. found that the assessee did not involve in any kind of recurring, systematic and in organized manner business activities. From the third agreement, the A.O. noticed that this agreement was in respect of maintenance and up-keeping of the building, floor, furniture & fixtures for which the assessee has deputed only one person to look after the premises. We notice that the CIT (A) has also examined the relevant provisions of section 22 of the Act and their conditions considering facts of the case under consideration. The CIT (A) found that the material on record itself goes to show so ....