AI Drafter 
TaxTMI 
TaxTMI 
2016 (8) TMI 162
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....me from house property" under Section 22 of the Income Tax Act, 1961 and not under the head "Income from business" under Section 28 of the Income Tax Act, 1961 despite the fact the aforesaid income had regularly been assessed under the head income from business? 3. Whether in the circumstances of the case, and on the proper interpretation of the licence deeds, the Tribunal was correct in law in holding that the licence fee received by the appellant from licencing part of the premises is to be assessed under the head "Income from house property" and not under the head "Income from business" despite that the assessee had to incur expenditure in connection with such licences granted by the assessee?" Background facts 2. The facts in brief are that the Assessee was carrying on a business under the name and style of M/s. Supreme Auto Works at B-93, Okhla Industrial Area, Phase-II, New Delhi. It is stated that the said property is owned by him with land having been given on long term lease by the Delhi Development Authority ('DDA') on which he has erected a factory premises. It is stated that the Assessee derived income from job work of repairs of batteries and was r....
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....roachment and shall confine himself his running of the industry strictly within the confines of the Licenced space/portion of the premises. ...... 8. That the Licencee shall not be entitled to make any additions/alterations without obtaining prior approval of the Licensor in writing. ... 10. That the Licensee can terminate this Licence by giving three months notice in writing to the Licensor or by paying amount equal to three months Licence Fee in Lieu of the notice period. ....... 13. That the working hours of the aforementioned portion of the factory premises shall be fixed by the Licensor from time to time. 14. That this temporary licence is being given for the use of the above portion of the back side to the Licencee constructed by the Licensor in the rear-courtyard of the main factory building No. B-93 Okhla Industrial Area, Phase-II, New Delhi-110 020, without any sanction/authorisation from any competent authority. The walls of the portion described in the foregoing are brick built with steel frame under the roof of described in the preamble. The portion is served by right hand passage lane of the factory and the entry and exist of the Licencee and his p....
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....1st December 1994, the Assessing Officer ('AO') conveyed to the Assessee the reasons for reopening the assessment as under: "It was found that you have camouflaged your rental income as business income in the guise of licence fee so in resulting your having sham rental income under the Head "Business and Professional" as against the head "Income from House Property". Higher deduction was claimed and income has escaped assessment". Order of the AO 8. In the ensuing assessment proceedings, by an assessment order dated 20th March 1997, the AO completed the assessment under Section 143(3) read with Section 148 of the Act determining the total income of the Assessee as Rs. 2,78,120. The AO made an addition of Rs. 2,53,886 by assessing the licence fee of Rs. 3,44,632 received by Assessee under the head 'income from house property'. The AO also made an addition of Rs. 24,238 by estimating net income from job work. The expenses claimed against the various heads against business income were disallowed. In the assessment order, the AO referred to the fact that licence fee had been received from 11 persons and the agreements entered into with each of them had been placed on record. H....
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....s exploiting the commercial asset (Factory) to get such licence fees, ii) the assessee was in supervision and control of the factory sheds and had not parted with the tenancy rights of the said premises, iii) working hours and other relevant operations were controlled by the assessee, iv) expenditure for supervision charges, etc., were incurred by the assessee and not by the licensees, v) the agreements clearly proved that the agreements were not in the nature of tenancy agreements." Consequently, the expenses relating to the receipt of the above income was also allowed by the CIT (A) in the hands of the Assessee as 'business expenditure'. Order of the ITAT 12. Aggrieved by the above order of the CIT(A), the Revenue went in appeal before the ITAT. By the impugned order, the ITAT allowed the appeals filed by the Revenue and dismissed the cross objections filed by the Assessee on the issue of reopening of assessments under Section 148 of the Act. According to the ITAT, "when we examine the totality of facts and circumstances, we feel that the assessee is exploiting the shed with an idea to generate a rental income for security. Merely because the word 'license' has b....
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.... income he supported the orders of the AO and the ITAT. Question (i) 16. At the outset it requires to be noticed that the reopening of the assessments for the AYs in question was sought to be done within a period of four years from the end of the AY in which the return was filed. The second feature is that as far as the AYs in question i.e. AY 1990-91 to 199495 is concerned they were processed under Section 143(1)(a) and not under Section 143(3) of the Act. Therefore, for the purposes of reopening of the said assessments, in light of the law explained by this Court in Indu Lata Rangwala v. Deputy Commissioner of Income Tax (supra) there was indeed no requirement that the AO had to base his reasons to believe that the income had escaped assessments on some fresh tangible material. In Indu Lata Rangwala v. Deputy Commissioner of Income Tax (supra), after noticing the decisions of the Supreme Court in Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers (P) Limited (2007) 291 ITR 500 (SC) and Deputy Commissioner of Income-tax v. Zuari Estate Development & Investment Co. Ltd. (2015) 373 ITR 661 (SC), this Court summarised the legal position, inter alia, as under: ....
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....By simply using the word 'camouflage' and 'sham rental income', the AO is not relieved of the obligation of explaining why he came to the above conclusion. Admittedly, the Assessee had placed on record the licence deeds which contain the clauses that have been extracted hereinbefore. A reading of the said clauses reveals that the Assessee made it clear to the party taking the space on licence that it was not an arrangement of lease and that the payment being received was not to be treated as 'rent'. Even though the AO has used the word 'camouflage' there is no material other than the licence deeds and the licence receipts for the AO to come to the conclusion that there was any attempt at camouflaging. The basis for forming the reasons to believe has not even been set out. 19. The Court also finds that the ITAT has not engaged with the detailed reasoning of the CIT (A) on an analysis of the licence deed leading to the conclusion that the licence fees received by the Assessee was in fact his only business for the AYs in question. The CIT (A) too overlooked the legal position and simply concluded that the AO had recorded proper reasons. The Court is of the view that none of the aut....
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....oint of view of a businessman in that business on the facts and in the circumstances of each case. 23. In Chennai Properties & Investments Ltd. v. Commissioner of Income Tax (2015) 373 ITR 673 (SC), the Court accepted the plea of the Assessee in that case that where the main line of business was letting of property then the income therefrom should not be treated as 'income from house property' but 'business income'. 24. In Associated Hotels of India Ltd. v. R.N. Kapoor AIR 1959 SC 1262, a distinction was drawn between a licence and a lease. If the document gives only a right to use the property while it remains in the possession and control of the owner thereof it will be a licence. Where the legal possession continues therefore to be with the owner with the licencee making use of the property it could still only be a licence. 25. In Quadarat Ullah v. Municipal Board, Bareilly AIR 1974 SC 396, it was observed "if an interest in immovable property, entitling the transferee to enjoyment, is created, it is a lease; if permission to use land without right to exclusive possession is alone granted, a licence is the legal result." 26. In the facts and circumstances of th....