TaxTMI 
TaxTMI 
2016 (9) TMI 910
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....0 lakhs per annum received by the assessee from M/s United Breweries Limited (hereinafter to be referred to as "UB Ltd.") as lease rent is assessable under the head "Profits and gains from business" or under the head "Income from other sources". 4. The assessee is the owner of plant and machinery, fixtures and fittings and equipment and apparatus installed in a building constructed on land admeasuring about 10 acres also owned by it. The assessee had been manufacturing its products from this property and with its equipment for about 20 to 30 years. 5. To determine the question, it is necessary to refer to two lease agreements entered into between the assessee and UB Ltd. in detail. 6. The assessee and UB Ltd. entered into a Lease Deed dated 01.04.1998 (hereinafter referred to as "the first lease deed") wherein the assessee and UB Ltd. are referred to as the lessor and the lessee, respectively. The recitals in the lease deed inter alia state that UB Ltd. required large quantities of malt for brewing its products; that it had been purchasing the malt from various suppliers; that it was facing difficulty in procuring the right quality and quantity of malt and that it was facing dif....
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....er the first lease deed. The Department relied upon the fact that the recitals do not indicate the business expediency or reason for the assessee's having entered the second lease deed. Mr. Abhishek Sanghi, the learned counsel appearing on behalf of the appellant/assessee, rightly relied upon clauses-1, 2, 3, 4 and 7 of the second lease deed which read as under:- "1. LESSOR doth hereby grant to the LESSEE and the LESSEE doth hereby accepts the lease (more particularly the entire Malting Facility on the land admeasuring 10 acres for a period of Ten years commencing from the date of this Deed at a annual consideration of Rs. 30,00,000 (Rupees Thirty lacs only) payable in quarterly instalments at the end of each quarter. All taxes and levies on the said amount shall be to the account of the LESSOR. It is agreed between the Parties that after the completion of two years from the date of this Lease Deed, the parties shall discuss on the revision of annual consideration mentioned above payable by the LESSEE to the LESSOR for the years 2005-2006 and thereafter. 2. The LESSOR further undertakes to take necessary steps to expand the installed capacity from the present level of 12,000 ....
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....f the LESSOR on a monthly basis irrespective of variation in level of production. The LESSOR undertakes to pay all statutory dues in respect of their employees under all Statutes/laws including inter alia, labour laws, Provident Fund, ESI and such other laws as are applicable. The LESSOR shall keep the LESSEE indemnified at all times in the event of any action taken or prosecution initiated against the LESSEE in connection with any of the LESSOR's employees. However, additional expenses incurred on festival occasions on its employees and others on whose rolls the employees are working shall be borne by the LESSOR." We will construe the lease deed later. 9. The Assessing Officer noted that no operation had to be carried out by the assessee and that it was merely to hand over possession of the assets to UB Ltd. and that the working expenses were to be paid by UB Ltd. That, however, does not justify the Assessing Officer's conclusion that the income from the lease agreement cannot be said to be business income. The Assessing Officer referred to the judgment of the Supreme Court in Sultan Bros (P) Ltd. vs. CIT, [1964] 51 ITR 353 (SC) and held that in the present case, the assessee ....
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....e applied for the fact situation under each lease deed is fundamentally different. If, however, the fact situation including as to the intention of the assessee in leasing its assets remains unchanged, the Assessing Officer must continue to assess the income as business income. Whether this is so or not must, however, be examined and the Assessing Officer cannot blindly assume it to be so. We have, however, upheld the decision to treat the income as business income and not under the head "Income from other sources" for different reasons which we will come to while dealing with the order of the Tribunal. 13. The Tribunal, after setting out the clauses, held as under:- "22. It is evident from the terms and conditions of the fresh lease deed executed during the previous year that the assessee company does not have any intention of carrying on the business of its own with the help of plant and machinery owned by it. The mere fact that the employees shall continue to be in employment of the assessee may not cloud the fact that the assessee has leased plant and machinery for a period of 10 years in addition to its earlier period of 5 years. It has to be borne in mind that the agreeme....
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....e, therefore, would not find it financially feasible to accept a lease for a short period. The return of investment would not be adequate if the lease is for a short duration. 15. In Universal Plast Ltd. vs. Commissioner of Income Tax, Calcutta, (1999) 5 Supreme Court Cases 189, the Supreme Court considered the following questions:- "Whether on the facts and in the circumstances of the case, the Tribunal was correct in law that the income received by the assessee by leasing out the factory was business income? .... ..... ....... ....... ....... Whether on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the letting of godowns at Guntur and Narsaraopet and the letting of the factory with machinery at Narsaraopet and at Guntur did not constitute business of the assessee?" After reviewing several judgments of the Supreme Court, it was held:- "18. In the light of the 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 as....
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....y an owner." 17. Then again in New Savan Sugar and Gur Refining Co. Ltd. vs. Commissioner of Income-tax Calcutta, [1969] 74 ITR 7 (SC), the assessee had leased its building, machinery and plant for a period of five years with three options to the lessee to renew the same for similar periods. The lessee never exercised its options to terminate the lease after the first two years. The Supreme Court interpreted the terms of the lease deed to come to the conclusion that the assessee desired parting with the machinery, 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. It was found, as a matter of fact, that the intention of the appellant was to go out of business altogether. It was, therefore, held that the income was not assessable as business. In Universal Plast Ltd. (supra) itself, it was found, as a matter of fact, that the lease was a veiled agreement for a lease-cum-sale. 18. Applying these tests, it is necessary to construe the two lease deeds. 19. It is evident that one of the main reasons for the Tribunal's decision in paragraph-22 which we s....