TaxTMI 
TaxTMI 
2005 (9) TMI 46
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....ment dated February 1, 1987 appointed V.M. Salgaokar & Brothers P. Ltd. (for short "the Salgaokars") as manager to manage and run the business of the hotel. As per the said agreement, an amount of Rs. 7,80,000 was to be paid every year by the Salgaokars for first 10 years as guarantee income to the assessee. The tenure of the agreement was 20 years and after the expiry of 10 years the Salgaokars were required to pay at the rate of Rs. 10,20,000 per annum to the assessee. Next five years, the Salgaokars were to pay at Rs. 12,00,000 per annum to the assessee. The agreement commenced from February 1, 1987. The Assessing Officer treated the income of Rs. 7,80,000 received by the assessee in the previous year from the Salgaokars in the form of guarantee income as income from "house property" vide assessment order dated March 30,1993. The assessee preferred an appeal before the Commissioner of Income-tax (Appeals). The appellate authority reversed the order of the Assessing Officer and treated the guarantee income of Rs. 7,80,000 received by the assessee from the Salgaokars as "income from other sources" under section 56 of the Income-tax Act. The appellate authority passed the order on ....
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....n, the Supreme Court considered its previous decisions, viz., (1) CEPT v. Shri Lakshmi Silk Mills Ltd. [1951] 20 ITR 451; (2) Narain Swadeshi Weaving Mills v. CEPT [1954] 26 ITR 765; (3) CIT v. Calcutta National Bank Ltd. [1959] 37 ITR 171; (4) Sultan Brothers P. Ltd. v. CIT [1964] 51 ITR 353; (5) New Savan Sugar and Gur Refining Co. Ltd. v. CIT [1969] 74 ITR 7 and (6) CIT v. Vikram Cotton Mills Ltd. [1988] 169 ITR 597. Keeping in mind the aforesaid legal position, we shall now advert to the facts of the present case and particularly the agreement dated February 1, 1987 entered into between the assessee and the Salgaokars. The agreement recites that the assessee has recently completed construction of a building comprised of a ground floor and three upper floors on a plot of land situated at Swatantrapath, in the town of Vasco da Gama with a view to running a hotel therein. The hotel at the time of the execution of the agreement was ready for the purpose of commissioning the hotel business. The Salgaokars possessed the necessary know-how and trained staff for carrying on the business of running a hotel. There was an earlier agreement between the assessee and the Salgaokars dated ....
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....er the business to the assessee; that the Salgaokars shall be at liberty to replace any fixtures or fittings and items of machinery and other equipment affixed to and/or existing in the said building after intimation to the assessee; that the Salgaokars shall not be liable to render accounts to the assessee and that the agreement was not intended to transfer the said hotel to the Salgaokars, but to improve the management thereof, so as to run the said hotel efficiently and profitably. Mr. S.R. Rivonkar, learned counsel for the Revenue strenuously urged that the intention of the parties was not to appoint the Salgaokars as managers to manage, run and carry on the business of a hotel. As a matter of fact, learned counsel would submit, it could not have been because the hotel was not being run by the assessee. He would submit that the intention was to lease/license the property and derive income therefrom. Learned counsel for the Revenue submitted that this intention is reflected from the various clauses in the agreement, particularly that the tenure of the agreement was of 20 years; that the hotel was not being run by the assessee at the time when the agreement was entered into; t....
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.... parties has to be gathered from the overall facts and not isolated circumstances. It is settled legal position that each case has to be decided on its own facts including the construction of the agreement under which the assets have been let out or handed over to a third party and no precise test can be applied to ascertain as to under which head the income received by the assessee from leasing or letting out the assets should fall. The longer duration of the agreement could have been for many reasons. The one which is discernible from the available material is that Salgaokars helped the assessee in getting finance for completing the construction of the hotel and for that purpose the parties may have agreed for a longer duration. The contention of the Revenue that the assessee was left with no concern in the business of hotel is negated by the fact that the agreement provides that all the licences, permissions and no objection certificates relating to the hotel which are required for the operation of the hotel business shall be obtained in the name of the assessee. It is not material that the application for obtaining such licences, permissions or no objection certificates could b....