TaxTMI 
TaxTMI 
2018 (7) TMI 1083
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....part of sub-licensed capacity, which constitutes business activity, the appellant continued to carry on the business of manufacturing and there was no abandonment in the said business. 3. That the Commissioner of Income Tax (Appeals) erred on facts and in law in confirming the action of the assessing officer in holding the income from packaging services amounting to Rs. 1,27,77,784/- as 'income from other sources' against the same being declared as 'business income' by the appellant. 4. That the Commissioner of Income Tax (Appeals) erred on facts and in law in confirming the action of the assessing officer in holding the income from resale of raw and packing material amounting to Rs. 63,62,660/- as 'income from other sources' against the same being declared as 'business income' by the appellant. 4.1. That without prejudice, the Commissioner of Income Tax (Appeals) erred on facts and in law in observing that the appellant has raised no objection in treating the income from aforesaid activities as income under the head other sources. 5. Further, without prejudice, the Commissioner of Income Tax (Appeals) erred on facts and in law in not appreciatin....
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....agreements with JIL for using some of JIL's Brands to supply its own manufactured IMFL products to Canteen stores Departments ('CSD') of Government of India. For this, the assessee entered into another royalty based tie-up agreement with JIL to carry on its own manufacturing and selling IMFL business. Under the terms of this agreement assessee company has paid fixed royalty to M/s JIL for using its brands - "Aristocrat Black" and "Aristocrat XXX Rum" and relevant technical know- how. The assessee also entered into another agreement with JIL for providing the latter various services required for packaging IMFL. During the year under consideration, the assessee declared income under the head 'profits & gains of business and profession' comprising of the following streams of income: a) Receipt of Rs. 11,59.728 on account of sale of own manufactured IMFL. products supplied to CSD. b) Receipts from JIL on account of the following :- 1) Rs. l.20 crores in respect of business assets including factory building, plant & machinery, leased to JIL alongwith sub-lease of excise license to JIL; 2) receipt of Rs. 1.27 crores in respect of provision of packa....
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.... received by the assessee was remitted to JIL after deducting fixed bottling charges and expenses incurred by the assessee. 6. The Ld. AR further submitted that in the year under consideration, Department of Excise, Government of Andhra Pradesh, vide G.O. dated 23.11.2005 allowed sub-leasing of capacity and IMFL manufacturing plants. In view of this new excise policy, JIL expressed desire to supply IMFL products directly to APBCL in Andhra Pradesh. In view of JIL's reluctance to allow all its brands name to be used by the assessee and in the absence of own saleable brands, coupled with non-availability of viable substitute, the assessee agreed for sub-licensing part of its licensed capacity to JIL. The assessee, accordingly, entered into a sub-licensing agreement dated 05.03.2007 with JIL whereby the assessee sub-licensed its capacity to the extent of 68.5 lacs PFL capacity to produce IMFL to JIL. The assessee, vide said agreement, also sub-leased part of its IMFL manufacturing facilities including building, plant and machinery and other equipments to JIL. Since the first sub license was granted by the excise authorities on 26.09.2006, therefore, in terms of Article - 1.2 of the....
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.... purchased, used and held as closing stock was filed before the Assessing Officer. The Assessee also continued to have power and water supply connection for industrial use. The Assessee continued to have registration under VAT, service tax etc. The Assessee continued to have its huge labour force required for carrying out various activities of manufacturing IMFL. The Assessee entered into an agreement, dated 14.03.2007, with the employees union for / retaining them and for providing them various allowances, facilities and amenities in the interest of its business. The Ld. AR thus, submitted that in view of the above and more particularly on perusal of the terms of the sub-licensing agreement and packaging services agreement, it would be noted that the sole purpose of the assessee entering into such agreement(s) was to earn on its liquor business by using maximum benefit of capital invested in the commercial assets and to carry on business at lower financial cost. Being so, the receipts from JIL constitutes business income of the assessee. 9. The Ld. AR further submitted that the various Courts in the following decisions have held that rental income should be assessed as 'busines....
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....ances of each case including true interpretation of the agreement under which the assets are let out; (iii) 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. (iv) if only or 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. 10. The Ld. AR further submitted that on application of the aforesaid decisions to the admitted facts of the present case, it will clearly be evident that: a) the assessee was engaged in the business of manufacture and sale of IMFL products since 1977; b) the assessee continued in t....
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....enses submitted that during the year under consideration, the assessee incurred personnel expenses amounting to Rs. 1,32,38,146 and administrative & selling expenses amounting to Rs. 79.58,872. There is no dispute regarding the genuineness of the above expenses. These expenses were incurred for running the business operations of the assessee including various packaging services provided to JIL. Entire expenses were incurred wholly and exclusively to earn the business income. Salary and wages including PF, ESI, Bonus etc. were paid to labour and the executives of the assessee working for last many years with the assessee. Similarly, administrative and selling expenses were incurred for running the day-to-day business operations of the assessee company. Being so such expenditure are allowable as business expenditure under section 37(1) of the Act, as allowed in earlier years. The Ld. AR further submitted that even if it is assumed for the sake of argument, though not conceding, that such receipts are to be taxed as 'income from other sources', then, too, deduction under section 57 (iii) of the Act should be allowed in respect of the expenses incurred by the assessee for earning such ....
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....gued that it has no intention of going out of the business and hence the income should be treated as Income from Business and profession. Several case laws have been relied upon, but from the perusal of the agreement it can be seen that the assessee has leased out its "factory" to JIL which includes factory, building, ancillary buildings, land appurtenant thereto, Plant and Machinery and equipments, production area, storage area. The lease is for 3 years. JIL has to pay all taxes of the local bodies, electricity/ water bills etc. The assessee has also obtained sub-license of its excise license in favor of JIL. In effect, the assessee has let out machinery, plant or furniture and also building. These components are inextricably linked and thus composite in nature. Thus, the Ld. DR submitted that it is taxable as "Income from other sources". This is further evident from the facts that the intention while making the lease was that the assets leased- building and plant and machinery etc are enjoyed together. The assets could not be leased out separately as the purpose of leasing out was to allow JIL to carry out its business operations. The Ld. DR also pointed out that the lessee would....
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....operty. The income so received must be treated as Income from Other Sources. 16. In respect of Ground No. 2 regarding income of Rs. 1,27,77,784/- from Packaging Services, the Ld. DR submitted that the assessee in the year under consideration has rendered packaging services to JIL. The assessee treated such activity as Business Income. The Assessing Officer has given a finding that this activity has nothing to do with the regular business of the assessee, and hence, the same should be treated as Income from Other Sources. The CIT (A) has concurred with the finding of the Assessing Officer. Before the Tribunal, the assessee has argued that these concurrent findings be reversed. In this connection, the Ld. DR submitted that to be characterized as business income, there should be a connection between any income received and the regular business of the assessee. A connection exists if it is clear that the payment of income would not have been made if the business did not exist. In the current case under consideration, the packaging services are not the regular business of the assessee. Hence, there cannot said to be a connection between the income and its regular business. 17. In ....
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....ring it directly to earn income falling under the head "income from other sources". That is not so under section 37 which allows deduction of expenditure; incurred wholly and exclusively" for the purpose of the business". Under section 57(iii), deduction will not be allowed if the expenditure is not incurred for the purpose of earning income falling under the head "income from other sources" The assessee could not establish the specific expenses incurred for earning the income from other sources. 19. In respect of Ground No. 5 regarding the proportionate disallowance of expenses, the Ld. DR submitted that in absence of any details from the assessee in respect of specific expense incurred for earning income from other sources, only proportionate expenses were allowed against the revenue from sales. 20. In respect of Ground No. 6 and 6.1 regarding the disallowance of Marketing and welfare expense of Rs. 37,47,447/-, the Ld. DR submitted that the assessee could not establish the commercial expediency of making such payments to Sh Jagatjit Jaiswal in view of the fact that the sales of the company had reduced drastically since leasing out of manufacturing unit. Further, the sales ....
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....iquor products directly to Andhra Pradesh Beverages Corporation Ltd. in state of Andhra Pradesh. In view of this new policy M/s Jagatjit Industries Ltd. was not allowing to use its brand name by the assessee and in the absence of own saleable brands or any other substitute, the assessee agreed for sub licensee for part of its license capacity to M/s Jagatjit Industries Ltd. Accordingly, the assessee entered into a sub licensee agreement dated 5/3/2007 with M/s Jagatjit Industries Ltd. whereby the assessee sub license its capacity of manufacturing to the extent of 68.5 lacs proof liters to produce Indian made foreign liquor to M/s Jagatjit Industries Ltd. Vide said agreement, the assessee also sub lease part of its Indian made foreign liquor manufacturing facilities including building, plant and machinery and other equipments to M/s Jagatjit Industries Ltd. Since the first sub license was granted by the Excise authorities on 26/9/2006, therefore, in terms of Article 1.2 of the said agreement, the effective date of the agreement was 1/10/2006. Further, from the documents it can be seen that for full commercial exploitation of the assessee's expertise in various aspect of liquor manuf....
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....ither by using it himself personally or by letting it out to somebody else. The Ld. DR's contentions that the assessee intends to lease out the Unit on a continuous basis and hence, the same should be treated as Income from Other Sources appears to be incorrect as the manufacturing activity of the assessee is going on till date. Thus, case laws relied upon by the Ld. DR as well as the ratio applied by the CIT(A) and Assessing Officer of various decisions does not apply as in those cases the manufacturing activities were not continued. Thus, Ground No. 1 and 1.1 of the assessee's appeal is allowed. 23. As relates to Ground No. 2, since the income from packaging services amounting to Rs. 1,27,77,784 is a business income which is based on the packaging agreement between assessee and M/s Jagatjit Industries Ltd. The assessee has not given up at any point of time its own manufacturing activities but was facilitating M/s Jagatjit Industries Ltd. for the benefit of assessee's own business. Therefore, Assessing Officer as well as the CIT(A) was not correct in disallowing packaging services to the assess by holding that it is 'income from other sources'. Ground No. 2 of the Assessee's ap....