TaxTMI 
TaxTMI 
2019 (10) TMI 1002
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....stitution Bench of the Hon'ble Supreme Court in Sultan Brothers Pvt. Ltd. Vs. C.I.T. (1964) 51 ITR 353 (S.C.) and the Division Bench judgment of this Hon'ble Court passed in CIT v. Goel Builders 331 ITR 344 (All.), the Tribunal below was justified in holding that the receipts of the appellant were income from house property/ other sources and not business income? (b) Whether, in view of the decisions In Radhasaomi Satsang v. CIT 193 ITR 321 (SC) and in ACIT Vs. D.M. Brothers (2010) 44 DTR 13 (All.), the decision of the Tribunal below in discarding the treatment of the receipts of the appellant as business income for Assessment Year 2005-06 and in all subsequent assessment year's till A.Y. 2013-2014 (except assessment year's under appeals) is legally justified?" 4. The assessee is a partnership firm, which was constituted w.e.f. 01.07.2004, while the deed forming partnership is dated 01.11.2004. According to the deed, the object of the assessee firm is to venture into real estate business and allied activities such as leasing/ sub leasing, maintaining properties on maintenance contract etc. It was subsequent to formation of partnership firm, that assessee....
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....lenging the said order but the said appeal was rejected by order dated 23.01.2012 by CIT (A), aggrieved by the said order a Second Appeal was preferred before the ITAT which was also rejected by order dated 14.08.2013, which is impugned before this Court. Pursuant to the order of this Court, assessee filed copies of the partnership deed, as well as the three agreements executed between the assessee -appellant and GAIL. 7. Sri Rahul Agarwal, learned counsel appearing for the assessee submitted that the assessee firm is in the business of real estate and allied activities such as leasing and subletting, maintaining properties on contracts. He further submitted that the three agreements executed between the appellant and GAIL indicates that they were supplemental/ incidental to each other and were part of one composite transaction and should not be read in isolation as done by the taxing authorities. He further submitted that GAIL being a Government organisation does not enter into tenancy agreement with private parties without protracted negotiations and usually does not conclude a transaction within a space of a week or 10 days, as in the present case the property was obtained by....
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....judgment, stated the circumstances of the present case from which we arrive at irresistible conclusion that in this case, letting of the properties is in fact is the business of the assessee. The assessee, therefore, rightly disclosed the income under the head "Income from business". It cannot be treated as "Income from the house property". We, accordingly, allow this appeal and set aside the judgment of the High Court and restore that of the Income Tax Appellate Tribunal. No orders as to costs." 11. Reliance has also been placed on a judgment of the Division Bench of this Court in case of Hotel Arti Delux (Pvt.) Ltd. vs. Assistant Commissioner of Income Tax [2014] 227 Taxman 119 (All.) wherein this Court held as under:- "15. From the recital of the lease deed it is evident that only the building was leased out along with a lift, tubewell and electrical fittings. These cannot be treated as plant and machinery but would be treated as amenities, which are necessary for the use of any building. We find that the appellant had not placed any material on record to show that the building had peculiar amenities with which the building could be treated as a "plant" and not a bui....
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....the comprehensive monthly rent. Hence, this question should be answered in the affirmative. (C) Would one have been let alone, and a lease of it accepted, 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....
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.... 16. We have heard learned counsel for the parties and perused the material on record. 17. The question which arises for consideration is whether the property acquired by the assessee and subsequently entered into an agreement with GAIL and the receipts at the hand of assessee pursuant to the agreements is assessable under the head 'income from business or income from house property or income from other sources'. 18. The contention of the assessee hinges around two facts, firstly that AO has already taken a view while making assessment for the assessment year 2005-06 that income is assessable under the head 'income from business' and therefore maintaining consistency the Assessing Officer should have not taken a different view for the subsequent assessment year, and the second ground of attack being that the assessee firm is in the business of real estate and allied activities and the three agreements executed were supplemental and incidental to each other and are part of one composite transaction and should not be read in isolation, further the property acquired by the assessee was for letting, as such the same being income from business and cannot be asses....
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....88 are not germane. 22. A decision can be set aside in the same lis on a prayer for review or an application for recall or under Article 32 in the peculiar circumstances mentioned in Hurra v. Hurra. As we have said, overruling of a decision takes place in a subsequent lis where the prcedential value of the decision is called in question. No one can dispute that in our judicial system it is open to a court of superior jurisdiction or strength before which a decision of a Bench of lower strength is cited as an authority, to overrule it. This overruling would not operate to upset the binding nature of the decision on the parties to an earlier lis in that lis, for whom the principle of res judicata would continue to operate. But in tax cases relating to a subsequent year involving the same issue as an earlier year, the court can differ from the view expressed if the case is distinguishable or per incuriam. The decision in State of U.P. v. Union of India related to the year 1988. Admittedly, the present dispute relates to a subsequent period. Here a coordinate Bench has referred the matter to a large Bench. This Bench being of superior strength, we can, if we ....
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....hat the judgment relied by the assessee in case of Radhasaomi Satsang (supra) was dealt by the Apex Court in the case of BSNL (supra) and Supreme Court held that principal of res-judicata does not apply in matter pertaining to tax for different assessment years, because res-judicata applies to debar courts from entertaining issues on the same cause of action, whereas cause of action for each assessment year is distinct. In the case in hand, the AO for assessment year 2005-06 had accepted claim of the assessee without examining relevant records, as well as without recording any finding on the issue in question. Thus, for subsequent year, the claim of assessee cannot be accepted without examining records and material, and AO after examining the records came to conclusion and took a view that receipts at the hand of assessee was to be assessed under income from house property and income from other sources and not business income. In Commissioner of Income Tax vs. British Paints India Ltd., Supreme Court while interpreting Section 145 of the Act held that even if the assessee had adopted a regular system of accounting, it was the duty of the Assessing Officer to consider whether correc....
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....n 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 changed in subsequent year, unless there was a material change justifying the revenue to take different view. 23. In the present case, the AO found sufficient materials and changes in the year under consideration, as he after examining the relevant clauses of agreements formed an opinion that the property was taken on lease for giving it on rent to GAIL. Further, Section 2(13) defines business, which includes any trade, commerce or manufacture or adventure or concerned in the nature of trade, commerce or manufacture. In the present case no business activity was being carried out by the assessee as business is a continuous and systematic activity carried on with a view to earn profit. 24. Further, the records of the assessee revealed that only one person was employed, which cannot go on to establish the fact that any business activity was being carried out by the appellant, and the premises was only let out to GAIL pursuant to the agreement and was thus rightly assessed by the Assessing Offic....
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.... 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 by 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 and Land Development Trust Ltd. v. Commissioner of Income-tax 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 a company formed with the object of developing and setting up markets." Now the cases on which learned counsel for the appellant specially relied were cases of the letting out of plant and machinery, in some instances along with the factory buildings in which they had been housed. In all of them, except one, which we will presently mention, the assessee had previously been operating the factory or mill as a business and had only temporarily let it out as it was not convenient for him at the time to carry on the business of running the mill or factory. In these c....
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....income of a business." 27. In case of Universal Plast Ltd. vs. Commissioner of Income Tax [1999] 237 ITR 454 (SC), the Apex Court considering the question of leasing out of asset of the business would be income from business or not, the Court held as under:- "The question whether the amount earned by an assessee by leasing out the assets of the business would be 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. In Commissioner of Excess Profits Tax v.. Shri Lakshmi Silk Mills Limited [1951] 20 ITR 451 (SC), the assessee-company was carrying on the business of manufacturing silk cloth and dyeing silk yarn. Due to lack of supply of silk yarn during the relevant period while keeping idle other plant and machinery, it let out dyeing plant for five months. The question which came up for consideration before this Court was whether the rent received from letting out the dyeing plant would fall under the head "Income from business" or "Income from other sources". If it was "Income from business", it would have bee....
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....ess 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. In CIT v. Calcutta National Bank Limited [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 income of the assessee was in the course of its business being in prosecution of one of its objects in its memorandum and was liable to be included in its business profits and was assessable to excess profits tax. That conclusion was reached on the premise that the term `business' as defined in that Act was wider than the definition of that term under the Income Tax Act. The minority, however, took a contrary view. In Sultan Brothers Private Ltd. vs. CIT, [1964] 51 ITR 353 (SC), the assessee constructed a building, fitted it up with furnitu....
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....l Corporation 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 found it advantageous to let out the machinery on hire for a temporary period and the company was able to liquidate its liability at the end of the lease period and regained possession of its assets; the company did not sell or otherwise dispose of its assets; there was nothing on record to show that the company was formed to let out plant and machinery on hire. The Tribunal came to the conclusion that the maintenance of the assets meant that the Company had an intention to re-start the business and that the intention of the Company i....
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....ctory 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 (page 11): "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 already there. The assessee was already committed to the licensee for such a sell-out at licensee's pleasure and there is no means of the assessee falling back from that commitment. Therefore, it can 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 is in fact a veiled agreement for lease-cum-sale....We are of the opinion that the licensing is not meant to be a tempora....
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.... normally with the object of making profit. Whether or not a person carries on business in a particular commodity must depend upon the volume, frequency, continuity and regularity of transaction, or purchase and sale in class of goods and transaction must necessarily be entered into with a profit motive. The said decision was rendered in the context of sales tax law, and was relied upon and referred in the context of Income Tax law in judgment of Apex Court in case of Sole Trustee, Loka Shikshana Trust vs. Commissioner of Income Tax [1975] 101 ITR 234. 31. As in case of hiring out of a property along with other articles, rights asserts etc. question which arises is whether the income derived is from house property, business or other sources. This was exclusively dealt by Bombay High Court in case of CIT vs. National Storage Pvt. Ltd. [1963] 48 ITR 577 (Bom.). This case was confirmed in 1967, 66 ITR 596 (SC). 32. For the purpose of income to be revenue in nature it must arise from the various sources as envisaged under the Act. One of such sources is business income, but to be a business income, volume, frequency, continuity, regularity and the intention of the assessee to ....