TaxTMI 
TaxTMI 
2021 (11) TMI 636
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....e after the other in this judgment itself. I.T.A. No.185 of 2013 (AY 2004-05) 2. Though this appeal was admitted on six questions of law, three main issues arise for consideration, and hence we re-framed the questions of law into three, and they are as follows: (i) Whether the lease rent received by the assessee for the year 2004-05 from M/s. Apollo Tyres Limited is to be treated as business income or as income from other sources? (ii) Whether the penalty of Rs. 52 lakhs imposed under section 45A of the Kerala General Sales Tax Act, and paid under orders of the High Court, ought to be treated as an expenditure for the assessment year, even though the dispute had not attained finality? (iii) Whether the amount of Rs. 1,25,12,348/- claimed as quality loss paid by the assessee to M/s. Apollo Tyres Limited is liable to be deducted? 3. The assessee is a tyre manufacturing company, earlier known as Premier Tyres Ltd. and later renamed as M/s.PTL. It was incorporated on 29.10.1959 with the object of carrying on the business of manufacture of tyres. Over the years, the company incurred business losses, and the company's entire net worth eroded. Assessee was declared as a sick comp....
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.... was attributable to ATL and not to the assessee. 7. Both assessee, as well as the department, appealed to the Tribunal. By the order impugned, the Tribunal allowed the appeals of the revenue and dismissed the cross-appeal filed by the assessee. The Tribunal held that the rental income has to be assessed under the head "income from other sources" since the assessee had no intention to revive its business activity. The Tribunal also found that the disallowance of Rs. 52 lakhs was justified as the expenditure did not pertain to the year under consideration. Regarding the quality loss, it was held that assessee could not claim deduction as an expenditure since it did not carry on any manufacturing activity. In the above background, the assessee preferred this appeal under section 260A of the Income Tax Act, 1961 ('the Act' for brevity). 8. We heard Senior Advocate Joseph Markose instructed by Adv. Abraham Markos for the assessee and Adv.Jose Joseph, the learned Senior Standing Counsel for the Income Tax Department. 9. It is relevant to mention that for the assessment years 1995- 96 till 2003-04, we had by a separate judgment in ITA.No.757 of 2009 and connected cases, allowe....
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....ins of business or profession"; 2. it is a mixed question of law and fact and has to be determined from the point of view of a businessman in that business on the facts and circumstances of each case including true interpretation of the agreement under which the assets are let out; 3. 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. 4. if only 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." 13. We have to appreciate this case with the above propositions in mind. It is admitted that the net worth position of the assessee had becom....
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....he intention was only to merely let out the property or any part of it, the resultant income could be assessed only as an income from other sources. On the other hand, if the intention was to exploit the property by a commercial activity, then the rental income could be treated as a business income. The intention could be manifested by the assessee initiating or undertaking an element of risk in the activity of manufacture. The decision in Commissioner of Income Tax, Lucknow v. Vikram Cotton Mills Limited [(1988) 169 ITR 597 (SC)] is also apposite in this context. 17. We had observed in I.T.A. No.757 of 2009 and connected cases that the word Business in section 2(14) is not a word of art but a word of commercial implication. The bottom line is the availability of assets, activities carried out for exploiting the assets and that the assessee is not a mere onlooker in the activities of the company or a passive recipient of rent for utilization of facilities. 18. Applying the above ratio to the facts of the present case, we find that the assessee had never been an active participant of ATL. Though the revival was contemplated within a limited span of time, that did not happen, even ....
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.... be termed as an expenditure for the year 2004-05. The second question is answered in favour of the revenue. 22. The third question raised for consideration in these appeals relates to the claim of Rs. 1.25 Crores under the head 'quality loss'. The assessing officer, First Appellate Authority as well as the Tribunal, rejected the claim. It is the admitted case of the assessee that the plant and machineries have been leased out to ATL. Dehors the finding on the absence of any business carried out by the assessee for the year 2004-05; we are of the view that in the very nature of relationship put forth between ATL and assessee, the claim for quality loss cannot be entertained. The quality loss can only arise during the manufacturing activity carried out by ATL. Therefore the quality loss, if any, can be attributable only to ATL and not to the assessee. In the above circumstances, we answer the third question framed by us in favour of the assessee. 23. In the above circumstances, the questions of law raised in this appeal are answered in favour of the revenue. The appeal is hence dismissed. I.T.A. No.227 of 2013 (AY 2004-05) 24. This appeal arises from an order of rectification un....
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....iable to be rectified. We find no reason to interfere with the order of the Tribunal. The questions of law are found against the assessee and in the circumstances of the case, this appeal is dismissed. ITA No.206 of 2013 (AY 2005-06) 27. The four questions of law raised in the memorandum of appeal were reframed into a single one as follows: (i) Whether the lease rent received by the assessee for the year 2005-06 from Apollo Tyres Ltd. is liable to be treated as business income or income from other sources? 28. For the assessment year 2005-06 also, the assessee continued the rental arrangement with ATL on the basis of a fresh agreement entered into from 1.4.2005 to 31.3.2006. The terms of the agreement are substantially the same as that in the year 2004-05. We have already found in I.T.A. No.185 of 2013 that the rental income received by the assessee from ATL for the year 2004-05 is to be treated as income from other sources since the assessee had not carried out any manufacturing activity. No change of circumstances have been pointed out for the assessment year 2005-06 and hence the rent received by the assessee for the year 2005-06 from ATL is to be treated as income from oth....
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....er period of 12 months. The terms of the lease are almost identical as in the earlier years. No change of circumstances has been brought to our notice to vary the finding on the absence of any manufacturing activity conducted by the assessee. In the above perspective and in view of our conclusions in ITA 185 of 2013, the question of law raised in this appeal is answered against the assessee. Accordingly, the order of the Tribunal shall stand confirmed, and this appeal is dismissed. ITA No.193 of 2013 (AY 2007-08) 35. This appeal arises from the assessment year 2007-08. The question of law raised in this appeal is similar to question No.(i) in I.T.A. No.185 of 2013 and is as follows: (i) Whether the rent received by the assessee for the year 2007- 08 from Apollo Tyres Ltd is to be treated as business income or as income from other sources? 36. For the assessment year 2007-08 also the assessee renewed the lease agreement with ATL for a further period of 12 months. The terms of the lease are almost identical as in the earlier years. No change of circumstances has been brought to our notice to vary the finding on the absence of any manufacturing activity conducted by the assessee.....