TaxTMI 
TaxTMI 
2022 (4) TMI 396
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....9;s claim was not accepted by all the authorities, including the Tribunal, hence the subject appeals. I.T.A. No.11/2008 is the representative appeal for the narrative of circumstances in issue between the parties. Since the events and points are similar in all other appeals, the reference to one case would be sufficient for answering/deciding the appeals. 3. The assessee, a Government Company, manufactures and sells Indian Made Foreign Liquor (IMFL). On 26.10.2004, the assessee filed a tax return for the Assessment Year 2004-05 as 'Nil' income. In the appeal and the companion appeals, the issue relates to the assessee's claim to treat the rental income received by the assessee as income from business and not income from house property. The assessee let out a few of its assets, namely godown, building premises etc., to Kerala State Beverages Corporation (KSBC), State Bank of Travancore (SBT), Police Station, etc. The assessee claimed the rental income from KSBC, amounting to Rs. 12 lakh per annum, as income from the assessee's business. Through an order in Annexure-A dated 12.01.2006, the Assessing Officer disallowed the claim of the assessee to treat the rental i....
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....ture of hosiery and handloom goods. Since we notice that the facts in the reported decision of the Division Bench of this Court and the facts available in the present appeals are identical, judicial discipline requires reference to a Larger Bench. We, hence direct the Registry to place the matter before the Hon'ble the Chief Justice for appropriate orders." 4.1 The learned counsel appearing for the assessee and the Revenue, after appreciating the scope, purpose and object of consideration by the Full Bench of this Court, have stated that the Full Bench needs to consider the correctness or otherwise of the view taken by a Division Bench of this Court in Malabar and Pioneer Hosiery (P.) Ltd and the assessee's claim for treating the rental income as income from business; may have to decide on the merits of the matter. The Full Bench heard the learned counsel on the following point: "Whether the rent income received by the assessee from the premises let out to KSBC can be held as income earned from business by following the judgment in Malabar and Pioneer Hosiery (P.) Ltd case or is it to be treated as income from house property? 5. Mr Raja Kannan argues that the....
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....s for allowing the appeal in terms of the ratio laid down by the Division Bench of this Court, and, the judgments reported in Commissioner of Excess Profits Tax, Bombay City v. Shri Lakshmi Silk Mills Limited [1951] 20 ITR 451 (SC); Universal Plast Ltd v. Commissioner of Income Tax, Calcutta (1999) 5 SCC 189; East India Housing and Land Development Trust Ltd. v. Commissioner of Income Tax, West Bengal, Calcutta (1961) 42 ITR 49; Karanpura Development Co. Ltd. v. The Commissioner of Income Tax, West Bengal (1962) 44 ITR 362; and Commissioner of Income Tax, Bombay City I, Bombay v. National Storage Pvt. Ltd., Bombay (1962) 44 ITR 362. 6. Mr.Jose Joseph argues that whether the income received by the assessee is by exploiting the business asset or otherwise employing them for the assessee's own use for making a profit for that business is a substantial question of facts and law. The nature of receipt is dependent on the totality of circumstances of a case. The assessee in the subject Assessment Year has shown the rental income as income from the business. The assessee's case is that regarding operational advantages the assessee derives by letting out the godown to KSBC, the ....
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....is related to the source in question; the source is the commercial asset irrespective of how the owner exploits the asset; the income would have to be understood as income from the business, which is the basis for reference to the Larger Bench. To appreciate whether the above observation by the Division Bench in Malabar and Pioneer Hosiery (P.) Ltd case conforms to the ratio, principle or obiter laid down by the Apex Court in all the judgments referred to by both the parties, we consider it proper to excerpt the very paragraphs which deal with treating whether the rental income is income from business or income from house property. 8. Juxtaposing the narrative with our consideration of the issue, we notice that in Malabar and Pioneer Hosiery (P.) Ltd case, the Division Bench for ascertaining a category of income, laid substantial emphasis on the relatability of income to a particular source. The source of income is from a commercial asset; without reference to how the owner exploits the asset, then the income would have to be understood as income from the business. Stated precisely, Malabar and Pioneer Hosiery (P.) Ltd case lays down a simple test viz. generation of income and t....
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....e for granting sub-leases were trading receipts in its hands and the amount of profit therein is assessable under the Indian Income Tax". Assessee's appeals were dismissed. Paragraph 22 of the reported judgment reads thus: "22. Ownership of property and leasing it out may be done as a part of business, or it may be done as landowner. Whether it is the one or the other must necessarily depend upon the object with which the Act is done. It is not that no company can own property and enjoy it as property, whether by itself or by giving the use of it to another on rent. Where this happens, the appropriate head to apply is "income from property" (s. 9), even though the company may be doing extensive business otherwise. But a company formed with the specific object of acquiring properties not with the view to leasing them as property but to selling them or turning them to account even by way of leasing them out as an integral part of its business cannot be said to treat them as landowner but as trader. The cases which have been cited in this case both for and against the assessee Company must be applied with this distinction properly borne in mind. In deciding whether a company ....
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..... This is somewhat different from the way in which it was put before the Tribunal. The argument advanced before the Tribunal was not advanced in this Court and need not, therefore, be considered. It is indeed not very clear. A very large number of cases was referred to in support of this contention but it does not seem to us that much assistance can be derived from them. Whether a particular letting is business has to be decided in the circumstances of each case. We do not think that the cases cited lay down a test for deciding when a letting amounts to a business. We think each case has to be looked at from a businessman's point of view to find out whether the letting was the doing of a business or the exploitation of his property by an owner. We do not further think that a thing can by its very nature be a commercial asset. A commercial asset is only an asset used in a business and nothing else, and business may be carried on with practically all things. Therefore it is 'not possible to say that a particular activity is business because it is concerned with an asset with which trade is commonly carried on. We find nothing in the cases referred, to support the pro....
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....ncome (referred to by whatever nomenclature, lease amount, rents licence fee) received by an assessee from leasing or letting out of assets would fall under the head "profits and gains 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 in the 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 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....
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....criteria for deciding the tests for determining whether the rental income received is business income or not since we are considering the merits of the matter. 9.2 The next question for decision is whether the rental income in terms of the lease agreement dated 24.06.1998, in favour of KSBC, merits inclusion under income from business or not. The assessee's case is that being a manufacturer of IMFL, the assessee, by law, sold IMFL to KSBC. The letting out of godown earns receipts and avoids business overheads. The letting out is exploiting a business asset, but not letting out of property as owner. The source of income is yet another circumstance relied on by the assessee. The ratio laid down in Sultan Brothers Private Ltd and Universal Plast Ltd, is kept in our perspective. The tests need not be reiterated while considering the facts of the case on hand. However, depending on the outcome of consideration on other propositions, this will be considered. 9.3 We have perused the agreement dated 24.06.1998, and we are satisfied that the arrangement is made or entered into more to adjust the outstanding liability of the assessee to KSBC. The clauses in the agreement refer to a....