TaxTMI 
TaxTMI 
2025 (7) TMI 1226
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....e of facts, for the Ays. 2013-14 and 2017-18. 2. When the agreement dated 9/8/2007 covers the period between 1/6/2007 and 31/5/2017, having accepted the position that the receipts derived under such agreement as "business income" for all the Ays except 2013-14 & 2017-18, is it open for the revenue to contend for the Ays.2013-14 & 2017-18 that such receipts are only income from house property." 2. Hon'ble President has nominated Shri Vijay Pal Rao, Vice president, (Hyderabad Zone) as the Third Member for taking decision on the point of difference between the Members constituting Division Bench. The Third Member vide his order dated 23.05.2025 has agreed with the view taken by Hon'ble Accountant Member and held that the impugned addition treating the income as "income from house property" by the Ld. AO is valid, as against the claim made by the assessee as "income from business". 3. In view of the majority opinion, we hold that the addition made by the revenue authorities treating the income as "income from house property" is decided in favor of the revenue and against the assessee. 4. In the result, appeals filed by the assessee are dismissed. Order pron....
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....ms of the lease agreement. Pursuant to the said MOU, dated 4/4/2007, a lease deed dated 9/8/2007 was also executed between the parties. The details of the property leased out by the assessee are given in schedule of property as part of the lease deed as under: 3. The assessee in the return of income declared the lease rental income as business income and claimed the expenditure against the said income thereby reported the total income at loss. The Assessing Officer has treated the rental income as income from house property resulting the addition to the total income of the assessee. The assessee challenged the action of the Assessing Officer treating the rental income as income from house property instead of business income claimed by the assessee but could not succeed and the matter reached to this Tribunal. However, the Members of the Division Bench had difference of opinions on the issue. The learned Judicial Member has decided this issue in para 7 to 10 of his order as under: "7. We have gone through the record in the light of the submissions made on either side. It is an undisputed fact that there is no change in the facts and circumstances as obtained for the asse....
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.... any time during the said period either by the assessee or by the lessee by giving 6 months' notice. The fact that such a clause is available in the lease deed shows that the assessee has retained the flexibility with itself to terminate the lease at any time before the expiry of the stated lease period and resume its business in the said premises, if the circumstances are favourable for such resumption, Further, it is noticed that though clause-1 at page 2 of the lease deed provides that the lease period of 10 years is extendable for any period from time to time as pointed out by the A0, the same clause also provides that such extension shall be on mutual agreement. This also shows that the assessee has retained the flexibility with itself to dec1de whether to agree for further extension or not, depending on existence or otherwise of favourable conditions for resumption of business at the relevant point of time. Moreover, it is noticed that the intention of the assessee regarding temporary discontinuance of its business of duly reflected at para 5 of the preamble to the MOU at page 2 of the MOU, wherein it is stated that the party of the first part (i.e. the assessee) is desirous ....
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....om the firm with effect from 01.04.2003 and the firm was reconstituted from the said date. One of the partners who retired w.e.f. 01.04.2003 was considered by the assessee to be a key partner, whose retirement at a crucial time caused downfall in the business and consequent losses. The fact that the assessee has taken keyman insurance policy in respect of a continuing partner Sri. M.V. Narayana in the subsequent period cannot be interpreted to mean that there was no other key partner prior to 01.04.2003. Hence, the observation of the AO regarding the factual incorrectness of the claim of temporary discontinuance of the business by the assessee on account of retirement of a key partner is considered to be incorrect. 29. in As regards the observation of the AO that the existence of huge debit balance the capital accounts of the partners as on the last day of the previous year indicates that the partners have started withdrawing funds from the firm in excess of their capital balance and that the same is due to the intention of the assessee firm to discontinue the business permanently, it has been clarified by the assessee that the assessee firm has been making continuous loss....
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....ses of MoU, financials and other circumstances. Revenue accepted the same without preferring any appeal and such findings of fact have become final. We, therefore, do not deem it just and proper to reopen the said findings of fact at this remote point of time. 9. To the factual findings returned by the learned CIT(A) in the assessment year 2009-10, the decisions of the Hon'ble Apex Court in the case of Sri Lakshmi Silk Mills (supra) and Vikram Cotton Mills (supra) are applicable on all fours. In view of our finding, that the factual findings of the learned CIT(A) for the assessment year 2009-10 cannot be permitted to be reagitated year after year, that too having once accepted those facts, we find that the decisions relied upon by the learned CIT(A) have no application. 10. For the reasons stated in the preceding paragraphs, we accept the contention of the assessee for the assessment year 2013-14 and 2017-18 also and allow the grounds of appeal. " 4. Thus, the learned JM has taken a view that for the A.Y 2009- 10, the learned CIT (A) has decided this issue in favour of the assessee and reversed the findings of the Assessing Officer by holding that the asses....
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.... its members or through its nominees. The party of the second part agreed their proposal and also agreed to substitute their members in the management committee of the par' of the 3rd part on the condition that the entire present management retires from the society and gives way to the management as proposed by the party of the second part." 15. From the above recitals of Memorandum of Understanding it is clear that the assessee has let out the premises including the infrastructure for earning a rental income by giving away their right to take part in the management. 16. In schedule of the property as per the lease deed, it has been clearly indicated that immovable property as listed therein comprising of land, RCC Buildings and A.C. Sheet Sheds are being let out on lease by the assessee with all appurtances and all other easement rights including the vacant land on the western side for parking purposes. From the recitals of the lease agreement, it is very clear that assessee has leased out the immovable property by discontinuing its business of imparting education. 17. Ld. DR also in her written submissions has stated that even after the expiry of le....
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....al income. 22. Further there is merit in the argument of the Ld. DR that the assessee has not taken over the premises on the termination of lease on 31.05.2017 but has renewed the lease for subsequent periods. It clearly shows the intention of the assessee is not to temporarily lease out the business for commercial exploitation of business assets, but to permanently discontinue from the business activities of imparting education. Hon'ble Supreme Court in the case of universal Plast Limited v. CIT (supra) held as follows: "1. no precise test can be laid down to ascertain whether income (referred to by whatever nomenclature, lease, amount, rents, license 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 a mixed question of law and fact and has to be determined is from the point of view of 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 ....
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....ble Supreme Court in the case of CIT vs. Vikram Cotton Mills vs. CIT (36 Taxman 1) as well as the judgement of Hon'ble Madras High Court in the case of Keyaram Hotels (P) Ltd vs. DCIT (373 ITR 494) as relied upon by the learned JM. He has further submitted that the decisions relied upon by the learned AM are not applicable to the facts of the present case because in the case of Universal Plastic Ltd vs,. CIT (234 ITR 454, the lesser was given the option to buy the property while leasing out, whereas in the case of Keyaram Hotels (P) Ltd vs. CIT (Supra), the intention of the assessee was to construct a hotel and give it on lease. In any case, when the issue has been considered and decided in the earlier years in a particular manner specifically for the A.Y 2009-10 on the same lease agreement, then such view cannot be looked into in a different manner. The learned AR has thus, submitted that in the absence of any change of facts and circumstances for the years under consideration in comparison to the A.Y 2009-10, the income from leasing out of the College Buildings ought to have been assessed as business income rather than treating it as income from house property. He has thus, c....
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....t even in the Income Tax Proceedings, res judicata is not applicable as each A.Y is a separate unit and proceedings. In support of his contention, he has relied upon the following decisions: a. M.M. Ipoh & Ors. Vs CIT (SC) 67 ITR 106 b. M.M. Ipoh & Ors. Vs CIT (SC) 67 ITR 106 c. New Jehangir Vakil Mills Co. Ltd. Vs CIT (SC) 49 ITR 137 d. Bharat Sanchar Nigam Ltd. & Anr. Vs Union of India & Ors. (SC) 282 ITR 273 9. Thus, the learned DR has contended that if the claim was not questioned in the earlier years does not entitle the assessee to contest that the correct law should not be applied during the current year as held by the Hon'ble Madras High Court in the case of CIT vs. Seshasayee Industries Ltd (Mad) 242 ITR 691. He has also relied upon the following decisions: a. Catholic Syrian Bank Ltd. Vs CIT (SC) 343 ITR 270 ; 206 b. Taxman 182 b. C.K. Gangadharan Vs CIT (SC) 304 ITR 61; 172 Taxman 87 10. There is no hindrance in taking a decision as per correct law and facts and therefore, a wrong decision cannot be perpetuated as held by the Hon'ble Supreme Court in the case of Distributors (Baroda) (P) Ltd vs. CIT (S.C....
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....etting out the asset/property is dependent upon the time factor as well as the law at relevant time, and thus the lapse of considerable time is a crucial and material factor to ascertain the intention of the assessee whether to continue, revive or restart its business or has permanently closed its business. Therefore, it is a mixed question of law and fact to be determined based on the facts and circumstances of each case including the interpretation of the agreement under which the assets has been let out. In the agreement, the assessee has expressed the reasons for letting out of the educational institution premises as the business of running these educational institutions by the assessee became economically un viable and therefore, the assessee transferred the business as well as business assets in favour of the lessee/transferee. Initially, the assets were leased out for a period of 10 years i.e. upto 31/05/2017 but even after the expiry of the term of the lease, the assets continued to be let out to the same lessee with no intention of the assessee to take back the same and restart its business. Therefore, it is not a case of a temporary use of the commercial assets through le....
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....-18 and 2013-14 respectively. 2. Since the issue raised by the assessee for both the appeals are identical in nature, these appeals are clubbed and a consolidated order being passed. We now take up the appeal in ITA No. 25/VIZ/2022 for the A.Y.2017- 18, the facts are extracted from A.Y. 2017-18. ITA No. 25/VIZ/2022 (A.Y. 2017-18) 3. The facts in the case are, assessee is a partnership firm and deriving rental income filed its return of income for the A.Y. 2017-18 on 16.02.2018 admitting a total income of Rs. 1,14,45,670/-. Assessee has received rental income during the impugned assessment year and has claimed it as income from profits and gains of business. The assessee was running an educational institution during the earlier assessment years but has leased out the premises along with furniture and fixtures and other amenities from the period of ten years i.e., from 01.06.2007 to 31.05.2017 which is extendable on mutual agreement from time to time. As per the lease deed assessee shall receive rental income of Rs.2,50,00,000/- per annum with an agreement to increase 10% of the rent every three years. Thereafter an amended lease deed was entered on 10.05.2011 for the same t....
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.... facts. 4. The learned Commissioner of Income Tax (Appeals) erred in confirming the order of the assessing officer in assessing the income under the head house property at Rs.2,06,66,410/- without appreciation of correct facts and legal precedents. 5. The learned Commissioner of Income Tax (Appeals) with a wrong notion erred in holding that the income to be treated as business income, the income has to be derived from the activities of running of business or profession and the appellant has no role to play after leasing the business. 6. The learned Commissioner of Income Tax (Appeals) erred with a wrong notion and on pure presumption and surmises, in holding that income derived from letting out of the property is to be treated as Income from House Property. 7. The learned Commissioner of Income Tax (Appeals) erred in conforming the order of assessing officer in not allowing the expenditure and depreciation claimed in the Profit & Loss a/c. against the lease income received." 6. The issue agitated by the assessee is treatment of rental income as "Income from House Property" instead of considering it as "Income from profits and gains of business....
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....R. J. Security Printers [2003] 131 taxman 297 (Delhi) iii. Berger Paints India Ltd v. CIT [2004] 135 Taxman 586 (SC) iv. CIT v. Dalmia Promoters Developers (P.) Ltd., [2006] 151 Taxman 202 (Delhi) v. CIT v. Sood Harvester [2007] 164 Taxman 55 (Punjab & Haryana) vi. ITO v. Indian Oil Corporation Ltd., [2023] 156 taxmann.com 576 (Patna) 10. Per contra, Ld. Departmental Representative [hereinafter in short "Ld.DR"] in her written submissions reiterated that assessee has given lease of the buildings, furniture and fixtures and the income derived thereon shall be treated as "Income from House Property". Assessee was earlier receiving fees from students, application money, etc., but assessee received only rental income and interest during the impugned assessment year which clearly indicates that assessee is not carrying any business of imparting education. She also submitted that assessee is not into the business of running educational institution and as per MoU assessee is not part of the management and the day- to-day affairs of the educational institution taken over by the M/s.Narayana Educational society. Further, she also reiterated that assess....
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.... appeal against order of the Ld.CIT(A) for the A.Y. 2009-10 the matter has reached finality and hence cannot be disputed in the subsequent years given the same circumstances. The assessee has also entered into Memorandum of Understanding dated 04.04.2007 with M/s. Narayana Educational Society and M/s. Gowtham Academy of General and Technical Education. The clause 6 of Memorandum of Understanding reads as follows: "6. The party of the first part would hand over the management of running the educational institutions from 01-06-2007 either to the party of the second part or part of the third part herein with a right to take possession of the same on termination of the lease." 14. Further the recitals of the Memorandum of Understanding stating that the entire management will be taken over by either the party of the second part or through its members or through its nominees, as extracted below: - "Whereas the party of the 3rd part also approached the party of the second part with a request that its management be taken over by either the party of the second part or through its members or through its nominees. The party of the second part agreed their proposal and als....
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....essee was not engaged in any business activity, rental income earned from letting out commercial complex would be assessed as income from house property and not as business income - whether special leave petition filed against impugned order was to be dismissed - Held, yes [In favour of revenue]." 20. From the plain reading of the above ratio laid down by the Hon'ble Supreme Court wherein the facts are identical to the instant case on hand, it is clear that where the assessee was not engaged in any business activity, rental income earned from letting out commercial complex would be assessed as income from house property and not as business income. 21. In the instant case, the assessee has discontinued his business and is also not participated in the management of the M/s. Narayana Educational Society who has taken out the premises on lease along with the infrastructure and hence it can be concluded that the assessee is not engaged in any business activity but has let out the immovable property only for the purpose of earning rental income. 22. Further there is merit in the argument of the Ld. DR that the assessee has not taken over the premises on the termination of lease ....
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.... by the Ld.AR regarding the principles of consistency cannot be applied to the instant case as the facts and circumstances are distinguishable in the instant case. We are hence, therefore are of considered opinion to uphold the order of the Ld.CIT(A) as there is no infirmity and thus the grounds raised by the assessee are dismissed. 24. In the result, appeal of the assessee is dismissed. ITA No. 26/VIZ/2022 (A.Y. 2013-14) 25. Coming to appeal relating to ITA No. 26/VIZ/2022, the assessee has raised identical grounds. Therefore, the decision taken in ITA No. 25/VIZ/2022 in the aforesaid paragraph shall apply mutatis mutandis to the appeal number in ITA No. 26/VIZ/2022. Accordingly, appeal filed by the assessee is dismissed. 26. To sum-up, appeals filed by the assessee are dismissed. Order pronounced in the open court on 30th January, 2025. SHRI K.NARASIMHA CHARY, JUDICIAL MEMBER & SHRI BALAKRISHNAN S., ACCOUNTANT MEMBER ITA No.25/Viz/2022 30-01-2025 For the Appellant : Shri C. Subhrahmanyam, AR For the Respondent : Dr. Aparna Villuri, DR ORDER PER K. NARASIMHA CHARY, J.M: Aggrieved by the order dated 26/10/2021 passed by the learned Commi....
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....3 Taxmann 493 (SC), the assessee had no intention to continue the business; in East India Housing and Land Development 42 ITR 49, Shambhu Investments 263 ITR 143 and Keyman Hotels 63 Taxmann.com 301, the very intention of the assessee was to create the asset for the purpose of letting it out, whereas, the intention of the assessee in this case was to run the educational institute on its own, but only due to certain adverse circumstances, the letting of the entire business took place. 6. Per contra, learned DR placed reliance on the orders of the authorities below and submitted that it is only a few of the business are let out temporarily, while the assessee carries on the other activities, it could be inferred that it is a case of exploiting the business asset, lest, it would amount to cessation of business and the receipts derived from such letting out would amount to the receipts from the house property. She further submitted that a mere entry in the MoU to the effect that the assessee had to maintain and attend to the major repair works will not alter the nature of income. According to the learned DR, the assessee cannot plead res-judicata in tax matters, since such a doctrin....
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....e-8 at page 2 of the deed provides that the lease may be terminated before the expiry of the term of lease by either party by serving 6 months' notice. It is clear from the said clause that the period of lease of 10 years stated in the lease deed is not absolute and the same can be cut short at any time during the said period either by the assessee or by the lessee by giving 6 months' notice. The fact that such a clause is available in the lease deed shows that the assessee has retained the flexibility with itself to terminate the lease at any time before the expiry of the stated lease period and resume its business in the said premises, if the circumstances are favourable for such resumption, Further, it is noticed that though clause-1 at page 2 of the lease deed provides that the lease period of 10 years is extendable for any period from time to time as pointed out by the A0, the same clause also provides that such extension shall be on mutual agreement. This also shows that the assessee has retained the flexibility with itself to dec1de whether to agree for further extension or not, depending on existence or otherwise of favourable conditions for resumption of business at the re....
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....rarily discontinue the business till another key person is identified and inducted as a partner. On examination, this clarification of the assessee is found to be factually correct. On perusal of the partnership deed dated 17.03.2003 available on record, it is noticed that 3 partners retired from the firm with effect from 01.04.2003 and the firm was reconstituted from the said date. One of the partners who retired w.e.f. 01.04.2003 was considered by the assessee to be a key partner, whose retirement at a crucial time caused downfall in the business and consequent losses. The fact that the assessee has taken keyman insurance policy in respect of a continuing partner Sri. M.V. Narayana in the subsequent period cannot be interpreted to mean that there was no other key partner prior to 01.04.2003. Hence, the observation of the AO regarding the factual incorrectness of the claim of temporary discontinuance of the business by the assessee on account of retirement of a key partner is considered to be incorrect. 29. in As regards the observation of the AO that the existence of huge debit balance the capital accounts of the partners as on the last day of the previous year indicates....
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....T(A) completely reappraised the facts dealt with by the learned Assessing Officer and held that it is only for a temporary period, the assessee let out the entire business in contradiction to the building alone, the intention of the assessee to resume the business is evident from the clauses of MoU, financials and other circumstances. Revenue accepted the same without preferring any appeal and such findings of fact have become final. We, therefore, do not deem it just and proper to reopen the said findings of fact at this remote point of time. 9. To the factual findings returned by the learned CIT(A) in the assessment year 2009-10, the decisions of the Hon'ble Apex Court in the case of Sri Lakshmi Silk Mills (supra) and Vikram Cotton Mills (supra) are applicable on all fours. In view of our finding, that the factual findings of the learned CIT(A) for the assessment year 2009-10 cannot be permitted to be reagitated year after year, that too having once accepted those facts, we find that the decisions relied upon by the learned CIT(A) have no application. 10. For the reasons stated in the preceding paragraphs, we accept the contention of the assessee for the assessment year....