TaxTMI 
TaxTMI 
2026 (8) TMI 877
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....ssessment year is treated as the lead appeal and our findings recorded therein shall govern the appeal for Assessment Year 2014-15 also, except to the extent of variation in figures wherever applicable. 2. The assessee is a company engaged, inter alia, in owning, developing and commercially exploiting Information Technology Park premises by way of licensing fully developed office spaces to corporate entities. The commercial premises owned by the assessee comprise modern office units equipped with various infrastructural facilities necessary for occupation by corporate tenants. During the years under consideration, the assessee licensed different units of its commercial complex to various occupants including First Data (India) Private Limited and Aditya Birla Retail Limited. In respect of such occupation, the parties executed a principal Leave and Licence Agreement governing the occupation of the office premises and, simultaneously, separate agreements dealing with amenities and fixed furniture & fixtures. According to the assessee, these agreements merely documented different components of one composite commercial arrangement under which a fully functional office premises was li....
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....head "Income from House Property". Consequentially, the statutory deduction available under section 24(a) in respect of such receipts was denied. While partially observing that depreciation on certain movable assets could be considered under section 57, subject to verification, the learned CIT(A) declined the remaining claims of the assessee. It is this enhancement, together with the confirmation of the disallowance under section 24(b), which constitutes the principal subject matter of challenge before us. 5. Assessment Year 2014-15 presents substantially the same factual and legal position. The Assessing Officer adopted an approach similar to that taken in the immediately preceding year while examining the assessee's claim under section 24(b). In appellate proceedings, the learned CIT(A.), following the reasoning adopted in Assessment Year 2013-14, once again re-characterised the receipts arising from the Amenities Agreement and the Furniture & Fixtures Agreement as income assessable under the head "Income from Other Sources", thereby denying the statutory deduction available under section 24(a). At the time of hearing, both the learned representatives fairly submitted that the....
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....eir only purpose is to render the office premises fit for commercial occupation. Consequently, the dominant intention of the parties throughout remained licensing of fully functional office premises and not exploitation of independent commercial assets. It was submitted that once the true nature of the contractual arrangement is appreciated in its entirety, the artificial segregation adopted by the learned CIT(A) cannot be sustained. 8. In support of the aforesaid propositions, the learned counsel placed reliance upon the authorities cited in the written submissions, including Sultan Brothers (P.) Ltd. v. CIT (1964) 51 ITR 353 (SC), Shambhu Investment (P.) Ltd. v. CIT (2003) 263 ITR 143 (SC), CIT v. Bhaktawar Construction (P.) Ltd. (1986) 162 ITR 452 (Bom.), CIT v. J.K. Investors (Bombay) Ltd. (2013) 25 taxmann.com 12 (Bom.), JST Realty (P.) Ltd. v. DCIT (2014) 51 taxmann.com 52 (Mum. - Trib.), Care Institute of Medical Sciences Ltd. v. DCIT (2015) 55 taxmann.com 537 (Hyd. - Trib.), ACIT v. Lloyd Manufacturing (P.) Ltd., ITA No.3874/Del/2011, order dated 11.10.2013 (Delhi Bench) and Dy. DIT v. Shri G. Raghuram & connected appeals, ITA Nos.6, 67, 68, 69, 70 & 71/Hyd/2010, order d....
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.... tenants, the additional documentary evidence placed in the paper books and the judicial authorities relied upon by both sides. From the rival contentions advanced before us, it emerges that the controversy essentially centres around two broad questions. The first, and the more fundamental issue, concerns the true legal character of the receipts arising under the Amenities Agreement and the Furniture & Fixtures Agreement and whether such receipts can be separated from the principal letting of the commercial premises so as to be assessed under the head "Income from Other Sources", or whether they constitute an inseparable component of a composite letting assessable under the head "Income from House Property." The second issue relates to the allowability of deduction under section 24(b) in respect of the borrowed capital utilised for acquisition of the property and the consequential alternative claim under section 57. Since the determination of the first issue necessarily depends upon the statutory framework, the contractual stipulations and the settled judicial principles governing composite letting, we shall first examine those aspects before adverting to the remaining grounds of a....
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....tion 57 would arise. Thus, the determination of the correct head of income constitutes the foundation upon which the entire controversy relating to deductions under sections 24 and 57 necessarily rests. 14. We have, therefore, examined the contractual arrangement in its entirety instead of reading each agreement in isolation. The Leave and Licence Agreement constitutes the principal agreement under which the assessee granted the licensee the right to occupy the commercial premises. Simultaneously, the Amenities Agreement and the Furniture & Fixtures Agreement were executed between the very same parties in respect of the very same premises and for the identical tenure. Significantly, the Amenities Agreement itself records that it is supplemental to and forms an integral part of the Leave and Licence Agreement and that the provisions of the principal agreement shall apply thereto mutatis mutandis. Equally significant is the stipulation that the Amenities Agreement is co-terminus with the Leave and Licence Agreement and shall automatically come to an end upon termination of the principal licence. The Furniture & Fixtures Agreement contains an identical stipulation making its existe....
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....independent letting. Consequently, the mere segregation of consideration under separate agreements cannot be elevated into a determinative factor for deciding the head under which the receipts are chargeable. 17. The aforesaid approach also stands fortified by the settled legal position. In Sultan Brothers (P.) Ltd. v. CIT (1964) 51 ITR 353 (SC), the Hon'ble Supreme Court explained that the decisive enquiry is whether the letting of the building and the letting of the accompanying assets constitute one inseparable transaction. Their Lordships held that if one would not have been let without the other and the intention of the parties was to create one integrated letting, the transaction must be examined as a composite whole. The emphasis, therefore, is not upon the number of agreements or the manner in which the consideration is apportioned, but upon the commercial reality emerging from the contractual arrangement itself. 18. The same principle was reiterated by the Hon'ble Supreme Court in Shambhu Investment (P.) Ltd. v. CIT (2003) 263 ITR 143 (SC), wherein the Court held that the real test is the dominant intention underlying the transaction. If the primary object of the ass....
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....esent case, we find ourselves unable to concur with the reasoning adopted by the learned CIT(A.). The enhancement proceeds almost exclusively upon the existence of separate agreements without adequately appreciating that each of those agreements expressly incorporates the principal Leave and Licence Agreement, declares itself to be supplemental thereto and makes its own continuance dependent upon the subsistence of the principal licence. The contractual arrangement, therefore, has to be read as one composite document reflecting one composite commercial understanding. The amenities and furniture & fixtures neither possess an independent source of income nor can they be commercially enjoyed independent of the occupation of the licensed premises. Their commercial identity is wholly subsumed in the letting of the building itself. Once these foundational facts are appreciated, the conclusion becomes inescapable that the receipts arising under the ancillary agreements necessarily partake the same legal character as the receipts arising under the principal Leave and Licence Agreement. 22. We accordingly hold that the learned CIT(A.) was not justified in artificially segregating the rec....
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....und-flow statements and utilisation charts tracing the movement of funds from the subsequent borrowing to the discharge of the earlier borrowings obtained from the directors and, ultimately, to the acquisition of the commercial property. The written submissions also quantify the utilisation and demonstrate that out of the borrowing of Rs. 9 crores obtained from Kotak Bank, an amount of approximately Rs. 8.70 crores stood directly relatable to acquisition of the property, with the corresponding claim under section 24(b) worked out at Rs. 74,07,467/- as an alternative computation. These documentary evidences have neither been found to be fabricated nor inherently unreliable. The learned CIT(A.), however, instead of undertaking an examination of the documentary trail furnished by the assessee, proceeded substantially on the footing that the assessee had not satisfactorily established the nexus and also questioned the commercial rationale for refinancing the earlier borrowing. 25. In our considered opinion, the aforesaid approach is not in consonance with the scope of section 24(b). The provision merely requires that the capital borrowed should be for acquisition, construction, repa....
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....he receipts are assessable under the head "Income from House Property", the alternative claim under section 57 does not survive for adjudication and is rendered purely academic. 27. Before concluding, we consider it appropriate to observe that the enhancement made by the learned CIT(A.) appears to have proceeded primarily upon the existence of separate contractual documents rather than upon the true legal effect flowing from those documents. Tax liability cannot be determined merely on the basis of the drafting format adopted by commercial parties. Particularly in commercial leasing transactions, separate agreements relating to amenities, infrastructure or fixtures are frequently executed for reasons of accounting convenience, commercial negotiation or stamp duty considerations. Such documentation, by itself, neither fragments a single composite transaction into multiple independent transactions nor creates separate taxable sources where none otherwise exist. The true test continues to be the intention of the parties gathered from the agreements read as a whole and the commercial substance of the arrangement. In the present case, the contractual clauses unequivocally establish t....