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2013 (1) TMI 364 - AT - Income TaxLease rent received - business income OR income from house property - Held that:- The assessee has given only license to operate the hotel. However, on a specific query from the bench, whether the assessee herein is accounting for daily collections made from the guests occupying the rooms and also the expenses on running the hotel, the assessee fairly conceded that the assessee is receiving only the fixed licence fee mentioned in the agreement and the licensee is accounting for the daily collections and expenses in his books of account. Intention of the assessee in leasing out the hotel building along with furniture, furnishings, equipments etc. - The assessee had been running the business of hotel, but incurred huge losses. Hence, it has decided to lease out the hotel building. Though in the agreement, it is mentioned that the operation of hotel is leased out, in substance, it is only leasing out of the hotel building along with the furniture, furnishings, equipments etc. The hotel is being operated by the licensee with his own funds and staffs, which is clear from the agreement, where it is stated that the licensee shall operate the hotel by appointing his own staff with the working capital funds brought in by him. The assessee has also fairly conceded that the assessee is receiving the monthly lease rent as determined in the agreement. It is a well settled proposition of law that the substance will prevail over the form. Accordingly, though the agreement entered by the assessee is titled as "Agreement of Licence", yet on reading the various clauses of the agreement, the impugned agreement has to be considered as lease agreement for letting out the hotel building with furniture, furnishings, equipments etc. The various conditions have been imposed upon the licensee only to ensure that the hotel premises should continue to be operated as only hotel. It is not a case that the assessee had to let out the hotel building for a temporary period due to some adverse business conditions. The decision to lease out the hotel building has been taken, since the assessee was incurring of huge losses in the operation of the hotel. Under these circumstances, it cannot be held that the assessee has leased for a temporary period. In fact, the lease period is 7 years, which is quite a long period.As per clause III under Article XV of the agreement entered into between the assessee and the licensee, the lease period shall be automatically extended, if the licensee is constrained to pay the loan liabilities on behalf of the assessee herein and the extension shall be till such time the entire amount paid by the licensee is recovered. Thus, it cannot be categorically stated that the lease period is only seven years. Clause numbered as 'Item-IV' under Article XV of the agreement states that this agreement is not an agreement for creation of a "managing agency", which falsifies the contention of the assessee that it has entered into this agreement only to give the operation of the hotel. Further, under this clause, it is made very clear that the intention of the parties is only to create a license, i.e., the intention is only to lease out the hotel building along with furniture, furnishings, equipments etc - thus applying the est suggested by the five judges' Bench in the case of Sultan Bros. (P.) Ltd. [1963 (12) TMI 4 - SUPREME COURT] the intention of the assessee was to let out the hotel building and hence it cannot be considered that the assessee was exploiting the property for its commercial business purposes and the lease rent is liable to be assessed under the head "Income from house property" - in favour of revenue.
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