2008 (1) TMI 368 - HC - Income Tax

Hotel business activities - hotel has been given to the Indian Hotels Company on lease under an agreement for an initial period of 33 years and giving option to renew the same for a further period of 33 years since assessee has no intention to resume its business of hotel in the premises amount received by the assessee from such company has to be treated as income from other sources and not a business income

Summary

Issues:
1. Challenge to concurrent findings of Assessing Officer, Commissioner of Income-tax (Appeals), and Income-tax Appellate Tribunal.
2. Nature of income received by the assessee from Indian Hotels Company Limited - business income or income from other sources.
3. Interpretation of the agreement between the assessee and Indian Hotels Company Limited - lease or licence agreement.

Analysis:

Issue 1: Challenge to Concurrent Findings
The appellant challenged the concurrent findings of the Assessing Officer, Commissioner of Income-tax (Appeals), and Income-tax Appellate Tribunal regarding the nature of income received from Indian Hotels Company Limited. The appellant contended that the amount received should be treated as business income, while the authorities held it to be income from other sources.

Issue 2: Nature of Income Received
The Assessing Officer rejected the appellant's claim that the income received from Indian Hotels Company Limited should be treated as business income. The Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal also upheld this decision, concluding that the transaction was in the nature of a lease, not a business activity. The appellant argued that since Indian Hotels Company Limited managed the hotel, the income should be considered as business income. However, the authorities maintained that the income was not derived from the appellant's business operations.

Issue 3: Interpretation of Agreement
The High Court analyzed the agreement between the appellant and Indian Hotels Company Limited to determine the nature of the transaction. The agreement allowed Indian Hotels Company Limited to operate the hotel for a period of 33 years, with options for renewal up to 99 years. The Court examined the clauses of the agreement, emphasizing that it resembled a lease deed rather than a temporary licence for business resumption. Referring to legal principles from Universal Plast Ltd. case, the Court held that the transaction was indeed a lease, as the appellant did not intend to revive its business operations in the premises.

In conclusion, the High Court dismissed the appeal, ruling that the transaction between the appellant and Indian Hotels Company Limited was a lease, not a business activity. The Court based its decision on the terms of the agreement and the lack of intent by the appellant to resume business operations in the premises. The judgment emphasized the distinction between a lease and a temporary licence, following legal principles to determine the nature of the transaction and the income received by the appellant.