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2016 (9) TMI 910 - HC - Income TaxIncome arising out of the leasing out of the business assets - business income or income from other sources - Held that:- Clause-7 clearly indicates that the assessee did not intend the lease arrangement to continue for an indefinite period of time. That as a matter of fact the lease is now terminated is a different matter. We cannot base our decision on that fact for it has not been brought on record. However, even otherwise, clause-7 is in favour of the assessee. The Tribunal has merely speculated that the clause could be a conscious decision to avoid legal difficulties and financial loss on account of the termination of the employment and reemployment by UB Ltd. If it was the assessee’s intention to make this a permanent arrangement or an arrangement for an indefinite period, there was no reason for it to insist upon UB Ltd. continuing with its employees. Indeed, if UB Ltd. terminated the services of the employees in accordance with law, it would not have affected the assessee’s rights or interest in its property in any manner whatsoever if the assessee intended continuing with the system indefinitely. The fact that the assessee insisted upon its employees being retained is a strong indication that it intended coming back into the business using the same assets and properties. This was an important term of the contract. There are other factors also which together with clause-7 support the assessee’s case. For instance, the second paragraph of clause-1 provides that after completion of two years the parties would discuss the revision of the annual consideration of ₹ 30 lakhs for the year 2005-06 onwards. If the parties had not agreed to the revised consideration, the agreement would have come to an end. In the normal course of events, a party intending to continue such an arrangement for an indefinite period of time, would have finalized the consideration payable and not have left such a crucial aspect open-ended. The second paragraph of clause-1 read with clause-4 makes this clearer. Clause-4 requires the parties to mutually decide regarding the capital expenditure for upgrading the technologies and the facilities. Clause-2 also indicates that the assessee retained an interest in the plant and machinery and the property for otherwise it would not have agreed to expand the installed capacity at its costs. It was contended on behalf of the Revenue that clause-2 indicates that there was no necessity on account of financial hardship for the assessee leasing the property. However, as Mr. Abhishek Sanghi, the learned counsel appearing on behalf of the appellant pointed out, the financial difficulties faced by the assessee would have been alleviated on account of the lease rentals that it was to receive under the agreement. The construction of a term in an agreement is a question of law. Moreover, as we indicated, the Tribunal proceeded on an erroneous presumption, namely, that UB Ltd. and the assessee are sister concerns. In any event, the Tribunal ought to have considered the agreement as a whole. The findings of the Tribunal, therefore, are perverse. We, however, confirm the finding of the Tribunal that the decision of the Department to treat the income for the previous years in respect of the first lease deed as business income does not bind the Department with respect to the income received under the second lease deed.In the circumstances, the question of law is answered in favour of the assessee and against the Revenue.
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