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2021 (12) TMI 1213 - HC - Income TaxCorrect head of income - nature of receipt from lease/ rent - assessee moved BIFR for rehabilitation scheme - rental income received by the assessee from Apollo Tyres Ltd.- whether constitutes business income or income from other sources? - HELD THAT:- AO preferred to decide the contemporaneous activity undertaken by the assessee by referring to the lease agreement and absence of a clause in the lease agreement about the revival of business of assessee. This consideration throughout weighed with AO for reaching the final conclusion. The fallacy in this behalf is further evident that the AO, inspite of noticing that all the terms and conditions are governed by the scheme sanctioned by the BIFR, declines to give effect to the working of scheme by observing that the scheme is not clear on what would happen after the expiry or completion of lease period. Under the scheme, the assessee has reduced its overhead expenditure by closing down the head office, sales and marketing offices. With the closure of these divisions, there is no chance of revival of business of the assessee as Tyre manufacturer. These observations are very centric or influenced the conclusion. We are, prima facie, of the view that there is no objective consideration of the modus operandi or working of the scheme, the statutory obligation under which the assessee had come by filing an application before BIFR. The subtle difference between a voluntary arrangement between parties and arrangement approved as part of a statutory consideration for revival is not noticed by the AO, while concluding that the lease rental income shall be computed under the head income from other sources. The Appellate Authority has confirmed the order of AO and the dismissal of first appeal resulted in filing of appeal before the Tribunal. Tribunal in the impugned order first appreciated the scheme approved by BIFR, agreement between parties for irrevocable lease for 8 years of assessee's plant, machinery, land etc. and held that inspite of the agreement with ATL the assessee continues to exist as a corporate entity. The additional investment of 110 crores by ATL for eight years is to modernise the plant and again to make the manufacturing viable, the induction of a few directors from ATL in Board of the assessee is merely change in administration and of administrative officers, such changes could not be understood as the existence of assessee as corporate entity has disappeared or the assessee ceases to exist. The taking over of the manufacturing activity by ATL is not to take over the assessee company. The consideration of future happening of reviving the business by assessee is not a circumstance in the facts of the case. Finding is recorded that the lease rental receipt is income of business of the assessee. Case for revival and rehabilitation of its business before BIFR - The assessee, under approved scheme is obligated to exploit the business assets, earn income, adjust/get off accumulated losses/unadjusted depreciation, and turn as a positive company. Any other view in a situation as the present is unavailable and again counterproductive to an approved scheme under Act, 1985. Sequentially enquired, it transpires that the assessee was obligated to work under a statutory approved scheme; the lease of eight years is to ATL, which is into the same business and lease was for utilising the Plant, Machinery etc. for manufacturing tyres; the actuals are reimbursed to assessee by ATL; the work force of assessee has been deployed for manufacturing tyres; the total production from the assessee unit is taken over by ATL; over all affairs of assessee company are made viable by entering into settlement etc; at this juncture, we are convinced that coupled with all other primary circumstances, the assessee employed commercial assets to earn income. Unless and until the income is treated as business income, the scheme does not result on expected lines for losses; unavailed depreciation etc. will continue to be present in the accounts of assessee. The scheme is appreciated as one providing a solution to business problem of the assessee. From the above discussion we are convinced that the claim of lease rental receipt as income of business is justifiable for the subject assessment years and the findings of the Tribunal even if treated as mixed question of law and fact, we hold that the findings are justifiable and warranted in the circumstances of the case. Hence substantial question as answered in favour of the assessee and against the revenue
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