TMI Blog1999 (4) TMI 116X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.66 acres (approx.) at Shahid Bhagat Singh Marg, Delhi for the construction, furnishing, providing facilities and commissioning/management of youth hostel latest by 30-4-1984 in full and in all respects for the purpose of running youth hostel to cater to low income group, students community, youth, both from within and outside India. Clause 22 of that licence deed stipulated that M /s. P.S.J. shall, within a period of 12 months from the date of commencement of the lease agreement, form a public limited company and shall apply to the licensor, NDMC for the transfer of licence to the said public limited company so constituted. M/s. P.S.J. floated a public limited company under the name and style of M/s. Prominent Hotels Ltd. the present assessee (hereinafter referred to as assessee-company) and in terms of clause 22 of licence deed dated 4-11-1981, M/s. P.S.J. requested the NDMC, the licensor to execute licence agreement with the assessee-company. N.D.M.C. in turn, executed agreement of licence deed on16th July, 1982by which assessee-company agreed to use the plot of land measuring 0.66 acre, Shahid Bhagat Singh Marg,New Delhi, for construction, furnishing, providing facilities and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1028280.31 as rental income in the income and expenses account. The Assessing Officer called upon the assessee as to why the income of Rs. 1028280.31 be not treated as income from house property/rental income. The assessee submitted reply vide letter dated6-11-1989with averments that income from licence fee received from Bank of India is business income in the hands of assessee. Reference to section 22 of the Income-tax Act, 1961 (hereinafter referred as the Act) was also made which applies only to annual value of property of which the assessee was owner and not using it for any business carried on by him. It was asserted by the assessee that assessee was not the owner of the land or building and property in question was being used for its business of hotel and thus, income cannot be treated as rental income. It was also contended by assessee that entire premises so built by the assessee provides air-conditioning rooms, lifts and further had a Banquet Hall for social functions, a shopping arcade for the facilities of its guests and also had officers such as Banks etc. and all these facilities are must for getting the status of Four Star Hotel from Ministry of Tourism. According to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tting out flats and shop etc. and even. their Lordships also made it clear that ratio is laid down on the peculiar facts and circumstances of that case. The Assessing Officer further considered the decision of Calcutta High Court in the case of Russell Properties (P.) Ltd. and distinguished it on the ground that part of the income received by that assessee was treated as rental income and part from business. The ratio is applicable to the facts of the present case as assessee is deriving most of the income as rent from building and nominal income from incidental facilities like air-conditioning and maintenance. He also considered the decision of the jurisdictional High Court in the case of Addl. CIT v. Rajindra Flour Allied Industries (P.) Ltd. [1981] 128 ITR 402 (Delhi) and reproduced the observation of their Lordships, appearing on pages 413 to 416 in which their Lordships have discussed the case law on the point of different High Courts and particularly that of Bombay High Court in the case of CIT v. National Mills Co. Ltd. [1958] 34 ITR 155 and also defined what will be the commercial assets and how the same were to be exploited. Their Lordships concluded that one has to exam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per clause 10 of the licence deed. The decision of the jurisdictional High Court in the case of Sushil Ansal v. CIT [1986] 160 ITR 308/25 Taxman 218A Delhi was referred to in which their Lordships concluded that in the absence of legal ownerships the assessee would not be owner under section 22 of the Act and other decision of Madras High Court in the case of CIT v. B. Nagireddy 147 ITR 337 was also relied in which income derived from income of film studio was taken as income from business. The ld. CIT (A) considered the submissions and noted that hotel building was not complete in the year under consideration nor hotel business was started but part of the building relating to minor operating department was completed and same was sub-licenced to the Bank of India. The intention of the assessee was clear that sub-licencing was taken up as the incidental activities to the main business, i.e., hotel business. As assessee had borrowed heavy loans from banks, it could not have been the intention of the assessee to merely rent out the premises and receive income from house rent and thus, he concluded that income was from business. 9. The Revenue is in appeal against the view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the head "income from properties" as the case law relied by the ld. counsel for the assessee before the authorities below was not applicable to the facts of the case. In the very beginning, he distinguished the decision of the case of Karnani Properties (P.) Ltd and that of Russell Properties (P.) Ltd. and that of Rajindra Flour Allied Industries (P.) Ltd. and submitted that all these cases were having different facts altogether. He contended further that Assessing Officer has already distinguished the ratio of these cases in the assessment order in detail. 13. Proceeding further, he submitted that before entering into the controversy, one has to look into the facts surrounding the leasing out of the property and in the case in hand, the intention of the assessee is to be gathered from the facts which were appearing at the time assessee let out the portion to Bank of India on rent. Our attention was invited to the Paper Nos. 18-20 of the Paper Book of assessee which is copy of letter of Bank of India dated2-4-1985accepting the terms of lease in which period of lease is for 5 years with two options for 5 years each. The ld. DR submitted that assessee, no doubt, leased out the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in business were let out and rent and income realised from rent was held to be assessable under head "income from house property".Ld. DRfurther placed reliance on the decision of CIT v. Bhaktawar Construction (P.) Ltd. [1986] 162 ITR 452/27 Taxman 7 (Bom.) in which building along with centrally air-conditioning facility was let out and income was treated as income from property.Ld DRhad referred to the decision of CIT v. New India Industries Ltd. [1993] 201 ITR 208 (Guj.) in which their Lordships have laid down the guidelines for deciding as to whether any particular income will be income from property or income from business and after examining all the case laws on that point till 1993, their Lordships concluded that if the assessee had let out part of the business premises, then the same is to be treated as income from house property Ld. DR. pleaded that facts are identical and the case of the assessee is covered under the guidelines so framed by their Lordships. The decision of the Gujarat High Court in the case of CIT v. New Bharat Engg. (JAM) (P.) Ltd. [1999] 203 ITR 678/66 Taxman 661 was also referred to where part of the factor building was let out and income so derived was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account for receipt was also a new factor considered by CIT (A) and that plea of the assessee was also not going to help the assessee as view of the Chartered Accountants or guidelines issued by Institute of Chartered Accountants cannot be treated as good law but the issue has to be decided in view of the law on the point as laid down by different High Courts and Supreme Court. 17. In the end, the ld. DR pointed out that Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals Fertilizers Ltd. v. CIT [1997] 227 ITR 172/93 Taxman 502 had observed that total income of any income is chargeable to tax under section 4 of the Act and that has to be computed in accordance with the provisions of the Act. Section 14 lays down that for the purpose of computation, the income of the assessee has to be classified under 6 heads. It is possible for a company to have six different sources of income and each of which will be chargeable to income-tax. Profits and gains of business is only one of the heads. If a company has not commenced business, there cannot be any question of assessment of its income under profits and gains of business. Relying upon this ratio, the ld. DR reversed back ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome was from business assets and it was held assessable as income from business. The other decision of the Calcutta High Court was relied upon which is CIT v. Ajmera Industries (P.) Ltd. [1976] 103 ITR 245 in which rental income from non-factory building including godowns were treated as commercial assets of the company and income so derived from letting out was held as business income of the assessee. The ld. counsel for the assessee has also placed reliance on the decision of jurisdictional High Court in the case of CIT v. Northern India Theatres (P.) Ltd. [1981] 128 ITR 497 (Delhi) in which assessee constructed a cinema house and let out cinema building to a person who gave interest free loan to assessee to meet the cost of construction and income derived by the assessee from letting of cinema was treated as business income and that not income from other sources. Another decision of Jurisdictional High Court in the case of CIT v. Super Fine Cables (P.) Ltd [1985] 154 ITR 532/19 Taxman 515 was also relied by the ld. counsel in which factory was set up for manufacture of cable and factory building was let out on rent. The income so derived by assessee was treated as income from ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in process of constructing and erecting its plant and had not started any business during relevant assessment year. It received certain amount as rent from its contractors for having workers and staff employed by contractor for construction work of assessee and for hire charges for plant and machinery given to contractors. Their Lordships concluded that amount of rent realised by the assessee from its contractor was to be treated as business income and not income from property. The ld. counsel argued that facts of that case are para materia the same as that of assessee. The assessee-company had not started hotel business in the year under consideration and let out certain portion to bank and amount of rent is to be assessed under the head 'income from business' and not under other head. The last plea of the ld. counsel was based on the guidelines issued by Hotel Association of New York City, Inc. for uniform system of accounting to be maintained by hoteliers. The copy of statement of income and necessary schedule giving out the guidelines to give treatment to the rentals and other income had been filed before us. In the statement of income the space rental from clubs, offices, stor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s profits and gains of business. It was also submitted that assessee was not under obligation to have a bank in its hotel for getting four staff status as what is required is money changing facility for tourists and this could be done without having a bank in its hotel. Again, decision of Gujarat High Court in the case of New India Industries Ltd. was relied upon and it was submitted that case of the assessee is fully covered under the ratio of that case. 28. About the alternative plea of the ld. counsel for the assessee for allowability of ground rent and amount of interest on loan in case income is treated as income from property, the ld. DR submitted that assessee had not filed any cross objection against the finding of CIT (A) nor such plea was raised before CIT (A) at the time of filing of the appeal. This plea of the assessee is new plea and cannot be entertained. On all this, the contention was that order of Assessing Officer is to be restored. 29. We have considered the rival submissions and also gone through the material on record and carefully perused the case law cited by ld. representatives of both the parties. 30. As noted above, facts are not in dispute. Assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is to be treated as owner of the premises let out to Bank of India and first plea of the assessee fails. 32. Now comes the second plea of the assessee that income is to be treated as income from business and not as income from house property. Both the parties have cited different case laws which are based on particular set of facts involved in each case. However, we may refer to the decision of Hon'ble Gujarat High Court in the case of New India Industries Ltd on which both the ld. representatives of parties have placed reliance. Their Lordships have discussed the case laws on the point and have come out with the following guidelines for deciding the controversy as to whether income should be assessed under the head "income from house property" or under the head "business income". We are reproducing the same principles which are based on the different case laws discussed by their Lordships: "(i) No general principle could be laid down which is applicable to all cases and each case has to be decided on its own facts and circumstances. (ii) Whether an income falls under one head or another has to be decided according to the common notions of a practical and reasonable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investment in property or his ownership of property which brings income to him. In such cases, leasing out of property itself is the activity. It is leased with a view to produce income, a transaction quite apart from the ordinary business activities of the assessee. (ix) In deciding whether an assessee dealt with its property as owner or a businessman or as a prudent man of commerce, one must see not the form which it gave to the transaction but to the substance of the matter. It will be essential to find out the user or the property and the character in which that property is used. Ownership of property and leasing it out may be done as a part of business or it may be done as a landowner. Whether it is the one or the other must necessarily depend upon the object with which the act is done. If the dominant object of leasing out is incidental to and for the purposes of the assessee's business, the income would be business income. What has to be discovered is whether the property is subservient to the main business of the assessee". 33. From the perusal of the above guidelines, it will be apparent that their Lordships have used the words "assets" and "commercially exploited" the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank on specified amount of rent of carpet and as well as for other allied facilities for a period of 5 years and which was renewable for two terms of 5 years each at the option of both the parties. The property is still under occupancy of Bank of India for the same very purpose even after commencement of the hotel business which started from January 1988. From these facts, the intention of the assessee is clear that assessee-company treated the premises let out to Bank of India as its capital asset that is why it was let out for a five year period with the renewal offer of subsequent lease for further 10 years. The assessee even at present is treating that asset as capital asset and enjoying the rent. The very purpose of the assessee was to enjoy rent from that property. So far as plea of the assessee that establishment of bank in hotel building was one of the fundamental requirement for getting 4 star hotel status for the hotel as laid down under the guidelines of Ministry of Tourism, Government of India is concerned, existence of Bank is not essentially required. The Ministry of Tourism requires that there should be facility for money changing and not Bank. The money changing fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... flected in the charges of the contractors for the construction work. In view of those facts it was laid down by their Lordships that income from premises was to be treated as income from business. However, in the case in hand, we have already concluded that premises let out to Bank of India was not in any way going to help the assessee in conduct of its hotel business which had not yet started in the year under consideration and even after commencement of that hotel business. The intention of the case in hand was to earn rental income, that is why lease is still continuing and thus no benefit to the assessee out of that. 37. Subsequent treatment given by the Assessing Officer to the income derived by assessee from Bank of India is to be seen in the context of facts available in those years and we have to decide on the facts which are available in the year under consideration. Admittedly, business of hotel commenced after January 1998 and department might have taken other view and treated that income from business but facts in the case in hand are such that same view cannot be taken by us in the year under consideration. 38. So far as alternative plea of the assessee is concerne ..... X X X X Extracts X X X X X X X X Extracts X X X X
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