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TMI Blog2007 (6) TMI 235X X X X Extracts X X X X X X X X Extracts X X X X ..... eceipts are income from business and profession was denied by the Assessing Officer. As such these receipts were assessed as income from house property subject to grant of deduction under section 24(1) for repairs which is 25 per cent of the gross receipts of Rs. 45,34,032/- thereby assessing the net income in respect of these hire charges for a sum of Rs. 34,00,524/- being income from house property. The action of Assessing Officer was challenged in the appeal filed before the ld. CIT(A). It was submitted that during the accounting period relevant to assessment year 1998-99 in view of slump in exhibition of film at cinema hall on account of encouragement and public influence cable net work, the assessee-company entered into an agreement dated 23-3-1997 with M/s. B.N. Gupta & Co. and oral agreement with M/s. National Timber Traders for exhibition of films on fixed hire charges of Rs. 2,80,000/- per month and the said agreement continued during the year under consideration. However, the fixed charges were increased to Rs. 3,50,000 per month. Copies of agreements were filed according to which entire expenditure on running and maintenance of theatre was to be borne by the assessee-com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directed the Assessing Officer to treat these receipts as receipt of business and allow the expenses claimed thereon on merits and as per law. It is against these observations of CIT(A) the revenue is aggrieved hence in appeal. 3. Relying on the order of Assessing Officer it was vehemently pleaded by the ld. DR that the income received by the assessee from hire charges of Janak theatre is assessable under the head 'Income from house property'. She contended that assessee was receiving hire charges in the shape of rent only and thus the claim of the assessee that these receipts constituted business receipts has wrongly been accepted by the ld. CIT(A). It was contended that the order of Assessing Officer in this regard should be upheld and that of CIT(A) should be set aside. 4. On the other hand, the learned counsel appearing on behalf of the assessee pleaded that in earlier years these hire charges have been assessed as business income. The earlier assessments have attained finality. Unless there is material change in fact for the year under consideration revenue cannot take a different stand and on that ground itself the claim of assessee is acceptable. For raising such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not by the lessor except in exceptional cases. Therefore, the assessee is carrying on the business and it was held that Tribunal was right in holding that assessee was using the cinema as a commercial asset and thus income therefrom was assessable under the head 'Profit and gains of business or profession'. 6. Reliance was placed on the decision of Hon'ble Supreme Court in the case of CEPT v. Shri Lakshmi Silk Mills Ltd. [1951] 20 ITR 451 to contend that where the company was incorporated purely as a manufacturing concern with the object of making profit and plant and machinery was installed for the purpose of its business and when it was found that the same could not be advantageously employed for earning profit by the company itself, to earn profit by leasing it to somebody else the income is assessable under the head "Profit and gains of business or profession". 7. Reference was made to the following decisions to contend that such income was assessable under the head "Profit and gains of business or profession".- 1. CIT v. Vikram Cotton Mills Ltd. [1988] 169 ITR 597 (SC) to contend that where there is temporary suspension of the business for the purpose of recons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een controverted by the revenue. Thus, the contention of the assessee that leasing out of the theatre was for a shorter period cannot be rejected. It is also the contention of the assessee that before leasing its income was being assessed under the head 'Income from business' and after 1-4-2000 also it carried out similar activity and shown the income under the head 'Income from business'. For the year under consideration these receipts have been assessed under the head 'Income from house property' only on the basis that the assets were leased out. As pointed out earlier the contention of the assessee that such receipts are assessable under the head 'Profit and gains of business or profession' are two fold. Firstly, on the ground that a consistent approach should be adopted by the department and as this income has been assessed in earlier and subsequent years as income from business it should be assessed as income from business for the year under consideration also. Secondly, on merits it is the contention of the assessee that looking into the shorter period of leasing out that too for the reasons of difficult market conditions and poor health of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e period of lease is short and thereafter the intention of the assessee is relevant to find out that whether assessee intents to get out of business altogether or he is intended to come back and restart the same. From the facts it is clear that after leasing out the property the assessee had come back to its business and had restarted the same. Thus, the assessee has fulfilled both these factors/tests and, therefore, applying the ratio of aforementioned decision of Hon'ble Supreme Court in the case of Universal Plast Ltd. it is to be held that such income was assessable as income from business. 16. Reference can also be made to the decision of Hon'ble Supreme Court in the case of Shri Lakshmi Silk Mills Ltd. where the company was incorporated purely as a manufacturing concern with the object of making profit. It had installed machinery for the purpose of its business and it found that the said installed machinery could not be advantageously employed for earning profit by the company itself and to earn profit the same was leased out and in circumstances it was observed by their Lordships as under:- "13. We are, therefore, of the opinion that it was a part of the normal ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24,10,801.92/-, Rs. 21,12,523.22/- represents old creditors, which are outstanding for more than 10 years. Copy of the balance sheet is enclosed in supporting such creditors. Other creditors are very small and represents due to day to day working. Further vide column 2 of Schedule I on Notes of accounts, the auditors have remarked that "balance under the head unsecured loans, sundry creditors and loans and advances remain unconfirmed and further most of the balances are being carried forward from the previous years. In view of the above facts and in the absence of details and unconfirmed credit balances, sundry creditors of Rs. 21,12,523/- are being added back to the income of the assessee company." 22. Though the AO has not referred to the applicability or otherwise of Section 24(1), Ld. CIT (A) has deleted the addition with the following observations: As regards sundry creditors for expenses -which have been allowed as deduction while computing taxable income of an assessee - any cessation of such liability becomes liable to tax Under Section 24(1) of the Income Tax Act, 1961. Unless it is proved that the assessee has obtained some benefit in respect of such liability (incu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the income earned in some earlier year, has to be taxed in that particular year and not in the year in which the same appears in the books. 25. So as it relates to opportunity he relied on the decision of Hon'ble Supreme Court in the case of Tin Box Co. v. CIT MANU/SC/0849/2001 to contend that assessment order must be made after the assessee has been given reasonable opportunity of setting out its case; assessment made without giving the assessee such an opportunity was liable to be set aside and the matter was remanded for fresh consideration. He also referred to the decision of Delhi Tribunal in the case of Uttam Air Products(P)Ltd. v. DCIT, ITAT, Delhi 'C' Bench [2006] 99 TTJ (Del)718 to contend that liability towards unmoved balance having been shown by the assessee in its balance sheet and there being no material or evidence with the revenue to show that the supplier(creditor) had given up its claim, no addition was called for. Referring to these arguments it was pleaded that addition has rightly been deleted by the CIT(A) and his order should be confirmed. 26. We have carefully considered the rival submissions in the light of material placed before us. The re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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