TMI Blog2008 (6) TMI 241X X X X Extracts X X X X X X X X Extracts X X X X ..... , (4) Ushodaya Enterprises Ltd. (Entertainment Division), (5) Ushodaya Enterprises Ltd. (Priya Dairy Division) and (6) HUF of Ramoji Rao. According to the learned counsel, the assessee company, in the course of its business activities, leased some of its lands at Surmaiguda Village, Hayatnagar Mandal, R.R. District, to Margadarsi Apparels. The company also constructed dwelling units at Gandicheruvu and Omarkhanguda Villages, and the same were leased to Dolphin Hotels Ltd. and Ushakiron Television. According to the learned counsel, the assessee was engaged in the business of developing infrastructure and leasing land and buildings. During the course of business activities, the assessee earned licence fee of Rs. 13,61,650 which was shown in the P L a/c as business income. The assessee has also claimed administrative expenses of Rs. 2,34,422 and depreciation of Rs. 11,50,022 and arrived at a loss of Rs. 12,679. According to the learned counsel, the assessee has filed return of income showing a loss of Rs. 3,32,823 after making necessary adjustments on account of allowance of depreciation as per IT Rules, 1962. According to the learned counsel, the entire investment was made by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Madras High Court in the case of CIT vs. New India Maritime Agencies (P) Ltd. (1994) 207 ITR 392 (Mad), and submitted that when the owner of the building uses the property in the course of business activity, the income therefrom has to be assessed as business income. Referring to the judgment of the apex Court in the case of Universal Hast Ltd. vs. CIT (1999) 153 CTR (SC) 95 : (1999) 237 ITR 454 (SC), the learned counsel submitted that when the commercial asset was exploited, the income therefrom has to be assessed as income from business. According to the learned counsel, since the assessee was exploiting a commercial asset as owner, the income therefrom has to be assessed as income from business and not as income from house property. 3. On the contrary, Shri K.J. Rao, learned Departmental Representative, submitted that the tenants deducted tax while paying rent to the assessee. The deduction has been made saying that rent was paid to the assessee. Therefore, it is not correct to say that the assessee was in the business of leasing. According to the learned Departmental Representative, the assessee is not exploiting its commercial asset. The assessee simply leased out its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xploiting the same. The assessee as owner let out the same to the sister concerns and received rental income. A copy of the rental agreement, said to have been executed with Margadarsi Apparels. is available at p. 20 of the paper book. Even though the nomenclature was stated as "leave and licence agreement", the terms of the agreement clearly show that it is only a lease and not a licence. The lease was granted for 10 years commencing from 1st Oct., 2000. The rent was Rs. 3,000 per annum. Therefore, it is not a case of a temporary exploitation of a commercial property. In fact, it is a long-term lease. The assessee, being the owner of the property, let out the building to the sister concern for a long-term and received rental income, even though the nomenclature in the agreement has been stated as a licence. It is also not in dispute that tax was deducted at source by the respective sister concerns while paying the so-called licence fee. The question that arises for consideration is, when the assessee leased out the property to sister concern and received rental income, whether such income has to be classified as income from house property or as income from business. As rightly poi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are independent legal entities. Therefore, occupation of the building by a different legal entity cannot be construed as occupation for the purpose of the assessee's own business. Therefore, in our opinion, this judgment of the Andhra Pradesh High Court is not applicable on the facts of this case. 6. We have carefully gone through the judgment of the Madras High Court in the case of New India Maritime Agencies (P) Ltd. In the case before the Madras High Court, the assessee company owned a residential house which was given rent-free for occupation of the directors to be used for business. The Tribunal found that occupation of the house by the directors was for business purposes and, therefore, notional income need not be assessed as income from house property. However, the Revenue contended that the notional income has to be assessed as income from house property. In those circumstances, the Madras High Court held that when the company gives its house as residence to its directors, it is doing so only in the course of its business. The Madras High Court further observed that when the owner of the property carries on business with the property owned by him, the income from that pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of view of a businessman in that business on the facts and in the circumstances of each case, including true interpretation of the agreement under which the assets are let out; (3) where all the assets of the business are let out, the period for which the assets are let out is a relevant factor to find out whether the intention of the assessee is to go out of business altogether or to come back and restart the same; (4) if only a few of the business assets are let out temporarily, while the assessee is carrying out his other business activities, then it is a case of exploiting the business assets otherwise than employing them for his own use for making profit for that business; but if the business never started or has started but ceased with no intention to be resumed, the assets also will cease to be business assets and the transaction will only by exploitation of property by an owner thereof, but not exploitation of business assets." In the case before the apex Court, the entire factory was given on lease. In the case before us, the subject-matter of lease was not a factory or any manufacturing unit. It is a dwelling unit which could be let out only for the purpose of re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 5/10 years after expiry of the initial lease period, it cannot be said that the assessee has exploited the commercial asset temporarily. Leasing out the property for 10 years is only for the purpose of earning rental income and not for the purpose of exploiting the commercial assessment. This Tribunal also placed its reliance on the decision of the Gauhati Bench of this Tribunal in the case of Asstt. CIT vs. Eastern Industrial Enterprises Ltd. (2004) 91 TTJ (Gau) 516 : (2002) 80 ITD 355 (Gau), to which one of us, the JM, was a party. 10. When the intention of the assessee as gathered from the agreement is clear that the property was let out for the purpose of earning rental income, it cannot be said that the assessee exploited a commercial asset. In our opinion, the assessee let out the buildings to sister concerns only with an intention to earn rental income. Therefore, the income has to be assessed as income from house property under s. 22 of the IT Act. 11. In view of the above, we do not find any infirmity in the order of the lower authority. Accordingly, we confirm the same. 12. In the result, the appeal of the assessee stands dismissed. - - TaxTMI - TMITax - Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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