TMI Blog2011 (6) TMI 681X X X X Extracts X X X X X X X X Extracts X X X X ..... heir report that they were confident of succeeding in the appeal before the appellate authority for industrial and financial reconstruction, which would facilitate revival of assessee-company's business operations. The assessee had filed an appeal before the appellate authority for industrial and financial reconstruction, challenging the rejection of its reference before BIFR, on January 17, 2006. Hence, contemplation of the assessee was always to revive its business and not to let its premises out permanently. The accounts were also prepared by them on a going concern basis. The assessee also had current assets which included inventory of Rs. 174.57 lakhs as seen from schedule 7 of its audited accounts statement for the relevant previous year. Such inventory included raw materials of Rs. 53.75 lakhs, work in process of Rs. 26.34 lakhs, finished stock Rs. 64.35 lakhs. No doubt, these were held at the same value from the previous financial year ended on March 31, 2006. But, had the intention of the company been to discontinue its business, then it would not have held on to such inventory, without disposing of them. The intention, as seen in the holding of inventory, also was to resu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nancial constraints, the receipts were to be treated as business income only. However, the Assessing Officer was not impressed. He held as follows : "The assessee stopped its business activities and started leasing out the factory buildings and it has been receiving lease rents. It has no intention to restart the business activity which is evident from the fact that it had stopped business way back in the year 2002-03 and it did not resume the business activity even as on date. The company was registered as sick company pursuant to the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985. As can be seen from the lease agreements, the assessee had let out the assets for a period of 3 years with effect from December 15, 2005 with a clause that the lease can be extended for a further period. All the above facts goes to say that the assessee completely stopped its business and has no intention to restart the same. Therefore, the lease rentals received by the assessee to the extent of Rs. 38,07,000 cannot be treated as business income and the same is treated as income from other sources. Since the assessee stopped its business activities, the facts of the case la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer to treat the income from letting out the assets as business income and also to allow deduction available against such business income. Now before us, the learned Departmental representative, strongly assailing the order of the learned Commissioner of Income-tax (Appeals), submitted that the learned Commissioner of Income-tax (Appeals) placed reliance mainly on the case of Vikram Cotton Mills Ltd. [1988] 169 ITR 597 (SC) which was overruled by a larger Bench of the hon'ble apex court in the case of Universal Plast Ltd. v. CIT [1999] 237 ITR 454 (SC). According to him, there was no intention for the assessee to resume its business operation and therefore, the lease income was rightly treated as income from house property. Per contra, the learned authorised representative, placing a copy of the licence agreement dated December 20, 2006 entered into by the assessee with M/s. ICA (Madras) P. Ltd., submitted that what was given was only a three-year licence to the licencee for utilising the refining and packaging facilities. As per the learned authorised representative, the licencee was obliged to market the packaged item under the brand name of the assessee an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and machinery and personnel. Therefore, the Assessing Officer was aware that even if it was considered that the business activities were stopped, it would still have to be considered as "income from other sources". Coming to the question raised before us as to whether there was only a temporary lull in the business of the assessee and whether the licencing was temporary with the intention to resume operation by itself, it would be necessary to reproduce relevant clauses in the licence agreement dated December 20, 2006 mentioned supra : 1. SSIEL hereby grants a licence to the licencee for a period of three years on and with effect from the 1st day of January 2007 (hereinafter referred to in this agreement as the effective date) to utilise its present refining and packaging facilities at the refinery for manufacturing and packaging refined edible oils (other than rice bran oil) for being marketed by the licencee under the brand names of SSIEL. 2. The refinery will continue to be managed and operated by SSIEL and its nominee will continue to be the occupier for the purpose of complying with the provisions of the Factories Act, 1948. SSIEL, its directors, its bankers and all per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Both parties agree to put in their best efforts to optimise the expenditure in order to improve the efficiency of operations and maximise the profit potential. This covenant on the part of the licencee to defray all the expenses during the tenure of this agreement shall operate notwithstanding the fact whether the licencee has utilised the facilities or not or has utilised the facilities to less than targeted levels of operation at any time during the tenure of this agreement. 7. The licencee has in addition to 6 above, agreed to pay to SSIEL, a licence fee as detailed below for the use of refinery facilities. Period Amount (Rs.) Year 1 3,00,000 p.m. Year 2 3,50,000 p.m. Year 3 4,00,000 p.m The above licence fee shall be paid by the licencee to SSIEL on or before the 7th day of each subsequent calendar month, irrespective of the level of operation or even 'nil' operation in any month during the tenure of this agreement. SSIEL shall be entitled to terminate this agreement forthwith (notwithstanding the provisions of clause 12 hereinbelow) in case there is any delay or default in payment of the lice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had filed an appeal before the appellate authority for industrial and financial reconstruction, challenging the rejection of its reference before BIFR, on January 17, 2006. Hence, contemplation of the assessee was always to revive its business and not to let its premises out permanently. The accounts were also prepared by them on a going concern basis. The assessee also had current assets which included inventory of Rs. 174.57 lakhs as seen from schedule 7 of its audited accounts statement for the relevant previous year. Such inventory included raw materials of Rs. 53.75 lakhs, work in process of Rs. 26.34 lakhs, finished stock Rs. 64.35 lakhs. No doubt, these were held at the same value from the previous financial year ended on March 31, 2006. But, had the intention of the company been to discontinue its business, then it would not have held on to such inventory, without disposing of them. The intention, as seen in the holding of inventory, also was to resume its operation as soon as possible. Coming to the decision of the hon'ble apex court in the case of Universal Plast Ltd. v. CIT [1999] 237 ITR 454 (SC), no doubt their Lordships had considered its earlier decision in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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