TMI Blog2011 (8) TMI 488X X X X Extracts X X X X X X X X Extracts X X X X ..... ial assets. - while deciding in favor of assessee, matter remanded back to tribunal to decide the issue in accordance with law. - 01, 02, 03, 04 of 2003 - - - Dated:- 12-8-2011 - Sunil Ambwani and Pankaj Mithal, JJ Abhinava Upadhya and V.B. Upadhya for the Appellant C.S.C., A. Kumar, A.N. Mahajan, Bharatji Agarwal, D. Awasthi, G. Krishna, R.K. Upadhaya, S. Chopra for the Respondent JUDGEMENT 1. We have heard Sri R.R. Agarwal, learned counsel for the appellant. Sri A.N. Mahajan appears for the respondents. 2. In these Income Tax Appeals under Section 260-A Income Tax Act, the appellant has raised the following substantial question of law:- Whether on the facts and in the circumstances of the case and on a true interpretation of agreement dated 4.11.1988 and the Memorandum of Association of the assessee company (clause 3e), the Income tax Appellate Tribunal was legally correct in holding that the income earned by the assessee from leasing out on leave and licence fee the premises in question namely Premises No. 82, 8th Floor, Sakhar Bhawan, Nariman Point, Bombay should be assessed as income from property and not income from business 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 5,10,000 was received by the assessee free of interest from the Citibank being six months compensation in advance relating to the compensation payable during 9th and 10th year as per agreement dated 4.11.1998. Under the agreement dated 4.11.1988, the licence fee at the rate of ₹ 25,000 per month was determined for the first two years as against licence fee of ₹ 1,50,000 per month determined by Memorandum of Understanding dated 7.11.1987 with the Citibank. Presumably, the AO calculated the interest at the rate of 15 % on the amount of ₹ 12,60,000 received as interest free advance under Memorandum of Understanding dated 7.11.1987 and the amount of ₹ 5,10,0000 received under agreement dated 4.11.1988 by the assessee company from the Citibank. The interest at the rate of 15 % was calculated by the AO for the purpose of determining the municipal value of the property No. 82 (8th floor), Sakhar Bhavan, Nariman Point, Bombay for the purpose of determining the annual letting value because the assessee has received interest free advance from the Citibank. The assessee also received an amount of ₹ 1,07,50,000 by a separate agreement of the same date - 4. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e property for a period of 10 years. Accordingly to clause (3) of the agreement, the monthly licence fee payable was at ₹ 1,50,000/- for the first two years; at ₹ 1,65,000/- for the next two years; at ₹ 1,80,000/- for the 5th and 6th years; at ₹ 1,95,000/- for the 7th and 9th years and at ₹ 2,10,000/- for the 9th and 10th years. Clause (4) of the agreement provided that the City Bank was required to deposit a sum of ₹ 12,60,000/- as interest free advance, to be adjusted in the last six months of the terms of agreement. As per clause (5), the City Bank was to grant a loan of ₹ 1.55 crores, bearing an interest at the rate of 15 % per annum, on completing legal formalities. The principal amount of the loan was to be paid by the assessee on the expiration of the term of the agreement. A fresh agreement was executed substantiating the earlier agreement on 4.11.1988, whereby licence fee was fixed at ₹ 25,000/- per month, increased by ₹ 15,000/- after every two years. Simultaneously, the Bank agreed to make security deposit of ₹ 1,07,50,000/-, free from interest. As per first agreement, the City Bank had agreed to advance a loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee from leasing or letting out of assets would fall under the head Profits and gains of business or profession ; (2) it is a mixed question of law and fact and has to be determined from the point 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 be exploitation of property by an owner thereof, but not exploitation of business assets. 8. Sri A.N. Mahajan, learned coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rental income could not be treated as income from business and should be treated as income from house property. 11. In Commissioner of Income-Tax vs. New India Industries Ltd [(1993) 201 ITR 208 (Gujarat)], the Gujarat High Court had laid down nine tests to decide as to under which head of income, the 'rental income' would fall. The Gujarat High Court, held that the assessee never wanted to exploit the asset as a commercial asset for any commercial gain. It acted like a prudent owner of the property. On closure of the business, instead of permitting the building to lie idle, it leased out the same with a view to earning rental income and thus the income was from 'income from house property'. The tests laid down by the Gujarat High, to decide such matter, are quoted hereunder:- From the observations made by the Supreme Court and various High Courts in diverse fact-situations, dealing with question as to under which head of income, the rental income would fall, in our opinion, the following principles emerges: (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 circums ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... like any other owner of property, he gets income from that property as owner. In such cases, it is not the factotum of his business or commercial activity which brings income to him but it is his investment in property or his ownership of property which brings income to him. In such cases, leasing 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 the descending whether an assessee dealt with its property as owner or as 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. 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 in incidental to and for the purpose 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. 12. In the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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