TMI Blog2011 (8) TMI 815X X X X Extracts X X X X X X X X Extracts X X X X ..... ent Sunil Ambwani and Pankaj Mithal, JJ 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 3 e), 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. The facts giving rise to these appeals, as we have gathered from the order of the Income Tax Appellate Tribunal, Allahabad, in deciding the Income Tax Appeals relating to Assessment Years 1989-90, 1990- 91, 1992-93 and 1993-94, are as follows:- "The assessee is carrying on business of import and sale of scientific instruments. The assessee also earned commission on sale of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000 received as interest free advance under Memorandum of Understanding dated 7.11.1987 and the amount of Rs.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 Rs.1,07,50,000 by a separate agreement of the same date - 4.11.1988 as mentioned by the AO in the assessment order and this amount of Rs.1,07,50,000 was also free of interest. Therefor the AO calculated 15 % on the amount of Rs.1,07,50,000 as the benefit enjoyed by the assessee for the purpose of determining the annual letting value of the property. The AO, therefore, assessed the income from property No. 82 (8th floor), Sakhar Bhavan, Nariman Point, Bombay under the head 'Income from house property' and determined the annual letting value of the property at Rs.22,70,497 as mentioned at page 13 of the assessment order. In first app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 Rs.25,000/- per month, increased by Rs.15,000/- after every two years. Simultaneously, the Bank agreed to make security deposit of Rs.1,07,50,000/-, free from interest. As per first agreement, the City Bank had agreed to advance a loan of Rs.1,55,00,000/- on an annual interest of 15 % along with interest free advance of Rs.12,60,000/-, whereas in the later agreement the bank agreed, not to charge interest on the deposit of Rs.1,07,50,000/-. The Company was thus benefited with Rs.16,12,500/- annum. 6. Sri R.R. Agarwal submits that since the company continued to run its of the business and arrangement was made with the City Bank in the business interest of the company, the letting out of the building, was by way exploitation of the business assets, for making profit. He relies upon Para 3 (e) of the Memorandum of Association of the appellant company, which authorized the Company to purchase or otherwise acquire or d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 counsel for the department has relied upon following judgements:- 1. Universal Plast Ltd vs. Commission of Income Tax [(1999) 237 ITR 0454]. 2. Commissioner of Income-Tax vs. Shankanarayana Hotels (P) Ltd [(1993) 201 ITR 138 (Karnataka)] 3. Commissioner of Income-Tax vs. New India Industries Ltd [(1993) 201 ITR 208 (Gujarat)] 4. Commissioner of Income-Tax and another vs. Mysore Intercontinental Hotels P. Ltd [(2010) 322 ITR 116 (Karnataka)] 5. Mangla Homes P Ltd vs. Income Tax Officer and others [(2010) 325 ITR 281 (Bombay)] 9. We need not discuss all the judgements relied upon by the learned counsel for the department, as the principle of income from property is an income of profit and gain of business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 man, for the Act does not provide any guidance in the matter. (iii) In each case, what has to be seen is whether the asset is being exploited commercially by the letting out or whether it is being let out for the purpose of enjoying the rent. The distinction between the two in a narrow one hand has to depend on certain facts peculiar to each cases. Pure and simple. Commercial asset like machinery, plant, tools, industrial sheds on godowns having high business potential stand on a different fooling from assets like land or building. (iv) If an assessee derived income from a commercial assets which is ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 present case, we find that the authorities did not apply the principle laid down in Universal Plast Ltd (Supra) in deciding the issue. Though the Income Tax Appellate Tribunal relied upon Tutocorin Alkali Chemicals and Fertilizers Ltd vs. CIT [227 ITR 172 (S.C)], Sultan Brothers Pvt Ltd vs. CIT [51 ITR 353 (S.C.)], Commercial Properties Ltd [AIR 1928 Cal 456], East India Housing and Land Development Trust Ltd vs CIT. [42 ITR 19 (S.C)], Punjab National Bank Ltd vs. CIT [141 ITR 886 (Del)], CIT vs. Indian Metal and Metallurgical Corporation [215 ITR 424 (Mad.)], CIT vs. Arvindkumar Odhavij [213 ITR 551 (Bom)], and other cases, it did not apply the principle laid down by the Supreme Court in Universal Plat Ltd (Supra) to the facts of the present case. 13. If we apply the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
