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2015 (6) TMI 638 - ITAT MUMBAI

2015 (6) TMI 638 - ITAT MUMBAI - TMI - Leave and licence income - assessability under “income from other sources” or “profits and gains of business or profession” - Held that:- Assessee, in furtherance of its object of Memorandum of Association, had leased out the premises, which in turn was subleased on leave and licence basis, thus the intention of the assessee was to exploit the asset leased by it, by way of letting out the same, then such letting out activity is in furtherance of assessee’s .....

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e close of the year on 31.03.2003 the agreement with American Express Bank had come to an end and the assessee entered into a fresh agreement with British High Commission again establishes the case of the assessee, that it is involved in a systematic and organized activity of leasing out its premises, which in turn are not owned by the assessee. In the totality of the above facts and circumstances we hold that the lease rent received by the assessee is assessable as income from business in the h .....

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i Naval Kumar - Held that:- As decided in assessee’s own case relating to assessment year 2003-04 it is held an overall appreciation of the evidence and explanation submitted on behalf of the assessee, we are of the view that the assessee has failed to explain and substantiate that the expenditure on staff training and salary pad to Mr. Naval Kumar was wholly and exclusively for the purpose of business of the assessee. We, therefore, confirm the orders of revenue authorities - Decided against as .....

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ted 12.03.2010 had restored the issue back to the file of the Tribunal to adjudicate the issue raised by the assessee vide ground 3 of the appeal. In view thereof the only issue to adjudicated in assessment year 2003-04 is on account of ground of appeal No. 1, which reads as under: - 1. The CIT(A) erred in confirming the action of the assessing officer ( AO ) in assessing the leave and licence income of ₹ 54,67,500 under the head income from other sources instead of income under the head p .....

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eads as under: - 1. On the fact and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the action of the Assessing Officer in treating the Business Income as Income From Other Sources without considering the facts & circumstances of the case. The Assessee is also in appeal in assessment year 2005-06 on another issue as per ground of appeal No. 2, which reads as under: - 2. On the fact and circumstances of the case as well as in Law, the Learned CIT(A) has .....

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icence income received by assessee and whether the same has to be assessed as profit and gains of business or as income from other sources. The Tribunal, in the first round of appeal, vide order dated 31st October, 2008 had appreciated the facts of the case wherein the assessee under an agreement dated 16.11.2000 styled as leave and licence agreement granted licence to M/s. American Express Bank Ltd. to use the premises of which it was the lessee. The licence fee was fixed at 13,66,875/- as quar .....

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and 131 of the object clause of Memorandum of Association of assessee, assessee was permitted to pursue business of taking on lease and earn income from the same. Another plea raised by the assessee was that it had taken on lease commercial assets which in turn were leased out to derive income and the said income was to be assessed as business income. Both the AO and the CIT(A) treated the said income as income from other sources as the assessee was merely subletting the property and there was .....

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to an end on 31.03.2003 after which a new licence agreement had been entered into by the assessee with the British Deputy High Commission, Mumbai. As per the Tribunal this was an act of subletting by the assessee and even the list of fixtures and fittings provided to the licensee in the premises do not find place in the leave and licence agreement and even otherwise provisions of such items would not make the income in question as business income. 6. The Hon'ble High Court (supra), on an app .....

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y distinguishing features brought in the case, the Hon'ble High Court directed the Tribunal to reconsider its decision having due regard to the circumstances of the case. The relevant findings of the Hon'ble High Court are as under: - 2. The appeal pertains to assessment year 2003-04. The issue before the Tribunal on the first question was whether income received from licensing of immovable property belonging to the assessee can be assessed as income from business or as income from other .....

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ice of the Tribunal. The assessee submits that no distinguishing features were brought before the Tribunal by the Revenue to justify a different treatment for the assessment year in question. In these circumstances, we are of the view that the Tribunal may be requested to reconsider its decision having due regard to the circumstances which are pointed out. We, however, clarify that we have expressed no opinion on the merits and all the contentions are kept open. For the aforesaid reasons, we qua .....

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other sources . 8. The next plea of the assessee was that in the absence of any change of facts there was no merit in adopting lease income as income from other sources as it is income from business assessed in the hands of the assessee from year to year. It was further pointed out by the learned A.R. for the assessee that in assessment years 1993-94 and 2001-02, assessment was completed under section 143(3) of the Act wherein similar income from leave and licence agreement was assessed as incom .....

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lease and earn income on releasing the same. It was further pointed by him that the Hon'ble Supreme Court in the case of Chennai Properties & Investment Ltd. vs. CIT reported in 56 taxmann.com 456 on similar facts, laid down the proposition that where as per the object clause in the Memorandum of Association, was to acquire and hold properties which in turn were let out, then the income arising from such letting out was assessable in the hands of the assessee as income from business. 9. .....

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ity of such lease income earned by the assessee. The claim of the assessee before the authorities below and even before us is that such income being in continuation of its object as per the Memorandum of Association, is to be assessed as business income in its hands. Whereas the case of the Revenue is that assessee was engaged in subletting of the property, which in turn it had obtained on lease and hence the income arising there from is assessable in the hands of the assessee as income from oth .....

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nd copy of the assessment order is filed at pages 32-42 of the paper book. Similarly, for assessment year 2001-02 the assessment was completed under the head income from business in the assessment order passed under section 143(3) of the Act, which in turn is placed at pages 43 to 49 of the paper book. The assessee continues to earn income from same lease agreement as in the past and the income declared during the year under consideration was received from American Express Bank, which will also .....

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001-02 the income had been assessed under the head income from business. Though the Hon'ble High Court had restored the issue back to the file of the Tribunal but with the direction that the said issue be decided with regard to the circumstances of the case. 11. In the facts of the present case assessee had leased out the premises to American Express Bank Ltd. w.e.f. October 1992. The said lease agreement continued upto 31.03.2003 and was in application during the financial year 2002- 03, i. .....

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g income from the same. Where it is the intention of the assessee to lease out various premises and then sublet the same on leave and licence basis to different parties, then such activity carried on by the assessee in line with its objects is business activity undertaken by the assessee. The income arising from such exploitation of the assets which had been taken by the assessee on lease and had been further sublet by it is a systematic and organized activity of carrying on its business. Undoub .....

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s before it, wherein the assessee had acquired properties in the city of Madras and in turn let out those properties and the rental income received by it was shown as income from business, it was held that where main object of the assessee company as per its Memorandum of Association was to acquire properties and to let out those properties as well as make advances upon the security of land and building, then it was held that what we emphasis is that holding the aforesaid properties and earning .....

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SCR 807] and the ratio laid down in the case of Karanpura Development Co. Ltd. vs. CIT reported in 44 ITR 362 (SC) and observed as under: - 8. Before we refer to the Constitution Bench judgment in the case of Sultan Brothers (P) Ltd., we would be well advised to discuss the law laid down authoritatively and succinctly by this Court in 'Karanpura Development Co. Ltd. v. Commissioner of Income Tax, West Bengal' [44 ITR 362 (SC)]. That was also a case where the company, which was the assess .....

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ning C.A. No. 4494/2004 etc. 5 Page 6 leases was shown as business income. Department took the position that it is to be treated as income from the house property. It would be thus, clear that in similar circumstances, identical issue arose before the Court. This Court first discussed the scheme of the Income Tax Act and particularly six heads under which income can be categorised / classified. It was pointed out that before income, profits or gains can be brought to computation, they have to be .....

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support of the aforesaid proposition, number of judgments of other jurisdictions, i.e. Privy Counsel, House of Lords in England and US Courts were taken note of. The position in law, ultimately, is summed up in the following words: - As has been already pointed out in connection with the other two cases where there is a letting out of premises and collection of rents the assessment on property basis may be correct but not so, where the letting or sub-letting is part of a trading operation. The .....

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arrive at a conclusion whether the income has to be treated as income from business and such question would depend upon the circumstances of each case, i.e. whether a particular business is letting out or not. After noting down the above said decisions the Hon'ble Apex Court held that the circumstances of the case have to be considered and in view of the facts before it and its circumstances the Hon'ble Supreme Court held that letting of the properties was the business of the assessee an .....

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out the same, then such letting out activity is in furtherance of assessee s intention to carry out the business in a systematic and organized manner. Consequently we hold that the rental income declared by the assessee is to be assessed as income from house property. Another aspect to be kept in mind is that similar income offered by the assessee on account of similar rent received from same tenant in earlier years were assessed as income from business in the hands of the assessee. Another aspe .....

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rent received by the assessee is assessable as income from business in the hands of the assessee and the related expenditure has to be allowed in the hands of the assessee. The AO shall accordingly compute the income in the hands of the assessee in line with our directions after affording reasonable opportunity of hearing to the assessee. This ground of appeal, which was restored back to the file of the Tribunal by the Hon'ble High Court is allowed. 15. The issue in ground of appeal No. 1 r .....

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inst the assessee in view of the order of the Hon'ble High Court in the case the assessee. 17. We find that similar issue of disallowance of recruitment and staff training expenses and salary paid to Shri Naval Kumar arose before the Tribunal in assessee s own case relating to assessment year 2003-04. The Tribunal vide para 12 of its order held as under: - 12. We have considered the rival submissions. Mr. Naval Kumar was sent abroad in education in November, 2000. As early as 19th June 2000, .....

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esolution that Mr. Naval Kumar was sent to USA to pursue his education. As rightly contended by learned Departmental Representative that there was no evidence as to show what was the nature of course that was to be pursued by Mr. Naval Kumar in USA. The certificate for eligibility for non-immigrant student status mentions that Mr. Naval Kumar was to pursue a course in Rochester Institute of Technology, U.S.A. with Computer science as a major subject. This document is at page No. 79 of the assess .....

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ne by Max Imaging Systems Ltd., UK, cost of the towel was high and therefore to have inhouse printing Mr. Naval Kumar was sent for training abroad. The assessee has filed various correspondences between itself and overseas buyers and Max Imaging Systems Limited. These documents are at page No. 112 to 181 of the assessee s paper book. The correspondence, which is after November, 2000 when Mr. Naval Kumar was sent to USA, in our view will not help the case of the assessee. The position as it preva .....

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td., UK. The plea of the assessee that because of the high cost of printing abroad, it explored possibility of sending Mr. Naval Kumar aboard for training in printing technology; and that the same would benefit the business of the assessee, in our view has not been established by the assessee. The plea of the assessee remains unsubstantiated. As already stated the purpose for which a person was to be sent abroad as expressed in the board resolution dated 19.6.2000 and the explanation of the asse .....

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nt in the present A.Y. It is well settled that principles of res-judicata does not apply in income tax proceedings. The assessee has to establish that the expenditure claimed by him is wholly and exclusively for the business which it was carrying on. Decision in the case of Sakal Papers Pvt. Ltd. (supra) is on different facts and the submissions of learned Departmental Representative in this regard have to be accepted. On an overall appreciation of the evidence and explanation submitted on behal .....

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