TMI Blog2010 (12) TMI 1180X X X X Extracts X X X X X X X X Extracts X X X X ..... 53 and the decision of Hon ble AP High Court in the case of Khalid Mehdi in 57 CTR 110. 3. The assessee raised the following grounds in its Cross Objection: 1. The CIT(A) ought to have been held that even if the income is assessable under other sources, the expenses claimed in the P L account are allowable u/s 57(iii) of the IT Act. 2. The CIT(A) ought to have also held that the current depreciation, the unabsorbed depreciation and the expenses on repairs and maintenance are allowable u/s 57(iii) r.w.s. 30(a)(ii), 30(c ) 31 of the IT Act. 4. Brief facts of the case are that the assessee is a private limited company. For the assessment 2005-06, it has filed return of income on 31.10.2005, showing loss of 26,21,314/- . After processing the return u/s 143(1) of the Act, the same was selected for scrutiny assessment. During scrutiny, from the profit and loss account field with the return, the assessing officer noticed that during the previous year the assessee has derived lease income from renting of building and other income of ₹ 41,460/- According to assessing officer, the assessee has no business income and only income from lease rentals. Therefore, dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... persons viz., C. Ramanjaneyulu, N. Rama Krishna, and N. Ravi, respectively, during the preceding previous year i.e. 2003-04 and the same have been squared up during the current. Clarifying on such advances, as noted by the assessing officer the assessee has submitted that the said amounts were given to those persons for works contract. However, in absence of any TDS made on such amounts given, and in absence of any agreement made by the assessee with regard to such payments, the assessing officer held that the said advances have not been given for any business purpose of the assessee company. Under the circumstances, and since the assessee was paying interest on term loans taken by it from commercial banks, the assessing officer disallowed a sum of ₹ 3,10,200/- calculated @ 10.5% on such amounts, towards proportionate interest on the said advances given, and thus added back the said amount to the income of the assessee under the head business income and completed the assessment accordingly vide order dated 31.10.2007 passed u/s 143(3) of the Act. 6. On appeal, the CIT(A) observed that the lease of building along with assets are only for a period of six years and it is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to tenant and only rent was received and hence, it cannot be said that the assessee is carrying out on the business activity. He placed reliance on the judgement of Hon ble Supreme Court in the case of CIT Vs. Swadeshi Karyalay (237 ITR 544) P H HC) and submitted that the intention of the assessee is to earn income and it is not the intention of carrying out any business. He drew our attention to the various conditions laid down by the Supreme Court in the case of Universal Plast Ltd. Vs. CIT (237 ITR 454) (SC) and he submitted that the judgement to be seen in the light of the facts of the case. On the other hand, the learned AR submitted that the assessee in this case leased its assets to M/s Chaitanya Educational Academy, because of lull in the business, the assessee has temporarily leased out its building and the agreement is only for six years and the assessee is having intention to resume running of schools after six years. He drew our attention to the conditions of the lease agreement and he also relied on the order of this Tribunal dated 10.3.1998 in the case of Sileman Khan Mahaboob Khan, Guntur Vs. ACIT in ITA No.1204 1205/H/1993 which is placed on record at pages 32 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore the correct head of income is other sources. The contention of the assessee is that the lease was only for a limited period and the intention to resume the business is still there. The intention to lease the building with the plant is only to realize income during the stop gap period to business activity and there was no intention to stop the business. The minutes of the board of directors was presented to the assessing officer to which he did not give any consideration. 11. According to learned AR the intention of the assessee to grant lease only for a limited period and also the minutes of the board of directions to lease the property for a limited period clearly point out to the intention of the company to resume the business at the appropriate time. The lease period of 6 years cannot be considered to militate against the professed intention of the company to discontinue the business only for a limited period. He submitted that one important clause in the lease deed provides that the lessee shall not carry on any other activity other than running of educational institution in the premises. This clearly points to the assessee s desire to continue the usage of premises ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd maintenance in P L account is allowable but not allowed by the assessing officer. 15. According to him, u/s 31 of the IT expenditure on insurance and the amount paid on account of current repairs to machinery plant and furniture is allowable. These items are also a part of the P L account. 16. He submitted that the depreciation is allowable as u/s 32(1) of the IT Act which the assessing officer has failed to allow. Depreciation allowable u/s 32(1) is ₹ 15,93,412/-. Likewise the carried forward unabsorbed depreciation of earlier years u/s 32(2) is also allowable but has not been allowed by the assessing officer. The carried forward unabsorbed depreciation u/s 32(2) year wise is ₹ 17,52,375 for 2004-05, ₹ 19,68,823/- for 2003-04. The Calcutta HC held in the case of CIT Vs. Premchand Jute Mills Ltd (164 ITR 288) that the unabsorbed depreciation under business head of earlier years should be set off against income from other sources of the following years. 17. He submitted that the assessing officer omitted to allow any of the items of the expenditure as provided in section 57 of the IT Act. The assessing officer has not also stated any reasons for omittin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion under business head of earlier years should be set off against income from other sources of the following years. 22. We have heard both the parties and perused the material available on records. The main contention of the assessee s counsel is that the assets which have been let out with an intention to take it back after completion of loan period and the assessee will restart its educational activities. On the contrary, the learned DR s contention is that the assessee has let out its buildings and other assets along with the students to a reputed institution, as such; there is no hope of restarting the educational activities by the assessee. According to DR, the intention of the assessee as gathered from the agreement of lease as well as from circumstances 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 the above background, we have gone through the facts of the case. As seen from the facts, the assessee is not doing anything except leasing of its assets for the purpose of receiving rental income. Being so, when the assessee leased out the property, the income derived f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23. In the case before the Apex Court, it was a fact that the leasing of the factory was not a sequel to the assessee s decision to go out of the business in respect of the subject factory and that it was just a make shift transient alternative means of commercial exploitation of the commercial assets. Further it was held that the assessee cannot be said that it had dismantled its business never to return back to it and decided that the income received by the assessee by leasing out the factory was business income. But in the present case, the intention of the assessee cannot be said that assets are out with an intention to restart the business. The building along with the other furniture and its students were let out to M/s Chaitanya Educational Academy for a consolidated payment. The income from building and other assets are not separately identifiable. Since the income from building and other assets inseparable the provisions of Section 57 is applicable. The assessee has taken a strong plea that the lease agreement and Board Resolution will indicate that the intention of the assessee is to lease the business assets for a short period with an intention to resume the running of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law. 25. Regarding allowability of depreciation, we are of the opinion that the assessee fulfilled the conditions as laid down in the section 56(2)(iii) of the IT Act, as such it is entitled for depreciation on the leased assets. 26. Regarding allowability of set off of unabsorbed depreciation, the learned AR relied on various judgements including the judgement of Supreme Court in the case of CIT Vs. Viramani Industries (P) Ltd. (216 ITR 607) (SC) for the proposition that for availing the benefit of Sec.32(2), it is not necessary that the same business should be carried on in the following previous year, nor it is necessary that the assets which earned the depreciation in the preceding year should exist and continued to be used in the following year nor that the assessee should carry on any business or profession in the following year, and unabsorbed depreciation to be set off of against the income for the accounting period. 27. We have carefully gone through the judgement in the case of Viramani Industries (P) Ltd. In this case, the assessee was engaged in the manufacture of soap and oil during the previous year relevant to the assessment year 1956-57. The business was s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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