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Dy. Commissioner of Income-tax -10 (2) , Mumbai Versus M/s Ria Laboratories Pvt. Ltd.

2016 (3) TMI 409 - ITAT MUMBAI

Income from license fee arising from leave and license agreement - “income from house property” OR ‘Income from other sources’ - Held that:- The assessee company acquired the plot of land for a long period i.e. 95 years from the MIDC and the assessee company is the deemed owner of this plot by virtue of section 27(iiib) of the Act read with Section 269UA(f) of the Act. The assessee company is the owner of the factory building and it is also a deemed owner of the land and the licensee fee income .....

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ad ‘Income from other sources’ rather the same is also chargeable to tax under the head ‘Income from House Property’.

In our considered view, the CIT(A) has rightly held that income from license fee arising from leave and license agreement entered into by the assessee company with Omnitech Infosolutions Limited dated 10.12.2007 is chargeable to tax as income under the head “income from house property” and not under the head ‘Income from other sources’ - Decided in favour of assessee - .....

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the Revenue in the memo of appeal filed with the Tribunal read as under:- 1(i). "On the facts and in the circumstances of the case as well as in law, the Ld. CIT(A) erred in holding that the income from subletting/ leasing of property to Omnitech Infosolutions Pvt. Ltd., assessable as 'rent income' and not as 'income from other sources'. l.(ii) On the facts and in the circumstances of the case as well as in law, the Ld. CIT(A) erred in not appreciating the fact that the rent .....

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'Income from Other Sources. 2. The appellant craves leave to add , amend , vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of appeal. 3. The appellant prays that the order of CIT(A) on the above ground be set aside and that of the assessing officer be restored'. 3. The brief facts of the case are that the assessee company s case for the impugned assessment year was selected for scrutiny by Revenue to frame assessment u/s 143(3) .....

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ssessee company . In reply, the assessee company submitted that the assessee company has entered into leave and license agreement to let out its plot along with building at Plot No. A-812, in Trans Thane Creek Industrial Area, IIC Industrial Area, MIDC Mahape, Vapi Mumbai, with M/s Omnitech Infosolutions Pvt. Ltd. (Licensee) for a period specified therein. As per the agreement, the amount of monthly compensation agreed for the period of April 2009 - March 2010, is ₹ 8,67,770/-, hence, the .....

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ince there was no business activities carried on by the assessee company during the previous year relevant to the assessment year , the assessee company submitted that it has not claimed depreciation on its fixed assets. Due to this, the assets including Building asset , are disclosed in the balance sheet at gross acquisition value and no depreciation is claimed on the said assets. The assessee company submitted that the assessee company was registered on 23.02.2006 and the relevant plot was pur .....

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come under the head income from house property and appreciate it to be a genuine income earned out of transparent actions of the assessee company. The A.O. after careful perusal of the assessee company s submission held the same are not acceptable. The A.O. observed that as per para 3(m) of the agreement of lease between Shri Narandas Amratlal Sejpal and MIDC(later on assigned to the assessee company), it is stipulated that the licensee will not directly or indirectly transfer, assign, sell, enc .....

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rminus with the lease agreement. The AO observed that the objective of the MIDC to allocate the plot on lease for a specific purpose as stated in the lease deed and the same is for the purpose of promotion/ development of industries/ factory building and manufacture/ production of articles/goods by the person to whom the plot has been leased by MIDC. As per the provisions of the Act , an income to be charged under house property, inter-alia , the assessee company must be the legal owner of the h .....

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e Act and it was held by the AO that the rental income received by the assessee company of ₹ 1,04,13,240/- is to be brought to tax u/s 56 of the Act under the head income from other sources and claim of deduction of standard deduction @30% u/s 24(a) was denied to the assessee company by the AO vide orders dated 29.12.2012 passed u/s 143(3) of the Act . 4. Aggrieved by the orders dated 29.12.2012 passed u/s 143(3) of the Act by the AO, the assessee company carried the matter in appeal befor .....

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he third party. However, the A O. has contended that since the assessee company has acquired plot of land from MIDC on leave and license basis, the assessee company is not the owner of the plot and hence rent income received for the same should be taxed under the head income from other sources and not under the head income from house property . The assessee company submitted that the A.O. has totally misdirected herself in reaching the conclusion that the rental income is taxable under the head .....

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ct whereby it is stipulated that a person who acquires any rights (excluding any rights by way of a lease from month to month or for a period not exceeding one year) in or with respect to any building or part thereof, by virtue of any such transaction as is referred to in clause (f) of section 269UA of the Act, shall be deemed to be the owner of that building or part thereof and clause (f) of section 269UA of the Act states that in relation to any immovable property referred to in sub-clause (i) .....

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use (f) of section 269UA of the Act, where the period of lease is not less than 12 years, the assessee company is considered to be the deemed owner of the property and accordingly rental income earned by it should be treated as income from house property, hence, assessee company is the rightful owner of the property and the rental income received against the lease of the property should be taxed under the head income from house property . The assessee company submitted that agreement to lease da .....

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nded that the all the rights in respect of the plot of land is transferred in favour of the assessee company. The documents submitted clearly reveals that the assessee company is the owner of the plot of land and the building thereon. The CIT(A) after carefully considered the submission of the assessee company and the assessment order held that one of the promoter director of the company Shri Narandas Amratlal Sejpal had acquired a plot of land from MIDC on leave and license basis vide agreement .....

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not be treated under income from house property. The CIT(A) held that ownership is the criteria for assessing the income under the head income from house property . However, the income from property is assessable in the hands of the taxpayer as Income from house property who is not the legal owner by virtue of Section 27 of the Act which, inter-alia, stipulates that a person who acquires any rights in or with respect to any building or part thereof, for a period of 12 years or more by virtue of .....

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n 31-03-2008 was ₹ 79,15,607/- and subsequently there were no addition made during assessment years 2009-10 and 2010-11. Thus, there is no doubt that the assessee company is owner of the building. The CIT(A) accordingly vide orders dated 21.10.2013 held that assessee company is the owner of the factory building and it is also a deemed owner of the land and the rent received has to be assessed as income from house property and not under the head income from other sources . 6. Aggrieved by t .....

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hane Creek Industrial Area within the village limit of Borivali and within the limits of Navi Mumbai Municipal Corporation , Thane District was acquired from MIDC on license basis by the promoter-director of the assessee company Mr Narandas Amratlal Sejpal being promoter of proposed company , vide agreement dated 26.02.2004 for term of 95 years which was later on assigned to the assessee company after its incorporation vide lease agreement dated 11.10.2007 between MIDC and the assessee company w .....

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s Amratlal Sejpal in favour of the assessee company was approved by MIDC vide approval dated 22.3.2007 which is also placed in paper book filed with the Tribunal page 38-39. The building there-on the said plot was constructed by the assessee company and the said plot along with building there-on is duly reflected in the books of accounts of the assessee company and the audited accounts filed with the Revenue , our attention was drawn to the audited Balance Sheet of the assessee company which is .....

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cense agreement 10.12.2007. The assessee company has placed on record the copy of Leave and License Agreement dated 10-12-2007 entered into between the assessee company and M/s Omnitech Infosolutions Ltd. whereby it was agreed by the licensee to pay license fee per month for taking on the said premises on leave and license basis which is placed in paper book pages 66 to 96. The ld. Counsel submitted that the assessee company acquired the plot of land for a long period i.e. 95 years from the MIDC .....

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s merely an agreement to give the right to use and occupy on leave and license basis the said premises to the licensee while no services are provided by the assessee company to the licensee apart from right to use and occupy the said premises. With respect to the lifts and electrical installations in the factory building given on leave and license basis along with the premises , it is submitted that the lift and electrical installations are amenities , which are necessary for the use and enjoyme .....

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.com 422 & 3. Madras Tribunal decision in the case of ACIT v. Smt. Farida Begum Tazudeen, [1997] 63 ITD 298 (Mad) 9. We have considered the rival contentions and also perused the material available on record including case laws relied upon. We have observed that the plot of land bearing No. A-812, in the Trans Thane Creek Industrial Area within the village limit of Borivali and within the limits of Navi Mumbai Municipal Corporation , Thane District was acquired from MIDC on license basis by .....

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Tribunal at page 12-37 and 42-65. The lease is thereafter granted by MIDC in favour of the assessee company who is lessee of the said plot for a period of 95 years vide lease agreement dated 11-10- 2007 which is placed at paper book, page 42-65. The assignment of interest of the promoter-director of the assessee company namely Mr. Narandas Amratlal Sejpal in favour of the assessee company was approved by MIDC vide approval letter dated 22.3.2007 which is placed in paper book filed with the Tribu .....

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uring financial year 2009-10 and no depreciation is claimed by the assessee company as it is stated that there are no business user of the said assets during the previous year relevant to the assessment year apart from giving on leave and license basis to Omnitech Infosolutions Ltd.(licensee). The said premises consisting of land and building was given on leave and license basis by the assessee company (licensor ) to Omnitech Infosolutions Ltd.(licensee ). The assessee company has placed on reco .....

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2007 and we have observed that the said agreement is just like any other rent simplicitor agreement whereby the assessee company has given in consideration of license fee , its premises for occupation and use by the licensee without providing any other services such as secretarial, security, maintenance etc. and in our considered view the license fee income received by the asssessee company shall fall for chargeability of taxation under the head Income from House Property . The assessee company .....

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