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Enn Zen Enterprises (P) Ltd. Versus Assistant Commissioner of Income-Tax

Incomes received from leasing out of hotels - whether are to be taxed under the head "Income from house property"? - Held that:- Deciding factor is not the ownership of land or lease but nature of activity of the assessee and nature of operation in relation to them. In the present case, the assessee is a company, and it is not involved in any activity other than leasing out of these hotels. The fact that the said activity is mentioned under other objects in the memorandum of association, of the .....

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sent case, similar is the situation.

The judgment in the case of Dal Chand and Sons v. CIT [1967 (12) TMI 7 - PUNJAB AND HARYANA High Court] was later followed by the hon'ble jurisdictional Punjab and Haryana High Court in the case of Nauharchand Chananram v. CIT [1970 (10) TMI 12 - PUNJAB AND HARYANA High Court ] (P&H) also. Thus we hold that the lease rental received by the assessee is to be taxed under the head "Income from business" - Decided in favour of assessee - I. T. A. No. 4 .....

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in Kasuali, Himachal Pradesh, which were leased out and the assessee has rental income from both the hotels. The assessee had leased the building and restaurant along with furniture and fixture. The Assessing Officer asked the assessee as to why the income from leased out hotels not be treated as "income from house property" and deduction under section 80-IC of the Income-tax Act, 1961 (in short "the Act") he disallowed as the assessee was not doing any business. The assessee .....

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-company. Further, relying on a number of judgments of various High Courts, he held that the incomes received by the assessee from leasing out of these hotels are to be taxed under the head "Income from house property". 3. Aggrieved by this, the assessee went in appeal before the learned Commissioner of Income-tax (Appeals) and made detailed submissions. It was submitted that the lease income from the hotel industry was business income, for which reliance was placed on a number of judg .....

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;ble Supreme Court in the case of Shambhu Investment P. Ltd. v. CIT [2003] 263 ITR 143 (SC) held that the incomes from leasing out of hotels are to be taxed under the head "Income from house property". Since the income was not taxed under the head "Business income", deduction under section 80-IC of the Act was also denied. 4. Aggrieved by this order of the learned Commissioner of Income-tax (Appeals), the assessee has come up in appeal before us. During the course of hearing .....

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one restaurant. If the assessee would not have made conscious efforts to bring the hotel into existence in an organised manner, then there would not have been any tenants to take on lease. Thus, the assessee was doing the business activities. It was also submitted that the assessee-company is engaged in the business of running of the hotels on lease basis during the year under consideration and also in the subsequent assessment year, the assessee has earned the income from the said source only. .....

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n the form of business providing six rooms set along with furniture and fixture, other machinery, crockery and cutlery items, reliance was placed on a number of judgments including that of the hon'ble Supreme Court and various High Courts including the hon'ble jurisdictional Punjab and Haryana High Court. Efforts were also made to distinguish the cases relied upon by the Assessing Officer and the learned Commissioner of Income-tax (Appeals). 5. The learned Departmental representative rel .....

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ideration. The investments have been made in the construction of the rooms, restaurant and electrical and electronic gadgets to run the hotels. The approval from the Government of Himachal Pradesh, Department of Tourism and Civil Aviation has also been received for both the hotels, to notify the bed capacity and rate of lodging in hotels. This is evident from pages 11 to 14 of the paper book, where these certificates are appended. Permission from the Town and Country Planning Department, Himacha .....

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counsel for the assessee. 7. Whether a particular letting is business or not has to be decided in the facts and circumstances of each case. Each case has to be looked at from the view point of the assessee to find out whether the letting was done for a business or for exploitation of its property as an owner. The undisputed facts of the present case are that the assessee has given on rent not only the premises as such, but the special amenities provided to make the premises as a compact asset k .....

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ities to make the premises as "hotel". Converting a mere space into a compact asset called "hotel" and getting the lease rent out of it depends not on the occupation of premises by the assessee but also constant efforts put in by it to enable such conversion. It is a trite law by now, that merely the fact that a premises is being let out on rent does not mean that the income out of it is to be taxed as income from house property. It has to be seen that what is the primary obj .....

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971] 82 ITR 547 (SC) has laid down certain tests from which the inference of income being business or house property can be drawn. The hon'ble Supreme Court opines that if the services rendered by the assessee are the results of its activities carried on continuously in an organised manner with a set purpose and with a view to earn profits, those activities would constitute business activities. The activities of the assessee in the present, case qualifies the requirements as laid down by the .....

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and it is not involved in any activity other than leasing out of these hotels. The fact that the said activity is mentioned under other objects in the memorandum of association, of the company and not in the main objects, is immaterial to decide the issue in question. 10. In a judgment of the hon'ble jurisdictional High Court in the case of Capital Foundry and Engineering Works v. CIT [1982] 138 ITR 833 (P&H), while allowing the appeal of the assessee, the hon'ble court referred to .....

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by another as lessee. In either case the owner of the factory carried on the business of earning profits and gains from such an asset. . . . So long as a business asset is exploited as such and profits or gains are earned from it, the same are profits and gains of a business, however the owner of the commercial asset exploits the same. So when it is said whether he carried on the business himself or not that only means whether he carried on a business activity which may have led to his earning .....

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