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2016 (7) TMI 705 - PUNJAB AND HARYANA HIGH COURT

2016 (7) TMI 705 - PUNJAB AND HARYANA HIGH COURT - [2016] 385 ITR 144 - Lease income out of leasing out commercial property - business income or income from house property - Held that:- It has been categorically recorded by the Tribunal on appeal by the Revenue that perusal of the memorandum of understanding dated August 27, 2002 between the assessee and the lessee, i.e., M/s Pizza Hut showed that the property in question was given for use for a period of 12 years which was renewable for a furth .....

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usible view based on appreciation of material on record and the relevant case law on the point. - I. T. A. No. 56 of 2010 - Dated:- 31-3-2016 - Ajay Kumar Mittal and Raj Rahul Garg, JJ. For the Appellant : Rajiv Sharma, Advocate For the Respondent : Rajesh Katoch, Advocate JUDGMENT Ajay Kumar Mittal, J. 1. This appeal has been preferred by the appellant-assessee under section 260A of the Income-tax Act, 1961 (in short, "the Act") against the order dated May 15, 2009, annexure A.1 passe .....

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g the lease income out of leasing out commercial property to concern engaged in parallel business activities as income from house property and not income from business when the appellant has to provide various basic facilities as that to the franchisee ?" 2. A few facts relevant for the decision of the controversy involved as narrated in the appeal may be noticed. The appellant-assessee is a company engaged in the business of running a hotel and also earning income from house property. It f .....

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and flooring, sanitary facilities as per brand requirements etc. The lease was for a total period of 12 years but subject to the condition as per clause (3) of Memorandum of Understanding (MOU) that the lease rent will be subject to increase of 15 per cent. after completion of every three years. The tenant "Pizza hut" was in the business of running Pizza Hut which had the potential of advertising the business of the assessee and introducing new customers and therefore, was beneficial .....

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y in the best possible way. After examining the matter, the Assessing Officer held the income from lease of commercial property declared as business income as income from house property vide order dated December 28, 2007, annexure A.3. Aggrieved by the order, the assessee filed appeal before the Commissioner of Income-tax (Appeals) (CIT(A)). Vide order dated November 18, 2008, annexure A.2, the Commissioner of Income-tax (Appeals) partly allowed the appeal and decided the issue in favour of the .....

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eversing the order passed by the Commissioner of Income-tax (Appeals) and upholding the order passed by the Assessing Officer. Primary reliance was placed on the judgment of this court in Anand Rubber and Plastics P. Limited's case (supra). On the other hand, learned counsel for the respondent-Revenue supported the impugned order. 4. We have heard learned counsel for the parties. 5. Admittedly, the assessee was owning a building in which it was running a hotel and restaurant business. A port .....

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ome earned by the assessee as business income. It has been categorically recorded by the Tribunal on appeal by the Revenue that perusal of the memorandum of understanding dated August 27, 2002 between the assessee and the lessee, i.e., M/s Pizza Hut showed that the property in question was given for use for a period of 12 years which was renewable for a further period of 12 years. It was nowhere shown that the intention to let out was only for a temporary period. Thus, the Commissioner of Income .....

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missions carefully. The short controversy before us revolves around the accessibility of rental income derived by the assessee. The question is whether the rent is assessable as income from property or business income. It is a settled proposition that in order to address such controversy, what has to be seen is whether the asset in question is being exploited commercially by way of renting out or whether it is being rented out for the purpose of enjoying the rental income. The hon'ble Punjab .....

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. The Commissioner of Income-tax (Appeals) has also relied upon the aforesaid judgment to decide the controversy in favour of the assessee. In this regard, we have carefully examined the facts of the present case. In the present case, the facts are that the assessee is owning a building in which it is running a hotel and restaurant business. A portion of the said property was leased out to another concern for running a restaurant by the name of Pizza Hut. The claim of the assessee is that such r .....

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iven over for use for a period of 12 years which was renewable for a further period of 12 years as mutually agreed upon by both the parties. From such an arrangement, it does not show that the intention to let out was only for a temporary period. No doubt, the property has been put to use by the lessee also for running a restaurant business as done by the asses see, so however, the lease cannot be termed to be for a short period or temporary. We are conscious that the property has been vacated w .....

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he intention was clearly to enjoy rental income from the letting out of the property which in our considered opinion, was rightly brought to tax under the head "Income from house property" in the assessment order. The judgment of the hon'ble Punjab and Haryana High Court in the case of Anand Rubber and Plastics (P) Limited (supra) was clearly inapplicable because of different facts. In view of the aforesaid discussion, we therefore, set aside the order of the Commissioner of Income .....

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d out with a view to reduce the losses. After examining the matter, it was recorded by this court that in order to determine whether rent is assessable as income from property or business income, 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. It was held that the portion of the property was leased out temporarily as a commercial asset. Thus, the rent received was assessable as busine .....

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