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Bombay Plaza Pvt. Ltd. Versus A.C.I.T. - Circle-5, Kolkata

2016 (9) TMI 159 - ITAT KOLKATA

Deemed owner u/s.22 - rental income - income from house property - Held that:- Applying the tests to the facts of the present case, especially in the light of clause-2 and 7 of the leave and license agreement, we have no hesitation in coming to the conclusion that on the facts of the present case the assessee was only licencee of the premises owned by M/s. East India Hotels Ltd., and the parties intended it to be license and the agreement did not create an interest in the property owned by the l .....

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on received by the Assessee as licensor from the sub-licensee, comprised of licence fees and service fee and air condition fees. Keeping in mind the objects of the assessee and keeping in mind the facts and circumstances of the present case, it can be safely concluded that the assessee carried on a systematic and regular activity in the nature of business and therefore the income from granting the premises on sub-license was to be assessed under the head income from business. The latest judicial .....

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on’ble Supreme Court in the case of Chennai Properties and Investments Ltd. (supra), we are of the view that the question whether the Assessee is a deemed owner u/s.22 read with Sec.27(iiib) of the Act, no longer assumes importance. For the reasons given above we allow the appeals of the assessee. - I.T.A Nos. 1641 & 1203/Kol/2014 - Dated:- 2-9-2016 - Shri P.M.Jagtap, AM And Sri N.V.Vasudevan, JM For the Appellant : Shri A.K.Gupta, FCA For the Respondent : Shri S.M.daws, JCIT, Sr.DR ORDER Per N. .....

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d company, was incorporated on 15.04.1990. The main objects for which the Assessee was established are given in the clauses of Para III of the Memorandum and Articles of Association which are as under: 1) To acquire on a license or by purchase, lease, exchange, hire or otherwise land and property of any tenure, or premises in any part of India. 2) . ......... 3) To license or sub license or lease or sub lease or let such lands or property or premises or any part thereof and to provide such other .....

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ized it in granting different portions of the shopping space to various parties who were interested in setting up shops there with the condition that the shopkeepers had to subscribe to a specific number of shares of the assessee apart from payment of monthly charges (termed as contribution from shops). The Assessee also provided various services to the licensees like air-conditioning, telephone services, maintenance, electricity, water, sanitary, security etc. In consideration for the same The .....

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er of the building, the amount of license fees paid to EIH Limited was claimed as a deductible expenditure against the said business income. 4. In the assessment order U/s 143(3) of the Income Tax Act, 1961 (Act) dated 15.12.2008 for AY 2007-08, the Assessing Officer (AO) rejected the claim of the assessee and treated the above income as 'Income from house property' on the following grounds: a) That the assessee has an irrevocable right of 50 years over the shopping space. b) The Apex Co .....

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t 'Income from House Property as the assessee is neither an owner not a deemed owner. The Assessee pointed out that it acquired the property only under a license agreement and not under a lease. The Assessee pointed out that as per section 22 of the Act, any income is chargeable under the head 'Income from House Property' only on fulfilling the following conditions: a) Income should be derived from a property consisting of any building or lands appurtenant thereto b) The assessee is .....

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espect to any building or part thereof by virtue of any transactions which is referred to in clause (f) of section 269UA, is deemed to be the owner of the building. The Assessee pointed out that under clause (f) of section 269UA of the Act, transfer in relation to any immovable property referred to in sub-clause (i) of clause (d), means transfer of such property by way of sale or exchange or lease for a term of not less than twelve years, and includes allowing the possession of such property to .....

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ich it can be so extended is not less than twelve years The Asssessee contended that section 269UA(f) covers cases of transfer of property only under sale, exchange or lease, whereas in the instant case the shopping arcade has been acquired by the Assessee under a license and not lease. The Assessee contended there was a difference in law between a license and a lease . The Assessee contended that by entering into the lease agreement with EIH Limited what the assessee has received is only a righ .....

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idered as deemed owner in terms of section 27(iiib) of the Act. The Assessee relied on the decision of the Hon'ble Cochin Tribunal in the case of M. Damodaran Nair -vS.- ITO (2004) 90 ITD 758 (Cochin) (SMC), in which the facts were that the assessee took a building on lease which was sub leased to others. The assessee derived rent from the building leased out which after deducting certain expenses was offered under the head business income. The contention of the assessee was that since he wa .....

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use property". The Tribunal observed the rationale of extending the said definition of ownership which was explained in the Board circular no. 495 dated 22.9.1987. The said circular provided that the expression ownership meaning legal ownership' had the effect of excluding cases where an assessee possessed all rights to an immovable property except the title. Having observed that the Hon'ble Tribunal held as follows: That the whole thrust of Chapter XX-C consisting of sections 269UA .....

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According to section 27(iiib) the transaction should be the one referred to in section 269UA(f). Then only the person concerned will be the owner of the building or part thereof on the basis of extended meaning of transfer in section 269UA. The building or part of the building as referred to in section 27(iiib) should be a building or part of the building as referred to in section 269UA(f). Taking of the building by the assessee on leave and licence had no relevance in the instant case. There wa .....

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the property on license with a condition and objective to sub license the same. There was no intention of transferring the property to the assessee by the said company and hence the question of applicability of section 27(iiib) of the Act does not arise at all. 6. Without prejudice to our above claim that the assessee is not assessable to 'Income from house property' as it is neither an owner nor a deemed owner, the Assessee further submitted that the Assessee was formed with the main o .....

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., To acquire on a license, premises suitable for housing and accommodating shops, boutiques, stores offices, show rooms for the purpose of making the same available on the basis of lease and license or sub license (and not for leasing or renting the same out) to any person, firm or company. The Assessee pointed out to the various clauses in the sub-license agreement and contended that doing all those activities by the Assessee was nothing but a business activity in a systematic and organized ma .....

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rtising and sales promotional facilities by various means d media for goods available in the shopping area. Thus, in order to carry on the business of providing premises on license the assessee has made available the whole infrastructure of various facilities/services and for which the assessee charges certain amount. Thus, income earned from the above is nothing but business income. 7. The Assessee relied on the decision of the Hon ble Supreme Court in the case of Universal Plast Ltd. -vs.- CIT .....

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ed according to the common notions of a practical and reasonable man after considering facts and circumstances involved in each case. It was contended that in the present case, the Assessing Officer did not give any cognizance to the fact that the intention of the assessee behind giving the property on sublicense was to exploit the property commercially in the ordinary course of business by providing various facilities and services and not merely to earn rental income. The Assessee also relied o .....

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pany took on lease a market place for a initial term of 50 years, undertaking to spend ₹ 5 lakhs for the purpose of remodeling and repairing the structure on the site. It was also given the right to sub let the different portions. The assessee developed the property and let out portions thereof as shops, stall and ground spaces to shopkeepers etc. The question was whether the assessee s income from subletting was assessable as business income or as 'income from other sources'. It w .....

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547 (SC)(para 4.1) • CIT -vs.- National Storage (P.) Ltd. (1963) 48 ITR 577 (Born.) • Everest Hotels Limited -vs.- CIT (1978) 114 ITR 779 (Cal.) 8. The Assessee also submitted that an identical issue came up before the Hon'ble ITAT Kolkata in the case of Assessee's group concern, namely Oberoi Building & Investment Pvt Ltd for A.Y.2005-06 wherein the Hon'ble ITAT decided the issue in favour of the revenue by treating the contribution received from shop as Income from Ho .....

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udicata does not apply to Income tax matters it has been held in a number of cases including the apex court that the principle of consistency cannot be ignored. Reliance in this regard was placed on the following judgements: Radhasoami Satsang vs. CIT (1992) 193 ITR 321(SC) CIT vs. A. K. J. Security Printers (2003) 264 ITR 276 H. A. Shah & Co. vs. CIT (1956) 30 ITR 618, 625 The Assessee prayed that the income in question be treated as business income. 10. The CIT(A) in the appeal for A.Y.200 .....

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g officer in treating income from shopping space as 'income from house property'. At the time of hearing it was informed by the appellant that the aforesaid order of ITAT has been disputed by the appellant before Hon'ble Calcutta High Court which have vide its order dated 4.10.10 stayed objection of order of Hon'ble tribunal. According to the appellant in view of the High Court's order, the tribunal order is no longer required to be followed. However, it is settled position o .....

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#39;ble tribunal in the case of Oberoi Building and Investment Pvt. Ltd. in AY.2005-06. The action of the assessing officer is therefore confirmed and grounds no. 1 to 5 are rejected. 11. The facts and circumstances are identical in AY 2006-07. In A.Y.2006-07 the CIT(A) following the order passed in A.Y.2007-08 upheld the order of AO. We may also mention that the facts are identical in A.Y.2006-07 & 2007-08. The reasons given by the AO for treating the income from giving on license shops by .....

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ta High Court has admitted the appeal of the assessee by an order dated 06.12.2010 granted unconditional stay of operation of the order of Tribunal. It was next submitted by him that the issue as to whether income from giving on license shops, where the main objects of a company giving shops on license was to acquire on a licence and grant space so acquired on sub-license, was to be assessed as income from house property or Income from Business has been considered by the Hon ble Supreme Court in .....

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be assessed under the head Income from business or income from house property . The Hon ble Supreme Court referred to its earlier decision in the case of Chennai Properties and Investments Ltd. (supra) held as follows :- 9. Upon hearing the learned counsel and going through the judgments cited by the learned counsel, we are of the view that the law laid down by this Court in the case of Chennai Properties (supra) shows the correct position of law and looking at the facts of the case in question .....

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iness and that is of leasing its property and earning rent therefrom. Thus, even on the factual aspect, we do not find any substance in what has been submitted by the learned counsel appearing for the Revenue. 11. The judgment relied upon by the learned counsel appearing for the assessee squarely covers the facts of the case involved in the appeals. The business of the company is to lease its property and to earn rent and therefore, the income so earned should be treated as its business income. .....

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ofession. 13. Our attention was also drawn to the decision of the Hon ble Calcutta High Court in the case of Sham Burlap Co. Ltd vs CIT 380 ITR 151 (Cal) wherein identical proposition was laid down. Our attention was also drawn to the various clauses in the leave and licence agreements and it was submitted that in the present case the amounts received by the assessee was for granting of sub-license and therefore coupled with the fact that the assessee s main object was acquiring on license prope .....

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f this sq.ft in Hotel Oberoi Towers, Bombay Reclamation Estate, Mumbai, in an area ear marked as shopping area on payment of monthly licence fee computed at ₹ 1.50 per month. The licence was not only for use of the shop area but also for use of facilities like air conditioners, use of elevators etc., Security service charges, sanitary services etc. The operative portion of the lease deed is as follows :- (The hotel company means The East India Hotels Ltd. And the Subsidiary means The Asses .....

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of ₹ 1.50 per month during the period of the Licence and pro-rata compensation for any broken period; to pay compensation for each month on or before the 10th day of the month following the month for which it is due and for any broken period at the end of such period. (b) To pay to the Hotel Company for making available air- conditioning facilities, an amount calculated at the rate of ₹ 8.50 per month during the period of the Licence and pro-rata for any broken period, such payment .....

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paid to the Hotel Company electricity charges and meter hire in respect of electricity consumed in the shops comprised in the Shopping Area on presentation of the bills thereof. In Clause-(xiv) it has been agreed between the parties as follows :- (xiv) It is clearly agreed and understood that the leave and licence hereby, granted shall be irrevocable for the period mentioned in clause 1 above, and even if the Subsidiary commits default in observance and Performance of any of the terms and condit .....

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n to the Subsidiary. (ii) The Hotel Company shall throughout the period of the licence have full control over the said Shopping Centre and the Subsidiary shall have only the licence to use it for the period and on the terms and conditions here in set out. (iii) The Hotel Company shall retain with itself the key/s of the main entrance/s' of the said Shopping Centre and deliver to the Subsidiary only the duplicate/s thereof. (v) The Subsidiary shall bear and pay all the costs, charges and expe .....

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ermining whether a transaction is in the nature of license or lease has been laid down in judicial pronouncements. Before distinguishing the concept of lease and licence, first of all, let us see the definition of both these terms. Sec.105 of the Transfer of Property Act, 1882 defines a lease as transfer of a right to enjoy an immovable property for a certain period, in consideration of price paid or promised to be paid in cash or kind. Sec.52 of The Indian Easements Act, 1882 defines Licence as .....

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ble interest. Licence the other hand cannot be transferred by virtue of it being a personal right. However, there exist certain exceptions such as movie tickets. A Lessee is required to have exclusive possession of the property for its proper enjoyment. But, a licence is created without transfer of possession. A Licensee is required to share the possession with the grantor (who is still the owner) and has not parted with the interest. In lease exclusive possession is obtained and hence lessee ha .....

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creates an interest in the property, it is a lease. But if it only permits another to make use of the property on which legal possession continues with owner, it is a licence. 4. If under the document, transferee gets exclusive possession of the property he is prima facie a lessee. But circumstances may be established which negative the intention of parties to create a lease. Therefore, difference between exclusive possession and exclusive occupation cannot be disregarded. 16. Applying the abov .....

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nsee it had granted sub-licence to various parties and derived income there from. Once we come to the conclusion that the Assessee is only a licencee, then it can safely be said that the provisions of Sec.22 read with Sec.27(iiib) of the Act are not attracted and hence the income in question cannot be assessed under the head Income from House Property . 17. The assessee was not only deriving licence fee but also deriving service fee and other fees which were as follows :- COMPENSATION PAID TO TH .....

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