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2016 (9) TMI 511 - ITAT AMRITSAR

2016 (9) TMI 511 - ITAT AMRITSAR - TMI - Rental/licence fee received in respect of property given on lease to BHL - acquiring and leasing properties in the State of Jammu & Kashmir - liable to be assessed as business income and not as income from house property - Held that:- ‘Chennai Properties And Investment Limited’ (2015 (5) TMI 46 - SUPREME COURT), is directly and squarely applicable on this point. It holds that since the main object of the assessee was to acquire and let out properties, fro .....

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, as observed, in the present case, undisputedly, the main object of the assessee happened to be acquiring land and buildings in the State of J & K and letting out the same. This is exactly the same object as was that of the assessee in ‘Chennai Properties And Investment Limited’ (supra). Therefore, in accordance with ‘Chennai Properties And Investment Limited’ (supra), we hold that the assessee is correct in contending by way of the additional ground taken that the rental/licence fee received b .....

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r)/2015 - Dated:- 26-8-2016 - SH. A.D. JAIN, JUDICIAL MEMBER AND SH. T.S. KAPOOR, ACCOUNTANT MEMBER Appellant by: S/Sh. Ajay Vohra, Sr.Adv.alongwith Gaurav Jain, Krishan Kumar & Satish Sachdeva Respondent by: Sh.Umesh Takkyar, DR ORDER Per A. D. Jain, JM These are the cross appeals - eight by the assessee and eight by the Department filed against different orders of the ld. CIT(A), Jammu for different assessment years, as mentioned in the caption of this order. As the issues involved in thes .....

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61 ( the Act ) on the ground of being beyond jurisdiction, bad in law and void ab initio. 1.1 That the CIT(A) erred on facts and in law in holding that the reasons to believe recorded by the AO had a direct nexus with the income escaping assessment. 1.2 That the CIT(A) erred on facts and in law in upholding that the revisionary order dated 02.01.2012 passed under section 263 for assessment year 2008-09, constituted fresh material for the AO to re-open the concluded assessment for the impugned as .....

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termined for each assessment year, notwithstanding the amount of rent agreed for a fixed period at the time of entering into a legally binding rental contract on the basis of the market conditions prevalent at the time of entering into the license agreement. 2.2 That the CIT(A) erred on facts and in law in holding that subsequent enhancement of license fee by both the parties lead to the conclusion that the agreed annual license fee was not the fair rental value of the property for the year unde .....

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. Additional Ground 3. That on the facts and in the circumstances of the case, the rental/license fee of ₹ 5 Lacs received by the appellant in respect of subject property, given on lease to Bharat Hotels Ltd., is liable to be assessed as business income, instead of income from house property assessed by the lower authorities. 3. The Revenue has raised the following grounds of appeal in ITA No.443(Asr)/2015, for the assessment year 2006-07, which are identical in all other appeals: 1. That .....

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ted by the Assessing Officer to determine the fair mental value of the property and allowed relief to the assessee. 3. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in adopting his own method to work out the ALV of the property without appreciating the correct method adopted by the Assessing Officer to determine the ALV. 4. The appellant craves to amend, alter or add any ground of the appeal before the appeal is heard. 4. As per application filed by the assessee for a .....

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e also and it is, therefore, that the additional ground, being entirely a legal ground, is admissible. 5. The above position is patent on record. In Chennai Properties And Investment Limited (supra), the Hon ble Supreme Court has held where in terms of memorandum of association of a company, the main object of such company is to acquire properties and earn income by letting out the same, such income is taxable as business income and not as income from house property . In the case of the assessee .....

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with the main object of, inter-alia, acquiring and leasing properties in the State of Jammu & Kashmir and for further letting out the same. In pursuance of this main object, the assessee took on lease land measuring 222 kanals and 19 marlas under and adjoining Gulab Bhawan Palace for a period of 40 years, vide lease deed, dated 21.03.1973 at an annual rent of ₹ 22,897/- from Shri Vikramaditya Singh. This lease was renewed for a period of 99 years vide lease deed, dated 22.11.1997. The .....

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see filed its return of income, on 20.10.2006 declaring income of ₹ 28,76,910/- including license fee of ₹ 5 lacs. received from BHL, under the head of business income. This was accepted under section 143(1) of the I.T.Act, 1961 and the return of income was not selected for scrutiny u/s 143(3). However, a notice under section 148 of the Act was issued on 21.03.2013 for the reason escapement of income. The assessee, vide letter dated 25.03.2013, in response to the said notice, the ass .....

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is order, addition of ₹ 5,70,94,694/- was made on account of alleged notional annual letting value of the property in question under sections 22, 23(1) and 24(a) of the Act. By virtue of order, dated 29.05.2015, the ld. CIT(A) confirmed the initiation of assessment proceedings under section 147 of the Act. On merits, the action of the AO in computing total notional annual letting values under section 23(1) of the Act was upheld by the ld. CIT(A). However, the method of determination of ALV .....

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he main object of such company is to acquire properties and to earn income by letting out the same, such income is taxable as business income and not as income from house property. The assessee covers that this ratio handed down by the Hon ble Supreme Court, is directly and squarely applicable to the facts of the present case, since the assessee too was incorporated with the main object of, inter-alia, acquiring and leasing out the properties in the State of J & K, which main object was the .....

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, relyinge on the impugned order, the ld. DR has contended that Chennai Properties And Investments Limited (supra), is not at all applicable to the facts of the present case and, therefore, the same has wrongly been sought to be relied on by the assessee. In that case, as per the ld. DR, the assessee had also made claim under one head of income and the AO had applied another. The ld. DR contends that this is not so in the present case. 8. We have heard the rival cntentions on this issue and have .....

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the assessment completed u/s 143(3) of the Act vide order dated 08.12.2010 for the assessment year 2008-09. In the reassessment, the income was assessed as income from house property. 9. The decision in Chennai Properties And Investments Limited (supra), rendered on 09.04.2015, has prompted the assessee to seek to revert to its original stand of contending that the income revert to its original stand of contending that income is to be treated as business income and not as income from house prop .....

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ture of rental income. Therefore, the AO treated the income as income from house property. The ld. CIT(A) reversed the AO s action and directed the income to be treated as business income. The ITAT dismissed the appeal filed by the Department. The Hon ble High Court, reversed the Tribunal order, holding that the income derived by letting out the property would not be income from business, but, it could be assessed only as income from house property. The question before the Hon ble Supreme Court, .....

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erties and earning income by letting them out was the main object of the company. In the return filed, the entire income accrued was from letting out the property. The Hon ble High Court, while holding the income to be income from house property, had relied on East India Housing and Land Development Trust Limited vs. CIT , 42 ITR 49 (SC). While discussing East India Housing and Land Development Trust Limited , (supra), the Hon ble Supreme Court observed that that was a case where the company had .....

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eated as income from house property, the Hon ble Supreme Court rested its decision on the context of the main objective of the company and had taken note of the fact that letting out of the property was not the object of the company at all; and that the Hon ble Supreme Court was, therefore, of the opinion that the character of that income, which was from the house property, had not altered, because it was received by the company formed with the object of developing and setting up of properties. .....

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; that the business of the assessee was to lease out the coal fields to the collieries and other companies; that the income received from letting out of those mining leases was shown as business income; and that the Department took the position that it was to be treated as income from house property. Recapitulating Karanpura Development Co. Ltd. (supra), it was observed that before income, profits and gains can be brought to computation, they have to be assigned to one or the other head of incom .....

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position may be correct, but not so, where the letting out is part of a trading operation; that the dividing line is difficult to find, but in the case of a company with its professed objects and the manner of its activities and the nature of its dealings with the property, it is possible to say on which side the operation falls and to what head the income is to be assigned; and that in Karanpura Development Co. Ltd. (supra), applying these principles to the facts of the case it had been conclu .....

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ining Gulab Bhawan Palace was taken on lease vide perpetual lease deed dated 22.11.1997. It was further let out for a period of 99 years. The assessee retained the right to use, upgrade, renovate and reconstruct Gulab Bhawan Palace and other adjoining structures for the purposes of commissioning. The 5-Star Hotel, had an annual licence fee/rent of ₹ 5 lacs. The assessee offered the said receipt as business income. 12. The argument might be raised that since the assessee had itself earlier .....

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66 ITR 647 (All.) iii) Smt. Snehlata Jain Vs. CIT , 192 CTR 50 (J&K) iv) S.R. Koshti vs. CIT , 276 ITR 16 (Guj.) v) DCIT vs. Sanmukhdas Wadhwani , 85 ITD 734 (Nag.) vi) Jyotsana Holding (P) ltd. vs. ITO , 37 ITD 430 (Del.) vii) Indo Java & Co. vs. IAC , 30 ITD 161 (Delhi SB) viii) ITO vs. GE Hawn , 21 ITD 553 (All.) ix) HCL Technologies , 278 CTR 9Del.) 345 13. Now, as to whether the position originally taken by the assessee is wrong or right stands well answered by our fore-going discu .....

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to be treated as business income of the assessee or income from house property. Chennai Properties And Investment Limited (supra), is directly and squarely applicable on this point. It holds that since the main object of the assessee was to acquire and let out properties, from which letting out, income was earned, such income is to be treated as business income. The ratio laid down by the Hon ble Apex Court is that the nature of the activity of the assessee and the nature of the operation in re .....

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