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2015 (6) TMI 1089 - ITAT MUMBAI

2015 (6) TMI 1089 - ITAT MUMBAI - TMI - Leave & License fees and Maintence & Amenities charges - “Income from other sources” or "profit and gains of business or profession” - Held that:- The assessee had taken premises on lease from M/s. Mahalaxmi Engineering Company Pvt. Ltd and had subleased same to M/s. Rediff.com India Ltd. and in addition to the leave and license fee, had received maintenance charges. The said maintenance charges were for providing additional services to the sub lessee, whi .....

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the building was leased out, as deduction against such business income. Accordingly, we direct the AO to assess the income in the hands of the assessee under the head income from business after allowing the claim of expenditure in respect of the expenses and depreciation on assets. - ITA Nos. 6251/Mum/2012, 6253/Mum/2012 - Dated:- 17-6-2015 - SHRI R. C. SHARMA, ACCOUNTANT MEMBER AND Ms. SUSHMA CHOWLA, JUDICIAL MEMBER Appellant by : Shri S.C. Tiwari Ms. Priyanka J. Maru Respondent by : Shri Neil .....

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appeal as per ITA No. 6251/Mum/2012:- i) Under the facts and circumstances of the case and in law, the learned Commissioner (Appeals) [for short Ld CIT(A) ] has erred in confirming the action of Learned Assessing Officer [for short Ld. AO ] in treating the legitimate business income in the form of Leave & License fees and Maintence & Amenities charges received as Income from other sources , instead of profit and gains of business or profession. 3. The assessee has further raised additio .....

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ant. 3. That the order of learned CIT( Appeals) being contrary to the facts of the case, evidence and material on record and law applicable thereto should be set aside, amended or modified in accordance with the grounds of appeal deduced above. 4. Each of the grounds of appeal enumerated above are independent of and without prejudice to one another. 5. That the appellant craves leave to reserve to himself the right to add to, alter or amend any of the aforesaid grounds of appeal at or before the .....

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mp; Amenities charges received as Income from other sources , instead of profit and gains of business or profession. ii) Under the facts and circumstance of the case and in law, the Learned CIT(A) has erred in enhancing assessment by disallowing Depreciation allowed by Ld. ASO of ₹ 3,43,935/- without affording real opportunity of being heard in the matter. 5. The assessee pointed out that the additional ground of appeal raised in Assessment Year 2006-07 were in relation to the allowance of .....

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ther sources. We take up appeal in ITA No. 6253/Mum/2012 for adjudicating the issue. 8. Briefly in the facts of the present case the assessee had taken the property on lease which in turn was sub-leased to M/s. Rediff.com India Ltd. The assessee received leave and license fee of ₹ 80,61,097/- and maintenance charges of ₹ 51,52,529/- which was declared as income from business. The assessee was show caused to explain as to why the said income should not be treated as income from other .....

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from other sources and the expenses claimed by the assessee were held to be not allowable under section 57(iii) of the Act. 9. The CIT(A) upheld the order of AO as there was no evidence that the assessee was in the business of letting out of premises on commercial basis. The CIT(A) disallowed, the claim of expenditure and also disallowed the depreciation claimed by the assessee. The assessee is in appeal against the aforesaid order of the CIT(A). 10. The Ld. A.R. for the assessee pointed out tha .....

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the assessee further pointed out that in all the years upto Assessment Year 2005-06, the said income was treated as business income. Further the Ld. AR for the assessee placed reliance on the ratio laid down by the Hon ble Supreme Court in Chennai Properties and Investment Ltd. Vs. CIT reported in 56 taxman.com 456 (SC). 11. The Ld. D.R. for the Revenue placed reliance on the orders of the authorities below. 12. We have heard the rival contentions and perused the record. The assessee in the yea .....

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ense fees of ₹ 80,61,097/-. After claiming expenditure for running its activity, the assessee had declared income of ₹ 62,41,920/- relating to Assessment Year 2008-09. 13. The issue arising before us is whether in the circumstances where the sole activity of the assessee was to take a property on lease and then sub-lease the same, on leave and license fees, the income arising there from is assessable under the head income from business or income from other sources. We find that simil .....

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rused the record. In the facts of the present case assessee, as per its object clause in the Memorandum of Association, was permitted to perform business of taking on lease and earning income from the same. It had taken premises on lease which in turn was sublet to M/s. American Express Bank. The issue arising before us is in relation to assessability of such lease income earned by the assessee. The claim of the assessee before the authorities below and even before us is that such income being i .....

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ier year and admittedly the rental income declared by the assessee was assessed as business income in the hands of the assessee after allowing the related business expenditure claimed. The said decision was accepted by the authorities below from assessment year 1993-94 onwards for which the assessment was completed under section 143(3) of the Act and copy of the assessment order is filed at pages 32-42 of the paper book. Similarly, for assessment year 2001-02 the assessment was completed under t .....

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also noted that there were no distinguishing features before the Tribunal to justify in giving a different treatment for the assessment year in question, whereas similar income was assessed as income from business in the hands of the assessee in the prior years. On verification of the records available we find that in assessment years 1993-94 and 2001-02 the income had been assessed under the head income from business. Though the Hon'ble High Court had restored the issue back to the file of .....

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ion. A perusal of the earlier order passed by the Tribunal in assessee s own case reflects that the Tribunal, vide para 4 of its order had acknowledged that under clause 53, 109, 129 and 131 of the object clause (other objects) of Memorandum of Association of the assessee, assessee was permitted to pursue the business of taking on lease and earning income from the same. Where it is the intention of the assessee to lease out various premises and then sublet the same on leave and licence basis to .....

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on of exploiting the same and the receipts arising there from are assessable in the hands of the assessee as income from business and the necessary related expenditure has to be allowed as deduction in the hands of the assessee. 12. The Hon'ble Supreme Court in the case of Chennai Properties and Investment Ltd. (supra) has appreciated the facts before it, wherein the assessee had acquired properties in the city of Madras and in turn let out those properties and the rental income received by .....

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e the entire income which had accrued and assessed in the hands of the assessee was from letting out of the said property and there was no other income arising to the assessee. The Hon'ble Supreme Court made reference to the ratio laid down by the Constitution Bench of the Apex Court in the case of Sultan Brothers (P) Ltd. vs. CIT [(1964) (5) SCR 807] and the ratio laid down in the case of Karanpura Development Co. Ltd. vs. CIT reported in 44 ITR 362 (SC) and observed as under: - 8. Before w .....

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ed its activities to acquiring coal mining leases over large areas, developing them as coal fields and then sub-leasing them to collieries and other companies. Thus, in the said case, the leasing out of the coal fields to the collieries and other companies was the business of the assessee. The income which was received from letting out of those mining C.A. No. 4494/2004 etc. 5 Page 6 leases was shown as business income. Department took the position that it is to be treated as income from the hou .....

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r taxed under, another head. Thereafter, the Court pointed out that the deciding factor is not the ownership of land or leases but the nature of the activity of the assessee and the nature of the operations in relation to them. It was highlighted and stressed that the objects of the company must also be kept in view to interpret the activities. In support of the aforesaid proposition, number of judgments of other jurisdictions, i.e. Privy Counsel, House of Lords in England and US Courts were tak .....

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gs with its property, it is possible to say on which side the operations fall and to what head the income is to be assigned. 13. The Apex court also noted the fact that in Sultan Brothers (P) Ltd. (supra) the Constitution Bench had clarified that merely an entry in the object clause showing a particular object would not be determinative factor to arrive at a conclusion whether the income has to be treated as income from business and such question would depend upon the circumstances of each case, .....

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on'ble Supreme Court in Chennai Properties & Investment Ltd. As pointed out by us herein above assessee, in furtherance of its object of Memorandum of Association, had leased out the premises, which in turn was subleased on leave and licence basis, thus the intention of the assessee was to exploit the asset leased by it, by way of letting out the same, then such letting out activity is in furtherance of assessee s intention to carry out the business in a systematic and organized manner. .....

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had come to an end and the assessee entered into a fresh agreement with British High Commission again establishes the case of the assessee, that it is involved in a systematic and organized activity of leasing out its premises, which in turn are not owned by the assessee. In the totality of the above facts and circumstances we hold that the lease rent received by the assessee is assessable as income from business in the hands of the assessee and the related expenditure has to be allowed in the .....

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