TMI Blog2005 (7) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... referred the following question, which is marked as question No. 4 under section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), for the opinion of this court relating to the assessment years 1987-88 and 1988-89: "1. Whether, on the facts and in the circumstances of the case, the hon'ble Tribunal was correct in holding-that income from leasing of Balrampur lodge to SBI, was assessable as business income and not as income from house property? 2. Whether, on the facts and in the circumstances of the case, the hon'ble Income-tax Appellate Tribunal was correct in holding that expenses incurred on Nainital property be allowed as business expenses ignoring the fact that these expenses were not at all related to business activity? 3. Whether, on the facts and in the circumstances of the case, the hon'ble Tribunal was correct in holding that treatment of receipts from workshop, cold storage, motor garage, Raj oil pump and supervision charges of development division should be taxed under the head 'Income from business' and not under the head 'Income from other sources'? 4. Whether the Tribunal was justified in law in holding that the bank interest on fixed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... offered to tax under property. However, for the years under appeal, there is no property income, the assessee has filed eviction proceedings against the unauthorised occupants of the servant quarters. (iv) The assessee in conjunction with PICCUP had got the main building and the property surveyed by an expert and a report from him was received for the conversion of the property into a hotel. (v) During the process of conversion a proposal was received from the SBI for the main building and furniture with 30 beds accommodation for trainees along with other facilities for conducting a training centre. (vi) As the activity was akin to hotel business, the offer was accepted especially in view of the fact that the offer was for use of the premises throughout the year in contrast to the seasonal character of the tourist trade in Nainital. (vii) The trainees attending the training centre came from various parts of the country and their stay varied from 3 days to 10 days. (viii) A sarai licence was obtained from the D.M. for carrying on the above activity as Balrampur lodge and also a licence from the District Health Officer. Such licences have been issued from year-to-year up to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recent inspection report amply supports the above submissions. (xvii) In any case, the lease to SBI is not a lease of property simpliciter and its assessment under the head 'Property' for the earlier years appears to have been in error." Apart from the aforesaid submissions, a perusal of the assessment order for the assessment year 1987-88 shows that the assessee had also submitted that the assessee had to maintain a guest register, showing all details of guests like their names, address, date of arrival, period of stay, number of occupants, coming from, destination, room number, etc. The Tribunal on the aforesaid facts held as follows: "After hearing the rival submissions and after going through the material placed before us and also after on-the-spot inspection, we are of the view that it is a case of exploitation of an asset by a businessman for getting the maximum return on a commercial asset although temporarily let out to State Bank of India, with certain modification. At the time of inspection of the property, we noticed that there was a Nalla passing through the land, which separates the main building from the quarters. Some rooms were still being used for housing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uous losses incurred by the company in the past years seriously eroded the paid up capital of the company and in an effort to partly recoup these losses, a short-term lease agreement was entered into with SBI. The entire building came in the use of the SBI from May, 1984, only indicating the temporary nature of the arrangement. In view of these facts, we are of the view that leasing out the Nainital lodge to SBI was nothing except exploitation of a business asset and the same was assessable as income from business. The assessee's contentions in this regard are accepted by us for both the years under consideration, and the contentions relied to the contrary on behalf of the Department are found not tenable. This point is decided in favour of the assessee." With regard to question No. 3, the Tribunal has recorded the following findings: "The next controversy relates to the treatment of receipts from workshop, cold storage, motor garage, Raj oil pump and supervision charges of development division. It was argued before the first appellate authority that the income from commercial asset was treated as business income for earlier years, that the case law cited by the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... UPSEB to the assessee. The matter was referred to the arbitrators who in addition to the compensation already paid, granted under their award dated December 24,1973; further a sum of Rs. 43,82,000 with interest at 6 per cent, from the date of the award until the date of payment of the additional compensation awarded. The UPSEB disputed the award before the district judge and the High Court, who confirmed the award. Under the High Court's judgment, the assessee was entitled to a sum of Rs. 67,68,514 inclusive of interest at 6 per cent. The UPSEB approached the Supreme Court under special leave of appeal disputing, inter alia, the award of 6 per cent, interest by the arbitrators. The assessee approached the Supreme Court for interim relief and the Supreme Court by its order dated May 4, 1982, awarded 50 per cent, of the claim, against provision of bank guarantee. The payment received from the UPSEB was lodged in fixed deposit at 10 per cent, interest against which the bank issued a bank guarantee as required by the Supreme Court. The assessee transferred the interest at 6 per cent, earned from the fixed deposit to the suspense account in which a sum of Rs. 33,84,257 stood credited to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out to others does not result in an income which is the income of the business, but we cannot accept the view that an asset which was acquired and used for the purpose of the business ceased to be a commercial asset of that business as soon as it was temporarily put out of use or let out to another person for use in his business or trade. The yield of income by a commercial asset is the profit of the business irrespective of the manner in which that asset is exploited by the owner of the business. He is entitled to exploit it to his best advantage and he may do so either by using it himself personally or by letting it out to somebody else. Suppose, for instance, in a manufacturing concern the use of its plant and machinery can advantageously be made owing to paucity of raw materials only for six hours in a working day, and in order to get the best yield out of it, another person who has got the requisite raw materials is allowed to use it as a licensee on payment of certain consideration for three hours; can it be said in such a situation with any justification that the amount realised from the licensee is not a part of the business income of the licensor. In this case the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther real and personal property and to deal with the same commercially. The company took on lease a market place for initial term of 50 years, spent Rs. 5 lakhs for the purpose of remodelling and repairing and sublet to the various persons. The question was whether the income arising from subletting was business income. The apex court held as follows: "(i) that since the appellant-company was not the owner of the property or any part thereof, no question of making the assessment under section 9 arose; (ii) that the definition of 'business' in section 2(4) was of wide amplitude and it could embrace within itself dealing in real property as also the activity of taking a property on lease, setting up a market thereon and letting out shops and stalls in the market; (iii) that, on the facts, the taking of the property on lease and subletting portions thereof was part of the business and trading activity of the appellant and the income of the appellant fell under section 10 of the Act." In the present case, the Tribunal found that the property in dispute was 16 being used as a guest-house up to the assessment year 1984-85 and this Nainital lodge was used and accepted by the Depar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the case of Shambhu Investment P. Ltd. v. CIT reported in [2003] 263 ITR 143, a portion of the property was used by the assessee itself for its own business purpose; the rest of the property had been let out to various occupants with furniture and fixtures and air-conditioners for being used as table space. The assessee provided services like watch and ward staff, electricity and water and other common amenities. Service rendered to the various occupants according to such agreement was not separately charged and the monthly rent payable was inclusive of all charges to the assessee. The Calcutta High Court held that the agreement shows that the assessee had let out office to the occupants on monthly rent which was inclusive of all charges to the assessee and the entire cost of the property was let out to the occupants and the cost had been recovered as rent from the premises by the assessee, therefore, could not be said that the assessee was exploiting the property for its commercial business activity. In the case of CIT v. Purshottam Dass reported in [2001] 247 ITR 516 (Delhi), property constructed as a residential unit was let out to the Government Department was temporaril ..... X X X X Extracts X X X X X X X X Extracts X X X X
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