TMI Blog2005 (9) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... The judgment of the court was delivered by R.M. Lodha J.-This tax appeal at the instance of the Revenue under section 260A of the Income-tax Act, 1961 was admitted for deciding the following substantial question of law: "Whether the income of Rs. 7,80,000 received from V.M. Salgaokar and Bros. P. Ltd. in the hands of the assessee is income from house property under section 22 or income from business under section 28 of the Income-tax Act?" Mohiddin Hotels P. Ltd. (respondent No. 1) is a company incorporated under the Companies Act. Hereinafter, we shall refer the said company as "the assessee". For the assessment year 1990-91, the assessee filed a return on December 30, 1990, in response to the notice under section 139(1) and declared a loss of Rs. 4,70,464. The assessee constructed a hotel and for commissioning hotel business, by agreement dated February 1, 1987 appointed V.M. Salgaokar Brothers P. Ltd. (for short "the Salgaokars") as manager to manage and run the business of the hotel. As per the said agreement, an amount of Rs. 7,80,000 was to be paid every year by the Salgaokars for first 10 years as guarantee income to the assessee. The tenure of the agreement was 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll the assets of the business are let out, the period for which the assets are let out is a relevant factor to find out whether the intention of the assessee is to go out of business altogether or to come back and restart the same; (4) if only a few of the business assets are let out temporarily, while the assessee is carrying out his other business activities, then it is a case of exploiting the business assets otherwise than employing them for his own use for making profit for that business; but if the business never started or has started but ceased with no intention to be resumed, the assets also will cease to be business assets and the transaction will only be exploitation of property by an owner thereof, but not exploitation of business assets." While laying down the aforesaid general principles and summarizing the legal position, the Supreme Court considered its previous decisions, viz., (1) CEPT v. Shri Lakshmi Silk Mills Ltd. [1951] 20 ITR 451; (2) Narain Swadeshi Weaving Mills v. CEPT [1954] 26 ITR 765; (3) CIT v. Calcutta National Bank Ltd. [1959] 37 ITR 171; (4) Sultan Brothers P. Ltd. v. CIT [1964] 51 ITR 353; (5) New Savan Sugar and Gur Refining Co. Ltd. v. CIT [1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hotel in good condition, subject to the natural wear and tear; that the assessee shall pay property tax, house tax or any other taxes, levies and public charges; that the Salgaokars shall have the right to replace the fittings, fixtures and any installations in the hotel in the event of the same becoming unserviceable or unfit for use due to normal wear and tear; that the assessee does not have any employee, worker and /or staff as of the date and that the Salgaokars shall not be liable to take in service or employment the employees, workers and the staff employed by the assessee; that the Salgaokars shall not make any structural alterations or additions without prior permission from the assessee; that upon the expiry of the agreement or sooner determination, the Salgaokars shall surrender vacant possession of the said hotel and hand over the business to the assessee; that the Salgaokars shall be at liberty to replace any fixtures or fittings and items of machinery and other equipment affixed to and/or existing in the said building after intimation to the assessee; that the Salgaokars shall not be liable to render accounts to the assessee and that the agreement was not intended to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue, there would not have been covenant providing that on the expiry of the term of the agreement or sooner determination, the Salgaokars shall hand over the business along with the vacant possession of the hotel. This suggests and rather unambiguously that the Salgaokars were appointed by the assessee for running the hotel business. The agreement also clarifies and binds the Salgaokars that the agreement is not intended to transfer the hotel to the Salgaokars. It is true that the period for which the business assets are let out is always a relevant factor in finding out whether the intention of the assessee is to let out the business assets permanently and if the assessee had never started the business, an inference may be drawn that the assessee intended to exploit the property and not the business assets but the intention of the parties has to be gathered from the overall facts and not isolated circumstances. It is settled legal position that each case has to be decided on its own facts including the construction of the agreement under which the assets have been let out or handed over to a third party and no precise test can be applied to ascertain as to under which head the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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