TMI Blog2018 (7) TMI 360X X X X Extracts X X X X X X X X Extracts X X X X ..... ed incomes, dates of assessment, assessed incomes etc. is tabulated below:- A. Y. ROI filed on Returned Income Assessment dt. Assessed Income 2009-10 21/09/2009 ₹ 49, 79, 860/- 18/11/2011 ₹ 1. 03 crores 2011-12 23/09/2011 ₹ 50, 04, 030/- 07/01/2014 ₹ 1. 25 crores 2012-13 24/09/2012 ₹ 73, 44, 401/- 29/01/2015 ₹ 1. 31 crores 2013-14 (Revised ROI 30/09/2013) Revised ROI. ₹ 80, 07, 200/- 16/03/2016 ₹ 1. 41 crores ITA. /5534/Mum/2016, AY. 2009-10 2. First effective Ground of appeal about treating License Fee of ₹ 1, 45, 67, 300/- as income from business as against income from house property. During the assessment proceedings, the AO observed that the returned income comprised of income fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that lease rent was to be assessed as business income. 5. We have heard the rival submissions and perused the material before us. We have compared the memorandum of articles of both the companies and the facts of the case. We find that the AO has failed to point out the differences between both the matters. The Tribunal on similar facts, in the case of Bhuvan, has taken an informed decision. We are reproducing the order of M/s Bhuvan Leasing Infrastructure Pvt. Ltd. (ITA/21/Mum/2012 AY. 2006-07, dtd. 30/06/ 2015)and it reads as under: The assessee is in appeal for Assessment Year 2006-07 (ITA No. 21/Mum/2012) aggrieved by the impugned order dated 09/11/2011 of the ld. First Appellate Authority, Mumbai, whereas, the Revenue is in appeal for appeal for AY 2007-08 (ITA No. 6423/Mum/2012). 2. First, we shall take up appeal of the assessee (AY. 2006-07), wherein, first ground pertains to confirming the assessment order in treating the licence fee as income from other sources instead of business income , without appreciating the fact. At the outset, the ld. counsel for the assessee, Shri Rakesh Joshi, claimed that the impugned issue is covered in favour of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to constitute carrying on of business. Another point noted by the Tribunal in assessee s case was that the Director s report dated 26. 08. 2003 quoted that the licence agreement with American Express Bank came to an end on 31. 03. 2003 after which a new licence agreement had been entered into by the assessee with the British Deputy High Commission, Mumbai. As per the Tribunal this was an act of subletting by the assessee and even the list of fixtures and fittings provided to the licensee in the premises do not find place in the leave and licence agreement and even otherwise provisions of such items would not make the income in question as business income. 6. The Hon'ble High Court (supra), on an appeal filed by the assessee, noted that assessee had returned the income from assessment year 1993-94 to 2000-01 treating rental/incensing income as assessable under the head profits and gains of business , which in turn was accepted by the Revenue. It is also noted by the Hon'ble High Court that assessment for assessment years 1993-94 to 2001-02 were completed under section 143(3) of the Act and the income was assessed in the hands of the assessee as income from business. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. We have heard the rival contentions and perused 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 in continuation of its object as per the Memorandum of Association, is to be assessed as business income in its hands. Whereas the case of the Revenue is that assessee was engaged in subletting of the property, which in turn it had obtained on lease and hence the income arising there from is assessable in the hands of the assessee as income from other sources, since the assessee was not the owner of the property. The assessee had entered into lease agreement with American Express Bank in the earlier year and admittedly the rental income declared by the assessee was assessed as business income in the hands of the assessee after allowing the relate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on by the assessee in line with its objects is business activity undertaken by the assessee. The income arising from such exploitation of the assets which had been taken by the assessee on lease and had been further sublet by it is a systematic and organized activity of carrying on its business. Undoubtedly, assessee was not the owner of the premises but was only a lessee of the premises, which in turn had been sublet by the assessee with the intention 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 it was shown as income from business, it was held that where main object of the assessee company as per its Memorandum of Association was to acquire properties and to let out those properties as well as make advances upon the security of lan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 taken note of. The position in law, ultimately, is summed up in the following words: - As has been already pointed out in connection with the other two cases where there is a letting out of premises and collection of rents the assessment on property basis may be correct but not so, where the letting or sub-letting is part of a trading operation. The diving 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal, which was restored back to the file of the Tribunal by the Hon'ble High Court is allowed. 15. The issue in ground of appeal No. 1 raised by the assessee in ITA No. 3033/Mum/2010 is identical to the issue in ground No. 1 before the Tribunal in ITA No. 4977/Mum/2006 and our decision in ITA No. 4977/Mum/2006 is applicable mutatis mutandis to ground of appeal No. 1 in ITA 3033/Mum/2010, hence the said ground is allowed. 2. 2. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel and the conclusion drawn in the order of the Tribunal, if kept in juxtaposition and analyzed, we find that vide para-4 onwards of the order, the Tribunal has deliberated upon leave licence income, received by the assessee, is whether to be assessed as profit gains of business or from other sources. While coming to a particular conclusion, the Tribunal has discussed the director s report dated 26/08/2003 with respect to licence fee with American Express Bank, which came to an end on 31/03/2003 after which a new licence agreement w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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