TMI Blog1996 (8) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellate Tribunal was right in law in holding that the sums of Rs. 4,59,396 and Rs. 2,862 representing interest provided in respect of moneys borrowed by the assessee and written back in the accounts of the assessee are chargeable to tax as income under section 41(1) of the Income-tax Act, 1961 ? " Tax Case No. 940 of 1985 : " Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the income derived by the assessee for providing air-conditioning services is not assessable under the head 'Business', but should be assessed as 'Income from other sources' ? " In so far as Tax Case No. 1824 of 1984 is concerned, the facts leading to question No. 1 are as under : The assessee is a private limited company publishing newspapers. From the year 1969, it discontinued that activity, but yet got the newspapers published through some other agency. Its own printing machinery and motor vehicles were given on hire and the income that it received by way of hire charges was shown in the earlier years as income from "Other sources" and the Department also accepted it. But for the year under consideration, i.e., 1976-77 assessment year, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any other manner whatsoever and that any other manner did not include settlement. The further contention was that the fiction enacted in section 41(1) applied only to remission or cessation of a trading liability. The Tribunal found it extremely difficult to accept these contentions. According to the Tribunal, there are two basic requirements for the application of section 41(1). One was there must be an allowance or deduction in the assessment for any year in respect of loss or expenditure or trading liability incurred by the assessee. The other was that subsequently during the previous year the assessee must have obtained whether in cash or in any other manner whatsoever any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation so that the remission or cessation so obtained on the value of the benefit accruing could be deemed as the income of the assessee. The Tribunal held that these two requirements were more than fully satisfied in this case. The amount of interest was allowed by the Department in the earlier years. When the settlement was reached between the assessee and the sharebrokers, as a conse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inessman and his customers. The Tribunal accepted the contention put forward by the Department that central heating/air-conditioning is an amenity in a modern building. Reliance was placed upon earlier decisions of this court in CIT v. Lakshmi Company [1982] 133 ITR 904 and CIT v. Admiralty Flats Motel [1982] 133 ITR 895 (Mad). The Tribunal has also pointed out that it was satisfied in the facts of the assessee's case that the allocation, which is not in dispute, between rent and the air-conditioning charges in respect of the amounts received from the tenants justify the rental part to be assessed as income from property and the service charges as income from other sources. According to the Tribunal as long as it is found that there is a severable contract as between rent and service charges in respect of these tenants, it is open to him to take that stand. Thus, ultimately, the Tribunal agreed with the view taken by the Income-tax Officer in assessing the income derived by providing air-conditioning to the tenants as income from other sources. In Tax Case No. 1824 of 1984, question No. 1 relates to assessing the hire charges received by the assessee by hiring the printing machin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me out of such business, that alone can be considered as business income. In the present case, inasmuch as the assessee discontinued its business of publishing the newspaper, it cannot claim the income earned by way of hiring the machinery and motor vehicles as income from business. Learned senior standing counsel further pointed out that the provision of law applicable on the facts arising in this case would be section 56(2)(ii) and the provisions contained in section 56(2)(iii) would not be applicable to the facts arising in this case, because the machinery was not hired along with the building. In order to support his contention, learned senior standing counsel relied upon the decision of the Supreme Court in New Savan Sugar and Gur Refining Co. Ltd. v. CIT [1969] 74 ITR 7 and another decision of this court in CIT v. Central Studios (P.) Ltd. [1973] 88 ITR 298 (Mad). We have heard both learned counsel appearing for the assessee as well as learned senior standing counsel appearing for the Department. The point for consideration is whether the income derived by the assessee in the assessment year under consideration by hiring the machinery and the motor vehicles can be assessed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actory, had built another factory in its own compound and given it on rent to its subsidiary. The Tribunal found that the assessee was exploiting the asset indirectly through its subsidiary. Hence the income derived by the assessee had to be assessed under the head "Income from property". The facts arising in the abovesaid decision would go to show that the assessee was doing its business and during the course of its business, another factory building was put up and that was exploited by letting it out. Therefore, this court held that the income from the property let out should be assessed under the head "business". But in the present case the assessee stopped its business of publishing newspaper from 1969 onwards. The assessee was not doing business while hiring the machinery and the motor vehicles. Therefore, this decision would not render any assistance to the assessee to contend that the income derived by hiring the machinery and motor vehicles should be assessed under the head "business income". In B. Nagi Reddy v. CIT [1993] 199 ITR 451 (Mad), the question that arose for consideration was whether the Appellate Tribunal was right in holding that the income derived by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... While answering this question, the Supreme Court held that on the terms of the lease deed, the intention of the appellant was to part with the entire machinery of the factory and the premises with the obvious purpose of earning rental income and not to treat the factory and the machinery as a commercial asset during the subsistence of the lease. The intention of the appellant was to go out of the business altogether so far as the factory and machinery were concerned with effect from June 1, 1945. The income from the lease could not be assessed under section 10, but was liable to be assessed under section 12. In CIT v. Central Studios (P.) Ltd. [1973] 88 ITR 298 (Mad), a question arose whether the rents received by the assessee-company from the studio building in the accounting year would come under the head "Income from property" or under the head "Business income". While answering this question, this court held that (1) each assessment year is a unit by itself and the decision rendered with reference to any particular year will not constitute res judicata or estoppel in relation to the assessment for the subsequent years, so as to bind either the assessee or the Revenue ; (2) t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome taxable under section 41(1) of the Act. In the course of the assessee's business as a dealer in shares, the assessee borrowed moneys from various share brokers. The interest provided in the accounts in respect of such borrowals was claimed as a deduction and was allowed as such in computing the income of the assessee in the earlier years. Subsequently, at the time of settlement of accounts with the sharebrokers, the amount due to them on account of interest was settled at a figure lower than the figure provided for in the accounts. As a result, the amounts thus given up were written back in the accounts as income, which amounted to Rs. 4,59,396 and Rs. 2,862. These sums were brought to tax under section 41(1) of the Act. According to the assessee for section 41(1) to apply the expenditure by way of interest incurred in the earlier years and allowed as deduction could be brought to tax only if it was recouped in cash or in any other manner whatsoever and that any other manner did not include settlement. It was further pointed out that the fiction enacted in section 41(1) would apply only to remission or cessation of a trading liability. It remains to be seen that there are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof'. It is the obtaining in 'cash or in any other manner whatsoever, any amount ... or some benefit in respect of such trading liability which is contemplated by the Legislature when it used the words 'has obtained'. Section 41(1) introduces a fiction by which where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee and subsequently during any previous year the assessee has obtained, whether in cash or in any other manner whatsoever any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by him or the value of benefit accruing to him shall be deemed to be profits and gains of the business or profession and, accordingly, chargeable to income-tax as income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not. The fiction is an in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing in the present case, in the settlement arrived at between the sharebrokers and the assessee, the assessee derived certain benefits, which were availed of in the earlier years. This benefit was adjusted in the books and the extra amount due to the sharebrokers payable by the assessee was written off in the books. This would satisfy the requirement that the cash may be actually received or it may be adjusted by way of an adjustment entry or a credit note or in any other form when the cash or equivalent of the cash can be said to have been received by the assessee. Therefore, it is not always necessary that the assessee should get benefit by way of cash for application of the provisions of section 41(1) of the Act. Since this is a trading liability, which was written off in the year under consideration, the application of the provisions of section 41(1) is perfectly justified. This was also the view expressed by this court and the Gujarat High Court in the decisions cited supra. Accordingly, we see that there is no infirmity in the order passed by the Tribunal in holding that the benefit received by the assessee by way of settlement and consequently through book entry and book a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charges for air-conditioning facility was received separately or from the rent for letting out the property, it is open to the assessee to claim that the income derived by supplying air-conditioning facility should be assessed under the head "Business income". In view of this factual position, learned counsel appearing for the assessee submitted that the charges received for supplying air-conditioning facility should be assessed under the head "Business". On the other hand, learned senior standing counsel appearing for the Department pointed out that letting out of the business premises is not the business of the assessee. Air-conditioning is one of the facilities provided to the tenants and, therefore, it cannot be said that the assessee was doing business while supplying air-conditioning facility to the tenants. Learned senior standing counsel further pointed out that in order to ascertain whether the charges received for air-conditioning facility is income from business, we have to see whether there is any element of supply and demand so as to consider that the charges received for supplying air-conditioning would come under the head "Business income". But, in the present case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndered by the assessee to its tenants were the result of its activities carried on continuously in an organised manner, with a set purpose and with a view to earn profits, these activities were business activities and the income arising therefrom was assessable under section 10". This decision was rendered because the business of the assessee was letting out the flats and, therefore, the amenities provided by the assessee while letting out the flats were also considered to be a part of the business done by the assessee. But, according to the facts arising in the present case, letting out of the premises is not the business of the assessee. In such a case the point for consideration is whether the service charges received for supplying central air-conditioning facility can be considered to be a business, de hors the letting out of the premises by the assessee. In CIT v. Admiralty Mats Motel [1982] 133 ITR 895, this court was answering the question whether the income derived by the assessee by letting out articles/furniture provided in Admiralty Flats Motel should be assessed under the head "Business". According to the facts arising in this case one G, who was the karta of a Hindu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s was in the nature of a business activity and not what an ordinary property owner would do. Consequently, the firm was entitled to registration. Sub-letting the property could not be considered to be a trade in its popular or commercial sense. The assessee's activity was not also like that of a property owner as the assessee was not the owner of the property. Mere sub-letting could not be taken to be a business and hence the income was assessable under the head "Other sources". In CIT v. Indian Metal and Metallurgical Corporation [1995] 215 ITR 424 (Mad), a question arose whether the Tribunal was correct in holding that the letting out of the building and provision of amenities are an inseparable part of the lease deed, According to the facts arising in this case, the assessee was the owner of a multi-storeyed building. A part of the building in the first, second and fourth floors had been let out with amenities. The amenities included electrical fittings, water closets, etc. The assessee maintained two lifts in the building. The assessee contended that the income from the letting out of a portion of the property with amenities should be assessed under the head "Other sources". ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he premises were let out to the tenants with several amenities. In the several decisions cited supra, it was held that when the premises are let out, the various amenities provided by the owner of the premises cannot be considered to be under a separate business venture. Several facilities made available to the tenants, according to those decisions, are considered to be amenities. There is no separate bill for payment of charges for supplying the air-conditioning facility, though it finds a place in the general rent receipt issued by the landlord. Under such circumstances, we are of the opinion that the supply of air-conditioning facility alone cannot be separated from other amenities provided by the landlord to the tenants and consider the same as a business venture done by the assessee. The assessee has not shown any other evidence to come to the conclusion that the assessee was doing business while supplying the air-conditioning facility to the tenants. According to the Department, in a multistoreyed building in modern days providing centrally air-conditioned or centrally heated facility is an amenity, because without such facility, it is not possible to reside or in occupation ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
