TMI Blog1994 (11) TMI 77X X X X Extracts X X X X X X X X Extracts X X X X ..... ses and reduce the indebtedness, the assessee thought of letting out the premises where the business was carried on, on sub-lease. The assessee entered into an agreement dated October 17, 1973, with the Vijaya Bank Ltd. for leasing out the said premises to the Vijaya Bank Ltd. for a period of 15 years on lease amount of Rs. 6,000 per month. The said agreement also contained a clause for renewal of the lease for a period of five years. The Vijaya Bank Ltd. (for short, "the said bank") had agreed to advance a loan of Rs. 5 lakhs to the partnership firm on interest at the rate of ten per cent. per annum and the lease rent payable by the said bank was to be adjusted against the interest payable by the partnership firm on the loan amount. Clause 11 of the said agreement which is relevant for the purpose of the controversy involved, reads as under : " 11. The licensees have as agreed advanced a loan to the licensors of a sum of Rs. 5,00,000 with ten per cent. as interest thereon, which amount is paid on the following terms: (a) The loan amount will be debited in the 'Messrs. Odhawji Lawji and Co.'s loan account in the licensees' books of account. (b) The loan and interest will be r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om business". The Income-tax Officer assessed such income as "income from other sources". The Appellate Assistant Commissioner treated it as business income. The Tribunal accepted the assessee's contention and directed the assessment of rental income as business income. Mr. Jetley, learned counsel for the Revenue, has submitted that the Tribunal's decision is erroneous in law. In his submission, sub-letting or giving of the said premises on licence basis was not the business of the assessee as the said partnership firm carried on business in aerated water and as such, the rental income received by the assessee during the previous year relevant to the assessment year was not "income from business". In support of his submission, Mr. Jetley has relied upon the judgment of this court in the case of Baijnath Brijmohan and Sons Pvt. Ltd. v. CIT [1986] 161 ITR 234. Mr. Trivedi, learned counsel for the assessee, has submitted that sub-letting of the said premises by the assessee to the said bank was an integral part of the said agreement under which the said bank had advanced a loan of Rs. 5 lakhs to the said partnership firm at the concessional rate of ten per cent. per annum and that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d partnership firm was not doing very well and the assessee had suffered substantial losses and in order to save the losses and reduce the indebtedness, the assessee thought of letting out the said premises on sub-lease and entered into the said agreement dated October 17, 1973, with the said bank for leasing out the said premises for a period of 15 years on a lease rent of Rs. 6,000 per month with an option to renew the same for a period of five years. The Appellate Assistant Commissioner had held that as the assessee temporarily let out the business premises to the said bank and decided to carry on its business activities from other places near by and since the said bank had provided substantial amount of loan at favourable interest and agreed to pay lease rent of Rs, 6,000 per month, the arrangement was beneficial to the assessee's business and the income realised by the said partnership firm by letting out the said premises temporarily was to be considered as income from business. The Department in appeal contended before the Tribunal that the assessee was a tenant in respect of the said premises and that the tenancy right was not part of the business assets of the said partner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es was not business income. We find considerable support for the view which we are taking from the judgment of a Division Bench of this court in Parekh Traders v. CIT [1984] 150 ITR 310, 311: ". . . . In that case, the assessee-firm which carried on business in the manufacture and sale of manure mixtures in the City of Poona constructed a godown outside the limits of the Poona Municipality. From July, 1968, till the middle of November, 1968, it used the godown for storing its raw materials, etc. Thereafter, the godown was let out up to January, 1971. In the assessment year 1970-71, the assessee had in its return disclosed a sum of Rs. 80,092 as 'income from house property' against the godown rent of Rs. 1,08,300. The Income-tax Officer held that the rent received from the letting out of the godown had to be assessed as 'income from other sources'. The Appellate Assistant Commissioner held that the rent had to be assessed as income from house property and that the annual value of the godown was Rs. 1,08,300. The Tribunal held that the income derived by the assessee by letting out the godown was to be assessed under the head 'Income from house property'." It has been pointed out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Trivedi have no applicability to the facts of the instant case. In the case of Northern India Theatres Pvt. Ltd. [1981] 128 ITR 497 (Delhi), the assessee, a private company incorporated to carry on the business of cinema and allied businesses, constructed a cinema house on a plot taken on sub-lease. Subsequently, one Hari Singh had given an interest-free loan to the assessee therein to meet the cost of construction of the cinema house which amount was to be refunded in monthly instalments. A lease agreement was entered into with the said Hari Singh under which the premises together with the equipment were let out to him at a monthly rent for a period of ten years. Licence to run the cinema was granted to the assessee and it continued in the name of the assessee. It was a case of exploitation of commercial asset by the assessee in a commercial manner. Even in the case of B. Nagi Reddy [1984] 147 ITR 337 (Mad), the assessee, who was the owner of two cinematograph studios, leased them on rent and the rental income was included for assessment in the assessee's total income. The assessee had been utilising these studios in making films of his own. The facts in that case were considered ..... X X X X Extracts X X X X X X X X Extracts X X X X
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