TMI Blog2019 (10) TMI 1002X X X X Extracts X X X X X X X X Extracts X X X X ..... remises was only let out to GAIL pursuant to the agreement and was thus rightly assessed by the Assessing Officer under the heading 'income from house property and income from other sources'. In a similar set of fact, the Bombay High Court in case of Mangla Homes Pvt. Ltd. vs. Income Tax Officer [ 2008 (8) TMI 522 - BOMBAY HIGH COURT] following the decision of the Apex Court in case of East India Housing and Land Development Trust Ltd. v. CIT [ 1960 (11) TMI 7 - SUPREME COURT] held that income derived by the company from shops and stalls is income received from property and falls under the specific head described in Section 9 being income from property. AO after examining all the three agreements found that the assessee did not indulge in any kind of recurring, systematic and in organized manner, business activity and having only one employee rightly assessed the receipts under the heading 'income from house property and income from other sources'. In depth and the findings recorded by the authorities below, we are of the considered opinion that as the appellant-assessee did not carry out any systematic, recurring and in organised manner, any business act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to the deed, the object of the assessee firm is to venture into real estate business and allied activities such as leasing/ sub leasing, maintaining properties on maintenance contract etc. It was subsequent to formation of partnership firm, that assessee acquired leasehold rights over a commercial property measuring 6925 square feet at third floor of Block No. G10/ 8, Padam Deep Tower, Sanjay Place, Agra. The said rights were acquired by the assessee from one M/s Pee Cee Soap and Chemicals Pvt. Ltd. through a deed of assigning of lease executed on 17.11.2004. The money for acquiring the leasehold right by the assessee was arranged by taking loan of ₹ 1,31,04,107/- from Indian Overseas Bank and also loans of ₹ 16,94,107/- from M/s Meeraj Industries and ₹ 5,03,385 from M/s Accurate Ferro Casting. Thereafter, the assessee entered into an agreement with Gas Authority of India Ltd. (hereinafter called as 'GAIL') on 30.11.2004 to lease the said property to GAIL for a period of 10 years. Second agreement was executed by the assessee with GAIL on 14.12.2004 for furnishing of the leased area of 6925 square feet to ensure the furniture and fitting etc. and also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... site transaction and should not be read in isolation as done by the taxing authorities. He further submitted that GAIL being a Government organisation does not enter into tenancy agreement with private parties without protracted negotiations and usually does not conclude a transaction within a space of a week or 10 days, as in the present case the property was obtained by assessee on 17.11.2004 and was let out on 30.11.2004, which indicates the fact that the property was acquired in view of the ongoing discussions with GAIL to fulfill their office requirements. It was also contended that the entire receipts received under the three contracts with GAIL was claimed under the head 'business income' and depreciation thereon was claimed and the assessee for assessment year 2005-06 filed a return of loss of ₹ 20,13,100/- which was accepted by the Additional Commissioner of Income Tax on 28.12.2007, as such there was no occasion for the assessing authority to treat the entire receipts of the appellant-assessee from the three agreements executed with GAIL as income from house property and from other sources and not as business income for assessment year 2006-07. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this Court held as under:- 15. From the recital of the lease deed it is evident that only the building was leased out along with a lift, tubewell and electrical fittings. These cannot be treated as plant and machinery but would be treated as amenities, which are necessary for the use of any building. We find that the appellant had not placed any material on record to show that the building had peculiar amenities with which the building could be treated as a plant and not a building simplicitor. No material has been brought on record to indicate that the building had peculiar amenities, which could be commercially exploited such as facilities of sterilization of surgical instruments and bandages or an operation theatre. The Tribunal has given a categorical finding of fact that the building which was leased out by the appellant was nothing else but a building simplicitor and was not a building, which was equipped with specialized plant and machinery. This being a finding of fact, we are not inclined to interfere in such findings, especially when nothing has been brought on record to indicate that the said finding was perverse. 16. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the said agreement the parties have intended that such letting out would be an inseparable one. 8. Hence, we hold that the prime object of the assessee under the said agreement was to let out the portion of the said property to various occupants by giving them additional right of using the furniture and fixtures and other common facilities for which rent was being paid month by month in addition to the security free advance covering the entire cost of the said immovable property. In view of the facts and law discussed above we hold that the income derived from the said property is an income from property and should be assessed as such. 13. In case of Raj Dadarkar and Associates Vs. Assistant Commissioner of Income Tax, [2017] 81 Taxmann.com 193 (SC) , the Supreme Court held that object clause contained in partnership deed would not be conclusive factor in determining whether the assessee carried on business activity, and liable to be assessed under the head 'income from business. 14. Per contra, Sri Gaurav Mahajan, learned counsel appearing for the Department submitted that assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r sources'. 18. The contention of the assessee hinges around two facts, firstly that AO has already taken a view while making assessment for the assessment year 2005-06 that income is assessable under the head 'income from business' and therefore maintaining consistency the Assessing Officer should have not taken a different view for the subsequent assessment year, and the second ground of attack being that the assessee firm is in the business of real estate and allied activities and the three agreements executed were supplemental and incidental to each other and are part of one composite transaction and should not be read in isolation, further the property acquired by the assessee was for letting, as such the same being income from business and cannot be assessed under the heading 'income from house property or income from other sources'. 19. The first question raised by the appellant-assessee regarding the maintenance of consistency by the assessing authority, the Tribunal had recorded categorical finding in view of the judgment of the Apex Court in case of Bhart Sanchar Nigam Nigam Ltd. and another vs. Union of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al value of the decision is called in question. No one can dispute that in our judicial system it is open to a court of superior jurisdiction or strength before which a decision of a Bench of lower strength is cited as an authority, to overrule it. This overruling would not operate to upset the binding nature of the decision on the parties to an earlier lis in that lis, for whom the principle of res judicata would continue to operate. But in tax cases relating to a subsequent year involving the same issue as an earlier year, the court can differ from the view expressed if the case is distinguishable or per incuriam. The decision in State of U.P. v. Union of India related to the year 1988. Admittedly, the present dispute relates to a subsequent period. Here a coordinate Bench has referred the matter to a large Bench. This Bench being of superior strength, we can, if we so find, declare that that the earlier decision does not represent the law. None of the decisions cited by the State of U.P. are authorities for the proposition that we cannot, in the circumstances of this case, do so. This preliminary objection of the State of U.P. i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incipal of res-judicata does not apply in matter pertaining to tax for different assessment years, because res-judicata applies to debar courts from entertaining issues on the same cause of action, whereas cause of action for each assessment year is distinct. In the case in hand, the AO for assessment year 2005-06 had accepted claim of the assessee without examining relevant records, as well as without recording any finding on the issue in question. Thus, for subsequent year, the claim of assessee cannot be accepted without examining records and material, and AO after examining the records came to conclusion and took a view that receipts at the hand of assessee was to be assessed under income from house property and income from other sources and not business income. In Commissioner of Income Tax vs. British Paints India Ltd. , Supreme Court while interpreting Section 145 of the Act held that even if the assessee had adopted a regular system of accounting, it was the duty of the Assessing Officer to consider whether correct profits and gains would be deduced from the account so maintained. Relevant portion are extracted hereasunder:- Section 145 of the Income T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nging the order, it would not be at all appropriate to allow the position to be changed in subsequent year, unless there was a material change justifying the revenue to take different view. 23. In the present case, the AO found sufficient materials and changes in the year under consideration, as he after examining the relevant clauses of agreements formed an opinion that the property was taken on lease for giving it on rent to GAIL. Further, Section 2(13) defines business, which includes any trade, commerce or manufacture or adventure or concerned in the nature of trade, commerce or manufacture. In the present case no business activity was being carried out by the assessee as business is a continuous and systematic activity carried on with a view to earn profit. 24. Further, the records of the assessee revealed that only one person was employed, which cannot go on to establish the fact that any business activity was being carried out by the appellant, and the premises was only let out to GAIL pursuant to the agreement and was thus rightly assessed by the Assessing Officer under the heading 'income from house property and income from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tenance of them and by leasing and selling the same. The activity contemplated in the aforesaid object of the company, assuming it to be a business activity, would not by itself turn the lease in the present case into a business deal. That would follow from the decision of this Court in East India Housing and Land Development Trust Ltd. v. Commissioner of Income-tax where it was observed that the income derived by the company from shops and stalls is income received from property and falls under the specific head described in Section 9. The character of that income is not altered because it is received by a company formed with the object of developing and setting up markets. Now the cases on which learned counsel for the appellant specially relied were cases of the letting out of plant and machinery, in some instances along with the factory buildings in which they had been housed. In all of them, except one, which we will presently mention, the assessee had previously been operating the factory or mill as a business and had only temporarily let it out as it was not convenient for him at the time to carry on the business of running the mill or factory. In these ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 10 of the Act as the income of a business. 27. In case of Universal Plast Ltd. vs. Commissioner of Income Tax [1999] 237 ITR 454 (SC), the Apex Court considering the question of leasing out of asset of the business would be income from business or not, the Court held as under:- The question whether the amount earned by an assessee by leasing out the assets of the business would be income from business carried on by it, has been the subject-matter of consideration by this Court as well as by various High Courts and it would be useful to refer to the judgments of this Court bearing on the issue. In Commissioner of Excess Profits Tax v.. Shri Lakshmi Silk Mills Limited [1951] 20 ITR 451 (SC), the assessee-company was carrying on the business of manufacturing silk cloth and dyeing silk yarn. Due to lack of supply of silk yarn during the relevant period while keeping idle other plant and machinery, it let out dyeing plant for five months. The question which came up for consideration before this Court was whether the rent received from letting out the dyeing plant would fall under the head Income from business or Income from othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the transaction of lease was quite apart from the ordinary business activity of the company, so it was impossible to hold that the letting out of the plant and machinery etc. was at all a business operation when its normal business activity had come to a close. In CIT v. Calcutta National Bank Limited [1959] 37 ITR 171 (SC), the case arose under the Excess Profits Tax Act. The assessee was a banking company. It owned a six-storeyed building of which only a part was under its occupation and the rest was let out to tenants. The question was whether the rent received from the tenants of the building was the business income of the company. The majority opinion was that realisation of rental income of the assessee was in the course of its business being in prosecution of one of its objects in its memorandum and was liable to be included in its business profits and was assessable to excess profits tax. That conclusion was reached on the premise that the term `business' as defined in that Act was wider than the definition of that term under the Income Tax Act. The minority, however, took a contrary view. In Sultan Brothers Private Ltd. vs. CIT, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Act, 1922. One of the creditors filed a petition in the High Court for winding up. The Industrial Financial Corporation took possession of fixed assets under an English mortgage of those assets. The assessee company had gone into losses and had stopped its manufacturing activity. Under the scheme evolved by the High Court under the Companies Act, the business assets were let out for ten years with an option for renewal for another ten years. The management of the company was transferred to a Board of Trustees approved by the High Court. The question which fell for determination was whether the rental income was assessable in the relevant assessment years as business income? The findings of the Tribunal were that on account of financial crisis, the company found it advantageous to let out the machinery on hire for a temporary period and the company was able to liquidate its liability at the end of the lease period and regained possession of its assets; the company did not sell or otherwise dispose of its assets; there was nothing on record to show that the company was formed to let out plant and machinery on hire. The Tribunal came to the conclusion that the maintenance of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dings of the Tribunal that the leasing out of the factory was not a sequel to the assesee's decision to go out of the business in respect of the subject factory and that it was just a make-shift transient alternative means of commercial exploitation of the commercial assets, so income from such letting could not be treated as the fruits of ownership simplicitor of the asset. The High Court also referred to various clauses in the Agreement, particularly Clauses 1, 2, 4, 7, 19, 20, 21 and 22 and concluded that licensee exercising its vested right of option to purchase the licenced premises, the assessee stands completely out in the cold . The High Court recorded the following findings (page 11): Therefore, it can very well be presumed that at the time the licence agreement was entered into, the intention of the ultimate outright sell out was already there. The assessee was already committed to the licensee for such a sell-out at licensee's pleasure and there is no means of the assessee falling back from that commitment. Therefore, it can very reasonably be inferred that the assessee in the case decided to go out of business as far as this particular factory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State of Gujarat v. Raipur Manufacturing Company Ltd. [1967] 19 HTC 1 (SC) the Apex Court observed that in taxing statutes, the word business is used in sense of an occupation, or profession which occupies the time, attention and labour of a person, normally with the object of making profit. Whether or not a person carries on business in a particular commodity must depend upon the volume, frequency, continuity and regularity of transaction, or purchase and sale in class of goods and transaction must necessarily be entered into with a profit motive. The said decision was rendered in the context of sales tax law, and was relied upon and referred in the context of Income Tax law in judgment of Apex Court in case of Sole Trustee, Loka Shikshana Trust vs. Commissioner of Income Tax [1975] 101 ITR 234 . 31. As in case of hiring out of a property along with other articles, rights asserts etc. question which arises is whether the income derived is from house property, business or other sources. This was exclusively dealt by Bombay High Court in case of CIT vs. National Storage Pvt. Ltd. [1963] 48 ITR 577 (Bom.) . This case was confirmed in 1967, 66 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X
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