TMI Blog2021 (12) TMI 1213X X X X Extracts X X X X X X X X Extracts X X X X ..... s and marketing offices. With the closure of these divisions, there is no chance of revival of business of the assessee as Tyre manufacturer. These observations are very centric or influenced the conclusion. We are, prima facie, of the view that there is no objective consideration of the modus operandi or working of the scheme, the statutory obligation under which the assessee had come by filing an application before BIFR. The subtle difference between a voluntary arrangement between parties and arrangement approved as part of a statutory consideration for revival is not noticed by the AO, while concluding that the lease rental income shall be computed under the head income from other sources. The Appellate Authority has confirmed the order of AO and the dismissal of first appeal resulted in filing of appeal before the Tribunal. Tribunal in the impugned order first appreciated the scheme approved by BIFR, agreement between parties for irrevocable lease for 8 years of assessee's plant, machinery, land etc. and held that inspite of the agreement with ATL the assessee continues to exist as a corporate entity. The additional investment of 110 crores by ATL for eight years is to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - ITA Nos.757/2009, 483/2009, 758/2009, 860/2009, 903/2009, 929/2009, 1046/2009, 1482/2009 - - - Dated:- 19-7-2021 - Honourable Mr.Justice S.V.Bhatti And Honourable Mr. Justice Bechu Kurian Thomas For the Appellant : Advs. Sri. P.K.R.Menon,Sr.Counsel, GOI(Taxes), Sri. Jose Joseph, SC, For Income Tax For the Respondent : Advs. Sri.K.P.Abdul Azees, Sri.V.Abraham Markos, Sri.Binu Mathew, Sri.Joseph Markose Sr., Sri.B.J.John Prakash, Sri.Mathews K.Uthuppachan, Sri.Terry V.James And Sri.Tom Thomas Kakkuzhiyil JUDGMENT [ITA Nos.757/2009, 483/2009, 758/2009, 860/2009, 903/2009, 929/2009, 1046/2009, 1482/2009] S.V.BHATTI, J. Heard learned Standing Counsel Mr.Jose Joseph for the appellant and learned Senior Counsel Mr.Joseph Markose for the respondent. 2. Revenue is the appellant in the instant batch of Tax Appeals. M/s Premier Tyres Ltd. Cochin/Assessee is the respondent. The Tax Appeals arise from the orders of the Income Tax Appellate Tribunal (Cochin Bench) from independent orders made in Tax Appeals preferred by the assessee. The details of the appeals, the assessment years etc. are stated thus: Sl.No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he disposal of the other appeals since the questions of law formulated by the appellant are same in the other appeals as well. A few admitted circumstances occasioning prior to the previous year for the assessment year 1996-1997 are adverted to, before considering the controversy between the revenue and the assessee on the re-opening of the assessment and upon such re-opening, treating the lease rental received by the assessee from ATL as income from other sources instead of income from business. 4. The assessee is a company engaged in the manufacture and sale of tyres. The assessee since had business loss in excess to the paid up capital, moved an application under Sec.15 of the Sick Industries (Special Provisions) Act 1985 (for short 'Act 1985') before the Board for Industrial and Financial Reconstruction (BIFR) for framing scheme under Act 1985. The application moved by the assessee was registered as Case No.023/91 (39/87). For disposal of appeals it is sufficient to note that the BIFR through its order dated 17.4.1995 has approved a scheme for the rehabilitation and revival of the assessee company and thus enabling the assessee to come back into the business which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ders made by them and do not propose to state these circumstances in detail. The revenue categorized the receipt of lease rental as income from other sources, because the assessee was not actually manufacturing the tyres and selling the manufactured tyres in the market, but lent the existing facilities to ATL and merely received lease rental amount from ATL. Per contra, the assessee claims the arrangement as exploitation of commercial asset for earning profits under a scheme approved by BIFR, a statutory scheme, therefore in isolation the activity authorised by BIFR is not understood for deciding whether the lease rental received is business income of the assessee or income from other sources. 6. The AO through re-assessment order in Annexure-A dated 28.3.2002 treated the receipt from ATL as income from other sources, finally added the said income to the gross income of the assessee and refused the allowances/expenditure claimed by the assessee. The AO demanded ₹ 2,99,20,093/- together with interest from the assessee. The assessee aggrieved by order dated 28.3.2002 filed appeal before CIT (Appeals) and through the order in Annexure-B dated 28.8.2003 the appeal filed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r sources. 8. The counsel made submissions principally on substantial question Nos.3 to 5 and a decision on these questions would render consideration of other questions either unnecessary or academic. Hence we first consider question Nos.3 to 5. 9. Learned Standing Counsel Mr.Jose Joseph contends that the Tribunal fell in serious error of law and fact, by ignoring a few antecedent circumstances and/or contemporaneous circumstances applicable to the assessment years in question while treating the lease rental receipt as income from business. To wit the assessee moved application in 1987 and by the time the assessee moved BIFR under Act 1985, the assessee either was unable to do business or net worth had diminished substantially. The arrangement made by BIFR through its order dated 17.4.1995 sanctioning rehabilitation scheme for the assessee company substantially substitutes or replaces the assessee from driver's seat of business and ATL is kept in charge of the affairs of the assesse's manufacturing process facilities at Kalamassery. The agreement between the assessee and ATL is for a definite period of 8 years, and an intention of coming back to business after th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l measures proposed, deferred payment of dues etc. and conditions incorporated in the scheme. It is, with considerable force, argued by him that the subject eight assessment years are regulated by the arrangement sanctioned by BIFR and the assessee to survive the storms must conduct its affairs as per the scheme. The sanctioned rehabilitation scheme acknowledges the arrangement, the assessee had with ATL viz. ATL shall lift the entire production of M/s PTL and will sell the products under their brand name i.e. ATL. It may be that under the scheme manufacturing expenses are completely reimbursed by ATL but the labour of PTL, plant and machinery of PTL are utilised for exploiting capital assets of the assessee for deriving the receipt in dispute i.e. lease rental. The Tribunal applied the parametres laid down by the Apex Court in Universal Plast Ltd. No exception to the findings of fact recorded by the Tribunal could be pointed out by the revenue. He explains, by inviting our attention to the scheme approved by BIFR, that the scheme envisages the assessee remaining in business, attains positive net worth within the period granted by the approved scheme and survives the impact of loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and absence of a clause in the lease agreement about the revival of business of assessee. This consideration throughout weighed with AO for reaching the final conclusion. The fallacy in this behalf is further evident that the AO, inspite of noticing that all the terms and conditions are governed by the scheme sanctioned by the BIFR, declines to give effect to the working of scheme by observing that the scheme is not clear on what would happen after the expiry or completion of lease period. 11.1. The next reason stated by AO is that under the scheme, the assessee has reduced its overhead expenditure by closing down the head office, sales and marketing offices. With the closure of these divisions, there is no chance of revival of business of the assessee as Tyre manufacturer. These observations are very centric or influenced the conclusion. We are, prima facie, of the view that there is no objective consideration of the modus operandi or working of the scheme, the statutory obligation under which the assessee had come by filing an application before BIFR. The subtle difference between a voluntary arrangement between parties and arrangement approved as part of a statutory consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income from business. But if the commercial asset has ceased to be a commercial asset in the hands of the assessee and thereafter he gets what he can out of it by letting it out to be used by others, then the rent he receives is not income from any business that he carries on . iii) That no general principle can be laid down which is applicable to all cases and each case has to be decided on its own circumstances . (iv) In Sutherland v Commissioners of Inland Revenue, it is held that a commercial asset susceptible of being put to a variety of different uses in which gain might be acquired and whichever of these uses it was put to by the appellant, the profit earned was a user of the asset of the same business. A mere substituted use of the commercial asset does not change or alter the nature of that asset. Whatever the commercial asset produces is income of the business of which it is an asset, the process by which the asset makes the income being immaterial . 2) Vikram Cotton Mills Ltd. (i) The assets of the company were exploited and there was no intention of the assessee to discontinue the business activities. (ii) Whether a particular income received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereof, but not exploitation of business assets. 14. The other decisions relied on by the assessee, firstly, are specific to the controversy in fact in those cases and secondly, for what is noted supra the controversy is determined on case to case basis, hence we are not discussing other judgments relied on by the assessee. 15. Let us take up the admitted circumstances of the appeals on hand. In hindsight from the details available on record it is appreciated that the assessee in the Assessment year 1986-1987 due to mounting loses and liabilities had realized the inability to carry on the business of manufacturing tyres. The assessee presented a case for revival and rehabilitation of its business before BIFR. The feasibility of options given by the assessee were considered by BIFR and as recorded in the order dated 17.4.1995 of BIFR, the relief scheme was accepted for rehabilitation of the assessee. The workings and the modus operandi of the scheme are intrinsic to the revival of the company, therefore, an arrangement was made for utilization by the assessee of its business assets albeit with additional investment by ATL. The operation of scheme envisages ATL lifting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tated by the assessee merits inclusion as income from business or other sources. 16. We hasten to add that these controversies are determined not only on case to case basis, but also on year to year basis as well. In other words, the presumption of doing business, while implementing the scheme is unavailable automatically to the assessee and after completion of eight years or attaining positive net worth circumstances are verified for accepting the claim of assessee. The view taken by us in this judgment is confined to eight years i.e. the implementation of scheme and the subsequent assessment years are examined on the details of those cases. 17. The assessee, under approved scheme is obligated to exploit the business assets, earn income, adjust/get off accumulated losses/unadjusted depreciation, and turn as a positive company. Any other view in a situation as the present is unavailable and again counterproductive to an approved scheme under Act, 1985. Sequentially enquired, it transpires that the assessee was obligated to work under a statutory approved scheme; the lease of eight years is to ATL, which is into the same business and lease was for utilising the Plant, Mach ..... X X X X Extracts X X X X X X X X Extracts X X X X
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