TMI Blog2023 (12) TMI 814X X X X Extracts X X X X X X X X Extracts X X X X ..... or sub-licensing, is business income but the assessing officer has not accepted it and taxed the receipts as income from house property. CIT (Appeal) allowed the appeal of the assessee and held the income to be income from business. The ITAT, after referring to section 27 (iiib) of the Income Tax Act defining the term deemed owner and Section 269UA(f) of the Act defining the word transfer ; held that the income derived by the assessee is Income from House Property. While coming to the aforesaid conclusion, the ITAT has committed a manifest error of law to ignore the object and business activity of the appellant assessee company, and misunderstood the nature of transaction of sub-license.. Thus, as per Memorandum of Association the object of the assessee company ancillary to the main object is to acquire on licence premises suitable for housing, accommodating shops, boutiques, stores, offices, showrooms for the purpose of making available on the basis of lease or licence and sub-lisence. The Assessing Officer himself recorded a specific finding in the Assessment Order that during the previous year relevant to the assessment year in question the assessee was engaged in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as income liable to be assessed under Section 22 of the Act or the said income being composite income arising from part exploitation of shops and establishment which are sub-leased as commercial assets and the services which are rendered to the shopkeepers can be treated as income arising from business falling under Section 28 of the Act? II. Whether on the facts and in the circumstances of the case, the licence agreement dated 25th April 1972 could be construed so as to constitute transfer within the meaning of Section 269UA(f) and the assessee could be treated as deemed owner under Section 27(iiib) of the Income Tax Act? Facts: 3. Briefly stated facts of the present case are that the assessee is a Private Limited Company incorporated on 14.03.1972. It is a subsidiary of M/s East India Hotels Limited, now renamed as EIH Limited (hereinafter referred to in short EIH) The assessee-company entered into a leave and lisence agreement with EIH dated 25.04.1972 for 5665 sft. of Office space for a period of 50 years in Oberoi Sheraton Hotel at Bombay, on certain terms and conditions as mentioned in the said agreement. As per the said agreement, the assessee company is to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xchange, hire or otherwise lands and property of any nature or premises in any part of India and to license or sub-license or lease or sub-lease or let, such lands or property or premises or any part thereof. Thus, the main business of the assessee is the business of letting out / licensing property. He submits that under the agreement in question, the assessee obtained a leave and license of 5,665 square feet office space for a period of 50 years in Oberoi Sheraton Hotel at Bombay. This office space was sub-licensed / sub-let to some persons along with various facilities and a composite sum was charged as consideration. The income derived from the aforesaid business was always disclosed by the assessee in its income tax returns as income from business, since 1972. The Income Tax Department always accepted the aforesaid income as business income. It is only in the assessment year 2005-06 that the assessing officer assessed the income from sub-licensing/ sub-letting as income from house property and not as income from business. The assessee filed an appeal before the CIT (Appeal) which was allowed by the CIT (Appeal) vide order dated 07.01.2008. Aggrieved, the Income Tax Departme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r has incorrectly, baselessly and against settled law treated as income from house property. 6. Learned counsel for the respondents submits that there is no res judicata in revenue matters and therefore, even if in one assessment year, the assessing officer has assessed the income in question as income from house property, rejecting the claim of the assessee by treating it as income from business; but that cannot be disturbed by this Court and the order of the Income Tax Appellate Tribunal deserves to be upheld. Referring to the assessment order learned counsel for the respondent submits that the assessee is a deemed owner of the property in question under Section 27(iiib) of the Income Tax Act, 1961 and the transaction in question and leave and licence is transfer within the meaning of Section 269UA(f)(i) of the Act. Therefore, the income is question is correctly assessed assessing officer and upheld by the tribunal treating it as income from house property. Discussion and finding: 7. We have carefully considered the submissions of learned counsels for the parties and perused the record of the appeal. 8. Undisputedly the appellant assessee obtained an area approx ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sqft. of space under a leave and licence-agreement dated 25.04.1972 from EIH Limited and has sub-licensed the space to several persons under a sub-licence agreement, along with certain services as aforementioned and for that received a composite amount as consideration on monthly basis. 11. The assessee claimed that the sum received by it for sub-licensing, is business income but the assessing officer has not accepted it and taxed the receipts as income from house property. The CIT (Appeal) allowed the appeal of the assessee and held the income to be income from business. The ITAT, after referring to section 27 (iiib) of the Income Tax Act defining the term deemed owner and Section 269UA(f) of the Act defining the word transfer ; held that the income derived by the assessee is Income from House Property. 12. While coming to the aforesaid conclusion, the ITAT has committed a manifest error of law to ignore the object and business activity of the appellant assessee company, and misunderstood the nature of transaction of sub-license. 13. As per assessment order of the appellant assessee, the total income disclosed as per income tax return was Rs. 1,32,710/-. It was discl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other companies. Thus, in the said case, the leasing out of the coal fields to the collieries and other companies was the business of the assessee. The income which was received from letting out of those mining leases was shown as business income. Department took the position that it is to be treated as income from the house property. It would be thus, clear that in similar circumstances, identical issue arose before the court. This court first discussed the scheme of the Income-tax Act and particularly six heads under which income can be categorised/classified. It was pointed out that before income, profits or gains can be brought to computation, they have to be assigned to one or the other head. These heads are in a sense exclusive of one another and income which falls within one head cannot be assigned to, or taxed under another head. Thereafter, the court pointed out that the deciding factor is not the ownership of land or leases 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 prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It is for this reason, we have, at the beginning of this judgment, stated the circumstances of the present case from which we arrive at irresistible conclusion that in this case, letting of the properties is in fact is the business of the assessee. The assessee, therefore, rightly disclosed the income under the head Income from business . It cannot be treated as Income from the house property . We, accordingly, allow this appeal and set aside the judgment of the High Court and restore that of the Income-tax Appellate Tribunal. No orders as to costs. 17. In Royla Corporation Private Limited Versus Assistant Commissioner of Income Tax (2016) 386 ITR 500 (SC) Hon ble Supreme Court considered the question as to whether the income received by way of renting by the assessee engaged in business of renting its properties and receiving rent is business income or income from house property when the assessee company is engaged in business of renting of its properties. The Hon ble Supreme Court found that the business of the assessee was of renting its property and earning rent therefrom and therefore the income so earned should be treated as its business income. 18. Thus, as pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome from sub-letting/sub-licensing the space in question, has always been accepted by the respondent Income Tax Department as, income from business. Under the circumstances when the respondent Income Tax Department has always accepted the income of the appellant assessee from sub-licensing/sub-letting of the space in question, to be income from business, then the respondent cannot take a contrary stand in the present appeal. 20. For all the reasons aforestated the appeal is allowed. The substantial questions of law are answered in favour of the assessee and against the revenue. The impugned order dated 23.07.2010 in ITA No. 330 (KOL) of 2008: Assessment year 2005-06, passed by the Income Tax Appellate Tribunal C Bench Kolkata, is hereby set aside and the order of the CIT (A) 6 Kolkata dated 07.01.2008 is affirmed. Any amount already deposited by the assessee towards the demand in question, shall be refunded to the assessee forthwith by the concerned authority. 21. Urgent certified photocopy of this order, if applied for, be supplied to the parties upon compliance with all requisite formalities. (SURYA PRAKASH KESARWANI, J.) I agree (RAJARSHI BHARADWAJ, J) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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