TMI Blog1994 (2) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... cence was entered into under which the assessee granted leave and Licence to Kashi Nath Kanodia who represented the partnership of M/s. Goverdhandas Bishwanath to work Dhanbad Flour Mills. Under the agreement, the assessee granted Leave and Licence of the factory premises, machinery, plant and other equipments and accessories to the licensee on certain terms and conditions appearing in the agreement. Under clause (1) of the agreement, the Leave and Licence covered all the rights and benefits of quotas, licences, grants, privileges, agreements, contracts, orders, permits, etc., relating to the operation of the flour mill. The agreement was for a period of three years commencing from 1-8-1975 and expiring on 31-7-1978. There was a right of renewal of the agreement. In consideration of the Leave and Licence the licensee was to pay a sum of Rs. 1,50,000 per year which was described as "licence fee". The amount was payable in quarterly instalments. It was further provided that the licence fee was payable irrespective of whether the flour mill ran profitably or not. Clause (2) of the agreement provided for the duties of the licensee. Under sub-clause (vii), the licensee should permit the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee and all monies to be received under the policies shall be received by the assessee. If the licensee did not take out insurance policies, the assessee had the right to take out the insurance policies and the premia, in such event, it had to be reimbursed by the licensee. The said sub-clause further provided that if due to break-down for want of replacement of machinery etc. the operations in the flour mill remained suspended for over a month the licence fee for such period over one month shall not be payable by the licensee till the operations are restarted. 3. The aforesaid clauses are some of the important clauses of the Leave and Licence Agreement entered into between the assessee and the licensee. 4. In the assessments up to and including the assessment year 1979-80 the amount received by the assessee under the Leave and Licence Agreement was brought to tax as business income. From the assessment year 1980-81, the ITO took the view that the amount should be taxed under the head 'other sources' and not under the head 'business'. The appeals for the assessment years 1980-81 and 1981-82 are stated to be pending. 5. In line with the decision taken in the assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement in writing but the licence was being extended under oral arrangement with the licensee which itself indicated the temporary nature of the licence. He drew our attention to the fact that the agreement was not even "lease" but was only an agreement granting Leave and Licence to the licensee to work the flour mill. According to him, there were two reasons which forced the assessee to let out the flour mill under the licence agreement. One was the continuous losses incurred by the assessee from the assessment year 1974-75. The other was the continuous labour troubles faced by the assessee. According to him, sub-clauses (vii) and (ix) of clause (2) of the agreement established that the assessee retained control over the operations of the mill and that it had no intention of going out of business. In this connection he also relied on clauses 4(8) and 4(10) in support of his contention that the income should be assessed only under the head 'business'. He cited the judgment of the Supreme Court in CIT v. Vikram Cotton Mills Ltd. [1988] 169 ITR 597. 8. We have heard the rival submissions. We have perused the Leave and Licence Agreement and also the orders of the deptl. authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licensee. In fact it was the assessee who was entitled to receive the monies payable under the insurance policies. The assessee was free during the period of the Leave and Licence Agreement to engage itself in any business activity relating to flour, atta, etc. including the running of any other flour mill. The crucial stipulation in the agreement was that the licence fee was to be proportionately reduced if on account of break-down of machinery the mill does not function for more than a month. This stipulation, in our opinion, is more or less decisive, since it indicates that the licence fee was related to the actual working of the mill. Had it been the intention of the assessee to exploit the flour mill as an owner thereof, such a provision would not have been made and the licence fee would have been made payable in full irrespective of the fact whether the flour mill worked or not. The fact that the licence fee was made dependent upon the actual functioning of the mill subject to the initial period of one month itself indicates an intention on the part of the assessee to exploit the commercial asset, namely, the flour mill in the manner of a businessman. 9. We may refer brie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion that the income arose out of the exploitation of a commercial asset. A similar contention by the revenue before the Madras High Court in G.R. Narasimier Co. v. CIT [1969] 73 ITR 257 was negatived by his Lordship Justice Veeraswami speaking for the Court. It was contended that the fixed payment shows that the assessee had no interest in the outcome of the business. The Madras High Court held that the fixation of an invariable monthly or yearly payment does not negative the idea of carrying on a business. It was observed that there may be people who may take risk and make a profit or incur loss and there may be others who may not be willing to take risk but still willing to run a business by themselves or through other means and proceed cautiously and make a moderate profit and logically speaking, there can be no reason why the latter category of activity is anytheless a business carried on by such persons. The Court was inclined to think that if there is a commercial asset which can be exploited in many ways which in the process may be of a wasting character or subject to wear and tear then irrespective of the particular method or mode of working, the activity will be of a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be allowed as business expenditure as per the judgment of the Calcutta High Court in CIT v. Asiatic Oxygen Acetylene Co. Ltd. [1981] 132 ITR 506. This conclusion of the CIT(A) is assailed on behalf of the department before us. It is contended that the expenditure does not constitute business expenditure. It was stated by the learned counsel for the assessee that since the assessee was unable to get vacant possession of the flour mill from the licensee who refused to hand over the mill, the assessee negotiated for the sale of the flour mill in favour of the licensee and it was in this connection that the assets were valued. Apparently the sale consideration was to be fixed after taking into account the market value of the assets. We fail to see how the expenditure can be allowed as business expenditure. The expenditure was not in connection with carrying on of the business but it was in connection with the sale of the flour mill. The valuation itself was made only for fixing the sale proceeds of the flour mill as there were negotiations between the assessee and the licensee for the sale of the flour mill. Having regard to the statement of the learned counsel for the assessee befo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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