2011 (11) TMI 459 - HC - Income Tax

Licence fee for the premises and the furniture and fixtures - Income from other Source or House property - Revenue contended licence agreement to be lease deed and assessed income as rental income - Held That - The intention of the parties while entering into the agreement dt. 1.4.1994 was only to grant license to the respondent and it cannot be said to be a lease deed. Further, having regard to the nature of consideration to be paid by the licensee as per clause 3 of the agreement, it is clear that the said license fee for the premises and the furniture and fixtures is inseparable Mere fact that the assessee has shown the subsequent agreement, applicable from 31.3.1997 the income shown as income form, house property having regard to the terms and conditions of the said agreement dt. 1.4.1997 would not by itself enable the revenue to hold that the earlier income had been shown wrongly as income from other sources and it ought to have been shown as income from house property as conditions of the said agreement relating to the consideration to be paid, wherein fixed rent of Rs. 2,20,000/- per month has to be paid by the lessee to the lessor and the deed is termed as lease deed. Thus income assessable as other Source and not house property - Decided in favor of assessee.

Summary

Issues:
1. Dispute over the treatment of income under the licensing agreement as income from house property or income from other sources.
2. Validity of reopening assessments based on the change in income treatment from a previous assessment year.

Analysis:
1. The dispute in this case revolves around the treatment of income derived from a licensing agreement either as income from house property or income from other sources. The Assessing Officer reopened the assessment, contending that the income should be treated as income from house property, not as claimed by the assessee under income from other sources. The Commissioner of Income Tax (Appeals) allowed the appeal, stating that the income was rightly shown as income from other sources based on the terms of the agreement. The Tribunal upheld this decision, emphasizing that the income should be treated as income from other sources. The appellant argued that the agreement was akin to a lease deed, citing relevant clauses and legal precedents. However, the court analyzed the agreement clauses and concluded that it was a licensing agreement, not a lease deed. The court highlighted that the consideration for the premises and fixtures was inseparable, indicating income from other sources. The court referred to Sec. 56(2)(iii) of the Income Tax Act, supporting the treatment of income as from other sources. The court upheld the decision that the income was rightly shown as income from other sources, dismissing the appeals.

2. The second issue pertains to the validity of reopening assessments based on the treatment of income in a previous assessment year. The appellant argued that reopening assessments were justified due to the income treatment change from the earlier year. However, the respondent contended that the terms of the subsequent agreement differed significantly from the previous one, justifying the income treatment as income from other sources. The court carefully considered the arguments and examined the material on record. It concluded that the subsequent agreement's terms supported the income treatment as income from other sources. The court emphasized that the revenue could not hold the earlier income treatment as incorrect solely based on the subsequent agreement's terms. The court held that the appeals lacked merit, answering the substantial questions of law against the Revenue and in favor of the assessee. Consequently, the appeals were dismissed.