2019 (2) TMI 1610 - HC - Income Tax

Receipts for the lease - Long term lease of a property - Business Income OR House Property Income - HELD THAT - As decided in assessee's own 2017 (8) TMI 193 - BOMBAY HIGH COURT income from the same was assessed as a business income. The assessment for the year 1995-96 was completed under Section 143(3) of the Income Tax Act. So also, for the assessment year 2003-04 and assessment year 2005-06, the assessment was completed under Section 143(3). The claim of the assessee of the said income being a business income was accepted. The assessee is not receiving any rent amount but is receiving 1% of the total revenue earned by KHIL and does not get any fix amount as rent. These aspects are considered by the Tribunal.

Summary

Issues:
1. Classification of receipts for the lease of a hotel as business income or house property income.
2. Consideration of fair market value and arm's length transaction in determining the nature of income.

Analysis:
1. The main issue before the court was the classification of receipts from the lease of a hotel as either business income or house property income. The Revenue contended that the transaction should be taxed as house property income due to it involving a long-term lease of a property. However, the Income Tax Appellate Tribunal (ITAT) treated the receipts as business income. The Court noted that in previous assessments, the income from the hotel lease had been consistently assessed as business income. It was highlighted that the assessee did not receive a fixed rent amount but rather 1% of the total revenue earned by the lessee, which was a crucial factor considered by the Tribunal in determining the nature of the income.

2. The second issue raised was whether the ITAT was justified in treating the receipts for the lease of the hotel as business income despite the CIT (A) finding that the transaction was not at arm's length. The CIT (A) had suggested that the provisions of Section 23(1)(a) of the Income Tax Act should be applied to determine the fair market value. However, the Court, in line with its previous decision for the same assessee in earlier assessment years, dismissed the appeal stating that since Question No.2 was dependent on Question No.1, no substantial question of law arose. Therefore, the appeal was dismissed without any costs.

In conclusion, the High Court upheld the decision of the ITAT to treat the receipts from the lease of the hotel as business income based on the historical treatment of the income and the specific terms of the lease agreement. The Court found no merit in the Revenue's arguments and dismissed the appeal, reinforcing the consistent classification of the income as business income for the assessee.