2016 (3) TMI 409 - AT - Income Tax

Income from license fee arising from leave and license agreement - income from house property OR Income from other sources - Held that - The assessee company acquired the plot of land for a long period i.e. 95 years from the MIDC and the assessee company is the deemed owner of this plot by virtue of section 27(iiib) of the Act read with Section 269UA(f) of the Act. The assessee company is the owner of the factory building and it is also a deemed owner of the land and the licensee fee income received has to be assessed under the head income from house property and not under the head income from other sources . With respect to the lifts and electrical installations in the factory building given on leave and license along with the premises consisting of land and building , the lift and electrical installations are amenities , which are necessary for the use and enjoyment of the building and hence part of the building and cannot be separately assessed and charged to tax under the head Income from other sources rather the same is also chargeable to tax under the head Income from House Property . In our considered view, the CIT(A) has rightly held that income from license fee arising from leave and license agreement entered into by the assessee company with Omnitech Infosolutions Limited dated 10.12.2007 is chargeable to tax as income under the head income from house property and not under the head Income from other sources - Decided in favour of assessee

Issues Involved:
1. Classification of rental income: Whether the income from subletting/leasing of property should be assessed as 'rent income' under 'income from house property' or as 'income from other sources'.

Detailed Analysis:

Issue 1: Classification of Rental Income
Revenue's Argument:
The Revenue contended that the income from subletting/leasing of property to Omnitech Infosolutions Pvt. Ltd. should be assessed as 'income from other sources' rather than 'rent income'. The Revenue argued that:
1. The rent received from letting out an industrial plot along with the building should be taxable under 'income from other sources'.
2. The assessee company did not carry out any business activity during the year and only exploited the commercial assets for earning rents, which should be taxable under 'income from other sources'.

Assessee's Argument:
The assessee company argued that:
1. The plot was acquired on a long-term lease basis (95 years) from MIDC, and the building was constructed at the company's expense.
2. According to Section 27(iiib) of the Income Tax Act, a person who acquires any rights in or with respect to any building for a period of not less than twelve years is deemed to be the owner of that building.
3. The rental income should be treated as 'income from house property' since the company is the deemed owner of the property.

CIT(A)'s Decision:
The CIT(A) held that:
1. The assessee company is the deemed owner of the property by virtue of Section 27(iiib) read with Section 269UA(f) of the Act.
2. The rental income received from the property should be assessed as 'income from house property' and not under 'income from other sources'.

Tribunal's Analysis:
The Tribunal observed that:
1. The plot of land was acquired from MIDC on a 95-year lease, and the building was constructed by the assessee company.
2. The lease agreement and subsequent assignment of interest to the assessee company were valid and approved by MIDC.
3. The rental income received from Omnitech Infosolutions Pvt. Ltd. was from a leave and license agreement, which is akin to a rental agreement without additional services.
4. The assessee company is the deemed owner of the property as per Section 27(iiib) and Section 269UA(f) of the Act.
5. The rental income, including income from lifts and electrical installations, should be assessed under 'income from house property' as these are necessary amenities for the use and enjoyment of the building.

Tribunal's Decision:
The Tribunal upheld the CIT(A)'s decision, stating that the rental income from the leave and license agreement should be taxed as 'income from house property' and not under 'income from other sources'. The appeal filed by the Revenue was dismissed.

Conclusion:
The Tribunal concluded that the income from subletting/leasing of property to Omnitech Infosolutions Pvt. Ltd. should be assessed as 'rent income' under 'income from house property' as the assessee company is the deemed owner of the property. The appeal filed by the Revenue was dismissed, and the CIT(A)'s order was upheld.

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