2010 (9) TMI 91 - HC - Income Tax

Nature of Income - Licence fees as the business income - instead of income from other sources - assessee in leasing the business premises alongwith plant & machinery - depreciation on sugar unit - benefit of set off of brought forward business losses and investment allowance - income from other sources Held that - the rent received is the business income, which may be used to set off the earlier losses - covered by the aforesaid judgment in CIT Vs. Vikram Cotton Mills 1987 -TMI - 5247 - SUPREME Court and are thus decided in favour of the assessee and against the department.

Summary

Issues involved:
1. Treatment of license fees as business income or income from other sources.
2. Allowance of depreciation on sugar unit and set off of brought forward business losses.
3. Legality of allowing sugar unit expenses with no nexus to business income.

Analysis:
1. The appeal concerns the treatment of license fees as business income or income from other sources for the assessment year 1989-90. The Tribunal treated the license fees as business income, contrary to the Assessing Officer's classification as income from other sources. The key issue was whether the intention of the assessee in leasing business premises along with plant & machinery should be considered. The Tribunal's decision was influenced by the Division Bench's ruling in CIT Vs. Vikram Cotton Mills Ltd., affirmed by the Supreme Court, which held that rent received constitutes business income that can be used to set off previous losses. Consequently, the Tribunal's decision on this issue favored the assessee.

2. Another issue raised was the allowance of depreciation on the sugar unit and the direction to set off brought forward business losses and investment allowance. Despite the Assessing Officer's initial classification of license fees as income from other sources, the Tribunal permitted the depreciation and set off benefits. This decision was in line with the judgment in CIT Vs. Vikram Cotton Mills, which established that income like rent can be considered business income for set off purposes. Therefore, the Tribunal's decision favored the assessee on this issue as well.

3. The final issue concerned the legality of allowing sugar unit expenses claimed by the assessee, amounting to Rs. 24,60,386, despite the absence of a direct nexus to business income due to the initial classification of license fees as non-business income. The Tribunal allowed these expenses, emphasizing the interconnected nature of the questions raised and the precedent set by the judgment in CIT Vs. Vikram Cotton Mills. As the Tribunal's decisions on the first two issues favored the assessee, the question regarding the legality of allowing these expenses did not significantly impact the overall outcome. Consequently, all questions were decided in favor of the assessee, and the appeal was resolved accordingly.