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2018 (7) TMI 360 - AT - Income TaxTreatment to License Fee - as income from business or income from house property - Held that - Lease rent received by the assessee is assessable as income from business in the hands of the assessee and the related expenditure has to be allowed in the hands of the assessee. See M/s Bhuvan Leasing & Infrastructure Pvt. Ltd. 2015 (6) TMI 1160 - ITAT MUMBAI - decided in favour of assessee
Issues Involved:
1. Classification of License Fee as Business Income vs. House Property Income. 2. Allowance of Expenditure for Carrying Out Business. Detailed Analysis: Issue 1: Classification of License Fee as Business Income vs. House Property Income Facts and Arguments: - The Assessing Officer (AO) treated the License Fee of ?1,45,67,300/- as income from house property, allowing only standard deduction under Section 24(a) of the Income Tax Act, and disallowed administrative expenses claimed by the assessee. - The First Appellate Authority (FAA) reversed this decision, treating the License Fee as business income, following a precedent set by the Tribunal in the case of another tenant, M/s Bhuvan Leasing & Infrastructure Pvt. Ltd. (Bhuvan), for AY 2006-07 and 2007-08. - The Departmental Representative (DR) argued that the facts had changed since earlier assessments and supported the AO's classification. - The Authorized Representative (AR) for the assessee argued that there was no difference in facts between the assessee’s case and Bhuvan’s case, where the Tribunal had ruled in favor of treating the lease rent as business income. Tribunal’s Findings: - The Tribunal compared the memorandum of articles of both companies and found no significant differences in the facts of both cases. - The Tribunal cited its earlier decision in Bhuvan, where it held that lease income should be assessed as business income due to the systematic and organized manner of subletting, aligning with the business objectives in the Memorandum of Association. - The Tribunal referenced the Supreme Court decision in Chennai Properties & Investment Ltd. vs. CIT, which supported treating rental income as business income when it aligns with the company’s business objectives. Conclusion: - The Tribunal decided against the AO, confirming that the License Fee should be classified as business income, similar to the Bhuvan case. Issue 2: Allowance of Expenditure for Carrying Out Business Facts and Arguments: - The AO disallowed the administrative expenses claimed by the assessee, asserting that the income should be classified under house property, which does not allow such deductions. - The FAA allowed the expenses, treating the income as business income. Tribunal’s Findings: - The Tribunal upheld the FAA’s decision, stating that since the income is classified as business income, the related business expenses should be allowed. - The Tribunal emphasized that the expenses were incurred wholly and exclusively for business purposes. Conclusion: - The Tribunal decided that the expenses incurred by the assessee should be allowed as they were related to the business income. Application to Subsequent Assessment Years: Assessment Year 2011-12: - The Tribunal dismissed the AO’s appeal, following the order for AY 2009-10, as the facts were identical. Assessment Years 2012-13 and 2013-14: - The Tribunal dismissed the AO’s appeals for both years, following the same rationale applied in earlier years. Final Order: - The appeals filed by the AO for all four assessment years (2009-10, 2011-12, 2012-13, and 2013-14) were dismissed. - The Tribunal pronounced the order in the open court on 4th July, 2018.
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