2019 (5) TMI 684 - AT - Income Tax

Treatment to lease rent received - lease to operate plant for manufacturing of tyres - correct head of income - income from business OR income from other sources - HELD THAT - In view of the co-ordinate Bench order of the Tribunal in assessee s own case for assessment year 2010-2011 2016 (6) TMI 1292 - ITAT COCHIN , which is identical to the facts of the instant case, we hold that the CIT(A) was justified in directing the Assessing Officer to assess the rental income received by the assessee under the head business or profession . - Decided against revenue

Summary

Issues Involved:

1. Whether the lease rent received by the assessee should be assessed under the head 'income from business' or 'income from other sources'.

Detailed Analysis:

1. Background and Facts:
The assessee company, incorporated to engage in the business of manufacturing tyres, faced financial difficulties leading to its classification as a sick company under the Sick Industrial Companies Act, 1956. A rehabilitation scheme was sanctioned by the Board for Industrial and Financial Reconstruction (BIFR), under which Apollo took over the assessee-company's operations through an irrevocable lease agreement. The lease rent received by the assessee for the assessment years 2011-2012 to 2013-2014 was declared as income from business, but the Assessing Officer assessed it as "income from other sources."

2. CIT(A) Decision:
The CIT(A) allowed the appeals of the assessee, directing the Assessing Officer to assess the lease rent as 'income from business.' This decision was based on the order of the ITAT in the assessee’s own case for the assessment year 2010-2011.

3. Revenue's Appeal:
The Revenue appealed against the CIT(A)'s decision, contending that:
- The business of the assessee ceased to exist.
- The lease rent should be taxed as "income from other sources," referencing prior ITAT decisions for assessment years 2004-05 to 2009-10.
- Appeals under section 260A were pending on similar issues.
- The CIT(A) overlooked the provisions of section 56(2)(ii) of the Act.

4. Tribunal's Consideration:
The Tribunal reviewed the case, noting the following:
- The issue had been previously decided in favor of the assessee for assessment year 2010-2011, where the lease rent was assessed as 'income from business.'
- The Tribunal considered various expenses incurred by the assessee, which were reimbursed by Apollo, indicating the continuation of business activities.
- The arrangement with Apollo involved joint operations, with the assessee responsible for various operational aspects, including employee management, power, and maintenance.

5. Legal Precedents:
The Tribunal referred to several legal precedents, including:
- Rayala Corporation (P) Ltd. vs. ACIT: Where rental income from leasing property was treated as business income.
- Chennai Properties and Investments Ltd. vs. CIT: Establishing that rental income should be treated as business income if it is the primary business activity.
- CEPT v. Shri Lakshmi Silk Mills Ltd. and CIT v. Vikram Cotton Mills Ltd.: Highlighting that income from temporarily letting out commercial assets should be treated as business income.

6. Tribunal's Conclusion:
The Tribunal concluded that:
- The lease arrangement with Apollo was a part of the assessee's business operations, involving substantial expenditures and responsibilities.
- The intention of the assessee was to exploit its commercial assets through joint operations with Apollo, not merely to lease out the property.
- The income from the lease arrangement should be assessed as 'income from business' under section 56(2)(ii) of the Act, in line with the legal precedents and the assessee’s operational activities.

7. Final Order:
The appeals filed by the Revenue were dismissed, and the CIT(A)'s direction to assess the lease rent as 'income from business' was upheld.

Order Pronounced on 06th May 2019.