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TMI Blog2008 (1) TMI 528X X X X Extracts X X X X X X X X Extracts X X X X ..... why it should not be brought under sections 22 to 25 of the Income-tax Act, and as to why the income received from CFCFIL be considered as income from house property, since the very nature of the receipt was rental income and the case appeared to be covered against the assessee in view of the decision of the Hon'ble Supreme Court in the case of Shambhu Investment (P.) Ltd. A show-cause notice was also issued. In response, the assessee sought to distinguish Shambhu Investment (P.) Ltd.'s case. It was submitted that in that case, there was one lease in respect of the building and another in respect of furniture; that in the assessee's case, the assessee had provided only the building on lease and no furniture or other amenities were provided; that in that case, from the agreement, it had appeared that the intention of the parties was clear, whereby the landlord had allowed the occupant to enjoy the table space on payment the comprehensive monthly rent, whereas in the assessee's case, the assessee had not provided any table space with comprehensive monthly rent; that in Shambhu Investment (P.) Ltd.'s case, the building and furniture were accepted as inseparable, whereas in the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lease had to be looked into; that in the case of the present assessee, it was clear that the intention of the assessee was to give the property on a long lease, as the lease agreement was for more than nine years, though the initial period of lease was of three years; that the ratio of Shambhu Investment (P.) Ltd.'s case was squarely applicable to the case of the assessee and the income of the assessee was taxable as income from house property and not as income from business, as claimed; that it was incorrect to say that the assessee was not the owner of the property; that in the agreement with the CFCFIL, it had been categorically stated that the assessee was the absolute owner in possession of the premises; that the fact of assessee's ownership of property was further supported by the fact that the assessee had also claimed depreciation and expenses on repairs of the building; that the assessee was entitled to receive income from the property in its own right and, therefore, section 22 of the Income-tax Act was attracted; that in the case of the assessee, the agreement with Shri Bipindeep Singh Khurana, Director of the Company, provided for dismantling of the structure without an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly; that the main objects of the company did not include hotel/restaurant business; that the assessee was, in fact, the owner of the property, but it had wrongly contended that it could not claim statutory deduction of house property, as it was not the owner of the property and was holding it only on a lease rent basis; that it could not be said that the assessee was exploiting the property for its commercial business activity, which activity was its prime object, whereas letting out of the property was a secondary object; that moreover, the assessee had itself reflected the receipt of the rent as income from house property; and that as such, the said income was required to be taxed as income from house property. 5. On appeal, the assessee contended before the learned CIT(A) that it was a Private Limited Company, incorporated in 1999; that its main object was of running the business of hotel and restaurant; that to carry out such object, the assessee entered into a five years' lease agreement on 1-4-2000 with Dr. Bipindeep Singh Khurana, its director, for the lease of building at the rate of Rs. 1,50,000 per year; that the assessee has constructed a hotel and restaurant on the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its from the business asset and that these actions were not those of a mere house property owner, who would never agree to remove the superstructure at the expiry of a short lease period; that the decision in Shambu Investment (P.) Ltd.'s case was distinguishable and its distinguishing features could not be ignored or brushed aside; that in CIT v. Anand Rubber Plastics (P.) Ltd. [1989] 178 ITR 301 (Punj. Har.), it was held that where the assessee was using the entire premises for running its factory and due to heavy losses, production was reduced and to minimise losses, the assessee leased out the rear portion of the premises, such leasing was temporary and as a commercial asset and that income from letting out of such portion of the building was, therefore, assessable as business income; that in CIT v. Golden Engg. Works [1997] 97 Taxman 348 (Punj. Har.), it was held that where the premises were let out for a commercial purpose, with the motive to reduce the burden of expenditure and to reduce the loss, the rental income was assessable as business income; that in Golden Engg. Works' case, the period of lease was 90 years and still, it had been held that the letting out was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ather than income from house property. 7. Aggrieved, the department has filed the present appeal. 8. Challenging the impugned order, the learned DR has argued before us that the learned CIT(A) has erred in directing the Assessing Officer to treat the income of the assessee as business income, whereas such income in fact falls under the head of "Income from House Property"; that the learned CIT(A) has erred in ignoring the decision of the Hon'ble Supreme Court in the case of Shambhu Investment (P.) Ltd.; that the learned CIT(A) has erred in placing reliance on Anand Rubber Plastics (P.) Ltd.'s case and Golden Engg. Works' case, whereas the facts of neither of these cases are similar to the facts of the present case; that the learned CIT(A) has erred in observing that the pub licence application made by the assessee to the Excise Taxation Commissioner is valid evidence in support of the assessee's contention that its motive since the very inception of the company was of running a pub and hotel on the property in question; that the factum of such licence having been applied for was never stated by the assessee before the Assessing Officer; that thus, the Assessing Officer neve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said licence was duly submitted before the Assessing Officer; that the grant of licence of pub was delayed for one reason or another, resulting in increase in the burden of the expenditure of the assessee; that to reduce the burden of losses and expenditure, the assessee temporarily let out the upper floor of the premises for commercial purposes, to CFCFIL for a period of three years; that Shambhu Investment (P.) Ltd.'s case was entirely different on facts and was wrongly applied against the assessee by the Assessing Officer; that the other case laws, which the assessee was citing, were in its favour; that the assessee was not the owner of the property and was holding it on lease rent basis from its director, Dr. Bipindeep Singh Khurana; that the assessee had provided an unfurnished accommodation to the occupant; that the assessee had not recovered any cost of construction from the occupant; that the assessee could not claim statutory deduction of household property, since it was not owner of the property and was holding it only on a lease rent basis; and that as such, the income earned was not income from house property, but was business income of the assessee and that the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that the assessee was permitted to raise construction on the plot, with the condition that the assessee would remove the said structure at its own cost and would not be entitled to any compensation on this account. On 21-9-2001, the assessee-company entered into a lease deed with CFCFIL, giving the building constructed on the aforesaid plot to CFCFIL, for an initial period of three years, as per the following terms and conditions:- "(i) The lease agreement is for initial period of three years commencing from 21-12-2001 and shall be extended for another terms of three years on 20 per cent enhancement of the existing rent. As per agreement, the lease shall stand terminated on expiry of nine years and the assessee-company will be given back the vacant premises and terrace thereon. (ii) Premises will be for commercial use only and if any charges/duties/taxes/penalties etc. imposed by any authority will be borne by the tenant in this case i.e. Associates India Financial Services Pvt. Ltd. (presently known as City Financial Consumer Finance India Ltd.) The Corporation Tax at the rate of 12 per cent approximate will be borne by the tenant company.". 12. On query by the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment order. The learned CIT(A) has also taken objection to such fact. However, in the assessment order, in the narration of the contentions of the assessee too, it does not come out that the assessee ever made out any such case before the Assessing Officer. Before us, on our asking, the learned counsel for the assessee could not deny that no such argument was raised before the Assessing Officer. Further, the stand of the assessee that it was not the owner of the property, has also been proved to be incorrect. Before the Assessing Officer, the assessee denied such ownership. However, it was found that in the agreement with CFCFIL, the assessee had stated that it was the absolute owner in possession of the property in question. Further, the assessee had also claimed depreciation and expenses on account of repairs of the building. As such, the assessee was undisputedly the owner of the premises leased out, so far as regards income-tax purposes and was to be taxed in respect of the annual value of such building, under section 22 of the Act. 14. The assessee having given an unfurnished accommodation on lease also does not help the case of the assessee. The assessee has tried to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d establish that the main objects of the company does not include hotel/restaurant business. So the contention of the assessee that it has given on rent the building as temporary arrangement is not only misleading but also untrue as per the conduct of the business of the company so far." 17. From the above, it is evident that the assessee did not carry on the business of running of hotel/restaurant during the year. Though, as rightly observed by the learned CIT(A), the Assessing Officer went wrong in observing that the main object of the assessee-company did not include hotel/restaurant business, the fact remains that even though this was one of the main objects of the assessee-company, it did not carryon any such business. 18. Then, the case laws relied on by the learned CIT(A) to decide in favour of the assessee, are different on facts. In Anand Rubber Plastics (P) Ltd.'s case, it was, inter alia, held that the assessee had leased out a portion of its premises to minimise its losses. No such fact, as discussed hereinabove, was brought before the Assessing Officer by the present assessee. 19. In Golden Engg. Works' case, it was held that the finding recorded by the Dy. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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