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TMI Blog2009 (10) TMI 650X X X X Extracts X X X X X X X X Extracts X X X X ..... ived on the property leased along with copy of lease agreements. The assessee was required to further show cause as to why the rent/lease rent received by the assessee-company as well as the notional interest on the interest-free deposits received should not be treated as income from house property. The assessee filed detailed submissions and relied on various case laws to submit that since the assessee had commercially exploited the property, therefore, the income should be treated as income from business. The Assessing Officer observed that the main contention of the assessee is that the premises given on lease were commercial premises and that the dominant object of leasing was incidental to the purpose of business of the assessee-company and hence, the claim of the assessee was that lease income should be treated as business income. He further observed that the assessee-company failed to furnish any evidence that the premises given on lease were in fact commercial premises or the income derived by the assessee was from a commercial asset. He referred to the decision of the Hon ble Gujarat High Court in the case of New India Industries relied upon by the assessee and pointed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed its business turnover. He further pointed out that it was also the case of the assessee that these flats which were not sold so far, were let out for a temporary period. In this regard, he referred to leave and license agreement with M/s. Unwiredsoft (India) (P.) Ltd. [now known as Roamware (India) (P.) Ltd.], wherein, the premises had been let out for 33 months. He pointed out that if the properties let out were meant for sale originally, then they could not be let out for such a long period. 5. Ld. counsel for the assessee submitted that the assessee is in the development of property and the letting out of the flats was incidental to assessee s business activity. He referred to page 20 of PB to point out that the property had been let out to following parties: ( i )Lear Seating (P.) Ltd., Oberoi Gardens Estate, 3 rd floor, A Wing Off Saki Vihar Road, Chandivali, Mumbai. ( ii )Rajinder Hiralal Grover/Priya Rajinder Grover C/o. Colgate Palmolive (I) Ltd., Main Road, Hiranandani Gardens, Powai, Mumbai. ( iii )Roamware (India) Pvt. Ltd., 7 th floor, Sigma, Hiranandani Gardens, Powai, Mumbai. Ld. counsel referred to the agreement contained at pages 21-24 of PB of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parately required to present an asset given under operating lease in its balance sheet under fixed assets. Further, depreciation on leased asset was to be on a basis consistent with the normal depreciation policy for similar assets. In this regard, he referred to the following clauses of AS-19 : " Operating leases: The lessor should present an asset given under operating lease in its balance sheet under fixed assets. The depreciation of leased assets should be on a basis consistent with the normal depreciation policy of the lessor for similar assets, and the depreciation charge should be calculated on the basis set out in AS-6 , depreciation accounting." Ld. counsel further submitted that section 32 does not differentiate between the trade and fixed asset. He, therefore, submitted that mere presentation of impugned flats under the head Fixed assets does not affect the true nature of property. 6. Ld. counsel for the assessee referred to the decision of the Hon ble Supreme Court in the case of CIT v. Shaan Finance (P.) Ltd. [1998] 231 ITR 308 to submit that in order to claim depreciation, it is not necessary that the assessee should himself use the property for man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wherein, it was, inter alia , held as under : "In fact the composite letting of building fitted with furniture and fixtures for the purpose of being run as a hotel, the income derived from the building as well as from the furniture and fixtures with separately stated in the lease deed is to be assessed as income from other sources under section 12(4) and the lease rent from the building was not assessable as income from house property as it was inseparable letting of building along with furniture and fixtures." 7.4 He referred to the decision of the Hon ble Gujarat High Court in the case of CIT v. Neha Builders (P.) Ltd. [2008] 296 ITR 661 and submitted that in this case it was held that where developer lets out his stock-in-trade in the form of building properties then the same was assessable as income from business and not income from house property and the assessee s plea to treat the same as income from house property was rejected. 7.5 Ld. counsel for the assessee further referred to the decision of the Hon ble Calcutta High Court in the case of Shambhu Investment (P.) Ltd. ( supra ) and pointed out that it was, inter alia , held that if the main intention o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letting out of the same. In the present case, the assessee s business is developer and occasionally, the company had leased out the property. 8. Ld. D.R. relied on the order of Ld. CIT(A) and submitted that the issue is now concluded by the Hon ble Supreme Court decision in the case of Shambhu Investment (P.) Ltd. ( supra ). He referred to the Memorandum of Association and Articles of Association and referred to page 11 of the same, wherein, clause 5.1 reads as under: "To let out on hire all or any of the property of the company whether movable or immovable, including all and every description of apparatus or appliances, and to hold, use cultivate, work, manage, improve, carry on and develop the undertaking land and immovable and movable properties and assets of any kind of the company or part thereof." With reference to this clause, he submitted that the letting out of the property was also one of the objects of the assessee. Ld. D.R. further referred to page 3 of PB and pointed out that in the profit and loss account, the assessee had shown the income under the head "Lease rent" separately from licence fees which is not relating to property. 8.1 Ld. D.R. further r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... torage (P.) Ltd. ( supra ) is not applicable because it is not the case of the assessee that the letting of their flats is subservient to their main business because even if the flats were not let out, the business would not have been adversely affected. 9. In the rejoinder, ld. counsel for the assessee submitted that temporary letting of the properties was done in order to accommodate the purchasers for the time being and then flats were handed over to the purchasers. He further clarified that M/s. UnwiredSoft (India) (P.) Ltd. and Roamware (India) (P.) Ltd. are sister concerns and, therefore, leasing out of property to Roamware (India) (P.) Ltd. and sale to UniwiredSoft (India) (P.) Ltd. was part of sale transaction. 10. We have considered the rival submissions and perused the record of the case. From the various case laws cited by ld. counsel for the assessee and discussed in detail by the lower revenue authorities, the following two principles are clearly discernible. Firstly, if the income has been earned by mere exploiting of the ownership of the property, then the same is assessable as income from house property. However, exception to this rule is that if the immova ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was to let out a portion of the premises to the respective occupants. The Hon ble Calcutta High Court also considered the decision of the Hon ble Supreme Court in the case of Sultan Bros. (P.) Ltd. ( supra ) and considered the following three questions framed by the Hon ble Apex Court : ( i )Was it the intention in making the lease and it matters not whether there is one lease or two, i.e., separate leases in respect of the furniture and the building that the two should be enjoyed together? ( ii )Was it the intention to make the letting of the two practically one letting? ( iii )Would one have been let alone, and a lease of it accepted, without the other? The Hon ble Calcutta High Court answered the first two questions in affirmative and third question in the negative, i.e., the letting would be inseparable. 11. The basic principle is that if the dominant object was to sell the flats and in order to achieve the said object, the assessee had temporarily let out the property to Rajinder Hiralal Grover. This intention is to be gathered mainly from the lease agreement together with subsequent conduct in pursuance to the lease agreement. If it is discernible from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al and subservient dominant object of selling the property or not. If the property has merely been let out by the assessee then the same cannot be held to be exploitation of the property for commercial purpose in view of the decision of the Hon ble Shambhu Investment (P.) Ltd. ( supra ). We, therefore, restore this issue to the file of the Assessing Officer for fresh consideration in the light of aforementioned observation. 14. Ld. counsel for the assessee has relied on the decision of the Hon ble Gujarat High Court in the case of Neha Builders (P.) Ltd. ( supra ). The findings in that case are based on the fact that the property was used as stock-in-trade, thus, part of complex commercial activity and, therefore, the income was held as income from business. However, in the present case, admittedly, the assessee, in view of AS-19 had classified the property under the head "Fixed assets" and, thus, the decision of the Hon ble Gujarat High Court in the case of Neha Builders (P.) Ltd. ( supra ) is not applicable to the facts of the case. One more interesting feature is that the assessee in that case had returned the income as income from house property but the Hon ble Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X
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