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TMI Blog2011 (1) TMI 763X X X X Extracts X X X X X X X X Extracts X X X X ..... be held to be business income which is not the statutory scheme as held by the Hon’ble Supreme Court particularly in East India Housing & Land Development Trust Ltd.’s case (1960 -TMI - 49490 - SUPREME Court). - the Tribunal was right in holding that the income derived by the assessee was from property and not business income. - Decided against the assessee. - 679 OF 2008 - - - Dated:- 3-1-2011 - ADARSH KUMAR GOEL, AJAY KUMAR MITTAL, JJ. Binderjit Singh for the Appellant. Ms. Savita Saxena for the Respondent. JUDGMENT Adarsh Kumar Goel, J. This order shall dispose of ITA Nos. 679 and 680 of 2008 as both the appeals have been filed by the same assessee raising common questions. 2. Income tax Appeal No. 679 of 2008 has been preferred by the assessee under section 260A of the Income-tax Act, 1961 (hereinafter referred to as "the Act") against order dated 11-1-2008 passed by the Income-tax Appellate Tribunal, Amritsar Bench, Amritsar in ITA No. 468 (Asr.)/2006, for the assessment year 2003-04, claiming following substantial questions of law : "(a) Whether impugned order dated 11-1-2008 is sustainable in eyes of law? (b) Whether the department can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... running a Hotel/Restaurant and serving food, drinks etc. The appellant s action in applying for a Pub licence, as evidenced from a copy of its application to the Excise and Taxation Department, in the year 2001, cannot also be brushed aside as it throws a clear light on its motives in running a Hotel/Restaurant and serving drinks. It is also a matter of fact that the appellant s in further leasing out only the upper floor (i.e., not the whole property) for a short limited period, and further agreeing to the restrictive lease conditions of removing its entire building (superstructure) on the expiry of the lease period, are the actions of a businessman in exploiting its property (asset), cutting its losses (expenses) and the tax treatment for the relevant year (assessment year 2003-04) in its books of account, support its stand and not of the Assessing Officer. The appellant company s application to the Excise and Taxation Department for a bar licence is a very relevant fact that has been not discussed by the Assessing Officer in the assessment order but directly supports the stand of the appellant. The jurisdictional Punjab and Haryana High Court rulings also support its stand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d vegetables and Soya beverages and other products and preparations of every kind, nature and descriptions. 2. To sell, import, export, improve, prepare manufacture and market and generally to carry on the manufacturing and trading in jams, jelleys, pickles, cider, spices, chutney, marmalades, vinegars, ketchups, juices, squashes, syrups, powders (edible) drinks, beverages, gelatives, essences, ice cream, milk preparation, meat, sausages, porkpies, prawn, potted meats, table delicacies and other eatables. 3. To carry on the business as manufactures, sellers, purchases, importers, exporters, stockiest, distributors, traders, dealers, wholesalers, and retailers in all kinds of food snacks fruit, juices, breads, biscuits, syrups, cordial, jam, jellies. 4. To carry on the business of hotels, restaurant and canteens and to serve food, fast food, drinks, soft drinks of all types and to operate recreation centre of all types. 11. On 1-4-2000, the assessee-company entered into a lease deed-cum -agreement with Dr. Bipindeep Singh Khurana, Director, for taking on lease land measuring about 438 sq. yards, located at Pakhowal Road, Ludhiana. The property were taken on lease ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he house property. The learned CIT(A) reversed the order of Assessing Officer mainly for the reason that the assessee had applied for the Pub licence, in keeping with its main objects of running hotel and restaurant and that since the said licence was not granted, the assessee let out the upper floor of the premises on lease for a limited period only, in order to reduce its expenditure and losses; that the assessee had agreed to the restrictive lease condition of removing its entire building on the expiry of the lease period, which was indicative of intention of a businessman to exploit its property/asset. In doing so the learned CIT(A) placed reliance on "Anand Rubber Plastic (P.) Ltd." (supra) and "Golden Engg. Works" (supra). 13. We, however, do not find ourselves persuaded to agree with the order of the learned CIT(A). Undoubtedly, as held repeatedly by valid court, including "Shambhu Investments" (supra), it is the intention of the assessee in letting out the property, which is determinative of the nature of income. This obviously, depends on the facts of each case. In the present case, first of the assessee never contended before the Assessing Officer that it had applied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... na. On the other hand the lease by the assessee to CFCFIL, was for nine years, which goes directly against the lease entered into by Dr. Bipindeep Singh Khurana with the assessee. The assessee obviously could not lease out the premises for a period longer than that for which it was itself leased out the premises. 16. Apropos the assessee s contention it was in line of hoteling, the Assessing Officer made a specific observation as under : ". . . Secondly, the assessee contended during assessment proceedings that it is in the line of hoteling but the activity of the assessee at all during the relevant period. Profit and loss account of the assessee-company for the financial year 2001-02 (rent receipts of Rs. 6,06,000) and 2002-03 (rent receipts of Rs. 8,64,000) reveal that all the receipts of the company are on account of rent only. Admittedly the first year of the company was assessment year 2002-03 and this evident from the agreement also, as discussed above. So, how come the question of the company having main business of hoteling? Moreover, the main objects to be pursued by the company on its incorporation have already been reproduced above and established that the main obje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that the said income was business income was rejected and the same was held to be income from property. Relying upon judgment of House of Lords in Fry v. Salisbury House Estate Ltd. [1930] AC 432 and judgment of Calcutta High Court in Commercial Properties Ltd. v. CIT [1928] ILR 55 (Cal.) 1057, it was held that income from letting out was income from property unless business of the assessee itself was to let out the property. Mere fact that letting out was incidental to its business will not deviate from the character of income being income from property. It will be appropriate to make a reference to the following observations in the said judgment : "The appellant contends that because it is a company formed with the object of promoting and developing markets, its income derived from the shops and stalls is liable to be taxed under section 10 of the Income-tax Act as "profits or gains of business" and that the income is not liable to be taxed as "income from property" under section 9 of the Act. The appellant is undoubtedly, under the provisions of the Calcutta Municipal Act, 1951, required to obtain a licence from the Corporation of Calcutta and to maintain sanitary and other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e from property, what has to be seen is what was the primary object of the assessee while exploiting the property. If it is found applying such test that the main intention is for letting out the property or any portion thereof the same must be considered as rental income or income from property. In case, it is found that the main intention is to exploit the immovable property by way of complex commercial activities in that event it must be held as business income." Against the above judgment, the appeal was dismissed by Hon ble Supreme Court without a speaking order being Shambhu Investment (P.) Ltd. s case (supra). 11. In CIT v. Anand Rubber Plastics (P.) Ltd. [1989] 178 ITR 3013 (Punj. Har.) relied upon by the assessee the rental income of the assessee was held by the Tribunal to be business income on the ground that earlier the premises were being used for running factory but due to heavy losses part thereof was let out temporarily as a commercial asset. This Court, "on the peculiar facts", held that no question of law arose. 12. In the present case, the view taken by the Assessing Officer which has been upheld by the Tribunal is based on the following reasons : ..... X X X X Extracts X X X X X X X X Extracts X X X X
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