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TMI Blog2016 (9) TMI 159X X X X Extracts X X X X X X X X Extracts X X X X ..... fee and air condition fees. Keeping in mind the objects of the assessee and keeping in mind the facts and circumstances of the present case, it can be safely concluded that the assessee carried on a systematic and regular activity in the nature of business and therefore the income from granting the premises on sub-license was to be assessed under the head income from business. The latest judicial pronouncement in the case of Chennai Properties and Investments Ltd. Vs CIT (2015 (5) TMI 46 - SUPREME COURT) was not available for consideration before the Tribunal when the Tribunal passed its order in the case of another group company based on which the CIT(A) confirmed the action of AO. With the change under law laid down by the Hon’ble Supreme Court, we are of the view that the income in question has to be assessed under the head income from house property. In view of the decision of the Hon’ble Supreme Court in the case of Chennai Properties and Investments Ltd. (supra), we are of the view that the question whether the Assessee is a deemed owner u/s.22 read with Sec.27(iiib) of the Act, no longer assumes importance. For the reasons given above we allow the appeals of the assessee. - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from time to time. According to the Assessee, since the assessee is basically involved in the business of providing the shopping space on license along with various services, the consideration received from the said shopping space was shown as business income in the computation of income. According to the Assessee, since the assessee is not the owner of the building, the amount of license fees paid to EIH Limited was claimed as a deductible expenditure against the said business income. 4. In the assessment order U/s 143(3) of the Income Tax Act, 1961 (Act) dated 15.12.2008 for AY 2007-08, the Assessing Officer (AO) rejected the claim of the assessee and treated the above income as 'Income from house property' on the following grounds: a) That the assessee has an irrevocable right of 50 years over the shopping space. b) The Apex Court in the case of CIT - vs. - Poddar Cement Ltd.226 ITR 625 has held in context of section 22 that the owner is a person who is entitled .to receive income from the property in his own right. c) In view of the provisions of section 27(iiib) of the Act and findings of the Apex Court the assessee is the owner of the shopping space. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ping arcade has been acquired by the Assessee under a license and not lease. The Assessee contended there was a difference in law between a license and a lease . The Assessee contended that by entering into the lease agreement with EIH Limited what the assessee has received is only a right to use the said shopping space. The same would be evident from clause 7(i) of the agreement which provides that the agreement does not create any interest or any other right in favour of the licensee in the said shopping centre or any part thereof but it is a mere license to use the said shopping centre given to the licensee . Since by entering into the license agreement a licensee does not acquire any interest in the immovable property or right to possess it, the appellant cannot be considered as deemed owner in terms of section 27(iiib) of the Act. The Assessee relied on the decision of the Hon'ble Cochin Tribunal in the case of M. Damodaran Nair -vS.- ITO (2004) 90 ITD 758 (Cochin) (SMC), in which the facts were that the assessee took a building on lease which was sub leased to others. The assessee derived rent from the building leased out which after deducting certain expenses was off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was not a transfer or transaction as aforesaid and as such the extended meaning of ownership could not be applied. The Assessee contended that in the instant case, the assessee has taken the property on license with a condition and objective to sub license the same. There was no intention of transferring the property to the assessee by the said company and hence the question of applicability of section 27(iiib) of the Act does not arise at all. 6. Without prejudice to our above claim that the assessee is not assessable to 'Income from house property' as it is neither an owner nor a deemed owner, the Assessee further submitted that the Assessee was formed with the main objectives of carrying on the business of an investment company and the business of acquiring on license or by purchase, lease exchange of land and property and to sublease or sub license the said land and property building. It is the business of the assessee to acquire premises on license and to sub license the same in order to earn revenue. The Assessee relied on the Memorandum of Association which according to the Assessee, clearly provided the objects for which the company has been formed viz., T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of business by providing various facilities and services and not merely to earn rental income. The Assessee also relied on the decision of the Hon ble Supreme Court in the case of S.G. Mercantile Corporation P. Ltd. -vs.- CIT ( 1972) 83 ITR 700(SC) wherein the facts were that the assessee was a private limited company. One of the objects specified in its Memorandum of Association was to take on lease or otherwise acquire and to hold improve, lease or otherwise dispose of land, houses and other real and personal property and to deal with the same commercially. Within less than two weeks of its incorporation the company took on lease a market place for a initial term of 50 years, undertaking to spend ₹ 5 lakhs for the purpose of remodeling and repairing the structure on the site. It was also given the right to sub let the different portions. The assessee developed the property and let out portions thereof as shops, stall and ground spaces to shopkeepers etc. The question was whether the assessee s income from subletting was assessable as business income or as 'income from other sources'. It was held that, on the facts, the taking of property on lease and subletting p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d upheld the action of the assessing officer in treating income from shopping space as 'income from house property'. At the time of hearing it was informed by the appellant that the aforesaid order of ITAT has been disputed by the appellant before Hon'ble Calcutta High Court which have vide its order dated 4.10.10 stayed objection of order of Hon'ble tribunal. According to the appellant in view of the High Court's order, the tribunal order is no longer required to be followed. However, it is settled position of law that merely because an appeal has been filed before a higher court, which has granted stay, the order of lower court does not become invalid. As long as the higher court does not overrule and reverses the order of the lower court, the latter remains very much valid. Admittedly, the relevant facts in the appellant's case are practically identical to that in the case of Oberoi Building and Investment Pvt. Ltd. for AY.2005-06. Therefore, I am respectfully following the ratio given by Hon'ble tribunal in the case of Oberoi Building and Investment Pvt. Ltd. in AY.2005-06. The action of the assessing officer is therefore confirmed and grounds no. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment. 10. Submissions made by the learned counsel appearing or the Revenue is to the effect that the rent should be the main source of income or the purpose for which the company is incorporated should be to earn income from rent, so as to make the rental income to be the income taxable under the head Profits and Gains of Business or profession . It is an admitted fact in the instant case that the assessee company has only one business and that is of leasing its property and earning rent therefrom. Thus, even on the factual aspect, we do not find any substance in what has been submitted by the learned counsel appearing for the Revenue. 11. The judgment relied upon by the learned counsel appearing for the assessee squarely covers the facts of the case involved in the appeals. The business of the company is to lease its property and to earn rent and therefore, the income so earned should be treated as its business income. 12. In view of the law laid down by this Court in the case of Chennai Properties (supra) and looking at the facts of these appeals, in our opinion, the High court was not correct while deciding that the income of the assessee should be treated a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sation for each month on or before the 10th day of the month following the month for which it is due and for any broken period at the end of such period. (b) To pay to the Hotel Company for making available air- conditioning facilities, an amount calculated at the rate of ₹ 8.50 per month during the period of the Licence and pro-rata for any broken period, such payment to be made along with compensation under the preceding sub-clause (a). (c) To pay to the Hotel Company ₹ 10/- per Sq. ft. per month for Service Charges which include use of Elevators, Security Services, sanitary Services, common lighting and music and other related services. (ii) To reimburse to the Hotel Company actual out of pocket costs and expenses on a bill being submitted for telephone, and other services, and for maintenance, repairs and other outgoings. (iii) To pay or cause to be paid to the Hotel Company electricity charges and meter hire in respect of electricity consumed in the shops comprised in the Shopping Area on presentation of the bills thereof. In Clause-(xiv) it has been agreed between the parties as follows :- (xiv) It is clearly agreed and understood tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o an easement or an interest in the property. Keeping in mind these definitions let us now go through the very important points which distinguish a lease from a licence: Lease is a transfer of interest, but licence is not. Generally Lease can be assigned, but a licence generally cannot be assigned. A lease being a proprietary right is a transferable interest. Licence the other hand cannot be transferred by virtue of it being a personal right. However, there exist certain exceptions such as movie tickets. A Lessee is required to have exclusive possession of the property for its proper enjoyment. But, a licence is created without transfer of possession. A Licensee is required to share the possession with the grantor (who is still the owner) and has not parted with the interest. In lease exclusive possession is obtained and hence lessee has exclusive control over the property. Normally in licence possession remains with the grantor. In Associated Hotels of India Ltd. v. R. N. Kapoor, AIR 1959 SC, the following guidelines were laid down by the Supreme Court of India for the purpose of distinguishing between lease and licence. They are as following: 1. Whether a document creates a l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12,657.00 42,190.00 71,723.00 126,570.00 SEPTEMBER 12,657.00 42,190.00 71,723.00 126,570.00 OCTOBER 12,657.00 42,190.00 71,723.00 126,570.00 NOVEMBER 12,657.00 42,190.00 71,723.00 126,570.00 DECEMBER 12,657.00 42,190.00 71,723.00 126,570.00 JANUARY 12,657.00 42,190.00 71,723.00 126,570.00 FEBRUARY 12,657.00 42,190.00 71,723.00 126,570.00 MARCH 12,657.00 42,190.00 71,723.00 126,570.00 TOTAL 151,884.00 506,280.00 860.280.00 1,518,840.00 Similarly even for A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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