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TMI Blog2017 (5) TMI 1102X X X X Extracts X X X X X X X X Extracts X X X X ..... wing the depreciation. 4. The CIT(A) has erred in assessing the income from this property under the head income from other sources. ITA No. 6550/del/2013 1. The lower authorities have erred in not assessing the rental income from property no. 8 & 9, Udyag Vihar Industrial Area, Phase IV, Gurgaon which was let put to M/s Agilent Technologies (International) Pvt. Ltd. as per the lease deed under the head Income from House Property. 2. The lower authorities have erred in not considering that the Lessee was deducting tax at source, in respect of the rental income of the property. 3. The Assessing Officer erred in assessing the income from this property under the head lusiness income without allowing the depreciation. 4. The CIT(A) has erred in assessing the income from this property under the head income from other sources U/s 56 of the Income Tax Act. 5. The Lower authorities have erred in ignoring the settled position in the light of the preceding three assessment order i.e 2004-05 to 2007-08 without bringing on record any fresh material to deviate from the principle of consistency by holding that Income from rental Income would be assessed under the head business Income / In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Court in the case of Sultan Bros Pvt Ltd. (supra), the inseparability referred to in section 56(2)(iii) is one that arises from the intention of the parties. It is certain that the tenant in this case would not have accepted the lease of the building without the lease of the equipments. The Assessing Officer is directed accordingly to assess the composite rent from building and equipments as income from other sources. The appellant is entitled to the deductions enumerated in section 57(ii), including actual expenditure on repairs & insurance, and depreciation on WDV of the building and other assets, and the appellant shall provide the necessary evidences to the Assessing Officer in support of the same. 6. Ld. CIT(A) treated income from letting off of building as income from other sources. 7. Against order of Ld. CIT(A) assessee is in appeal before us. 8. Ld. AR submitted that assessee entered into two separate agreements for lease of building, and lease of fit-outs, the details of which are as under: Lease of building S.No. Particulars of agreement Period covered 1. Agreement dated 25/08/2003 (composite lease agreement) 25/08/2003 to 28/08/2006 2. Revised agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) Guntur Merchants Cotton Press Co. Ltd. v. CIT [1999] 237 ITR 454 (SC) laid down the following ratio (page 461): "(1) no precise test can be laid down to ascertain whether income (referred to by whatever nomenclature, lease, amount, rents, licence fee) received by an assessee from leasing or letting out of assets would fall under the head 'Profits and gains of business or profes sion'; (2) it is a mixed question of law and fact and has to be determined from the point of view of a businessman in that business on the facts and in the circumstances of each case, including true interpretation of the agreement under which the assets are let out ; (3) where all the assets of the business are let out, the period for which the assets are let out is a relevant factor to find out whether the intention of the assessee is to go out of business altogether or to come back and restart the same ; (4) if only a few of the business assets are let out temporarily, while the assessee is carrying out his other business activities, then it is a case of exploiting the business assets otherwise than employing them for his own use for making profit for that business ; but if the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of possession, all kinds of fresh impositions thereof including the increases, if any, as applicable on the Site/Demised premises to pay~any increase due to variation and any statutory increase(s) in or if fresh levies, taxes, charges, rates, cesses, and fees etc, as may relate to the Demised Premises are imposed by Government and/or Municipal and/or Local Authorities from time to time. Provided however, the municipal taxes will be shared between the LESSOR & the LESSEE as per clause 9 (h) of this Agreement To Lease. 3. FITOUT Lessor shall be responsible to furnish the area leased by the Lesse. Lessor shall incur to a maximum of Rs. 5,83,00,000/-(Rupees Five Crore and Eighty Three Lacs Only), estimated as per Annexure "B" (plus or minus 5% on Rs. 5,83,00,000/- to be validated by Architect for time and cost),, estimated as per Annexure "B", [cost includes the complete furniture and fixtures, Air-conditioning - package units of a total of 250 TR (Configuration as decided between the Lessor and Lessee), Networking, Electrical cabling along with AMF and LT and or HT panels, Servo regulators /Transformers with Tap changers and all other fitments as may be necessary to have a robu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it 4.1.1 Rs. 20,00,OOOA (Rupees Twenty Lacs) with 14 days of signing of this AGREEMENT TO LEASE. 4.1.2 Balance of Rs. 35,96,425/- (Rupees Thirty Five Lacs Ninetysix Thousand Four Hundred and Twenty Five only) within 10 days of Lessor having delivered the Generators at site. 4.2 Notwithstanding what is stated herein it is further agreed that if during the period of the Lease, the LESSOR shall, sell, or create any third party right in the whole or any part of the Demised Premises/Building, then and in that event such sale shall be subject to the terms and conditions outlined in this Agreement To Lease and the purchaser shall be given Notice of this Agreement To Lease. Further, such sale shall not in any way prejudice, jeopardize or diminish the right of the LESSEE under this Agreement To Lease or its right to recover the said amount and any sale in favour of a third party shall always be subject to the Lease in favour of the LESSEE. Notwithstanding what is stated herein and7or in any other agreement or document it is further agreed that the LESSOR will furnish an acknowledgement of the receipt of the said Deposit amount transferred to the purchaser and a copy of such acknowledg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reach at an agreeable rate of escalation, they shall appoint Cushman and Wakefield or any other reputable multinational real estate firm, as a mediator who shall determine rate of escalation as per the market conditions existing at the time. In all circumstances the rate of escalation shall be within the parameters as mentioned above "15. The parties extended- the lease vide agreement dated 12.04.2004 which was valid till 30.11.2006 under following agreed terms: BASE RENT It is made clear that rent commences only from December'2003 and no rent has been paid or is payable before December'2003. The rent is payable by the LESSEE of a total sum of Rs. 9,32,737.50 /- (Rupees Nine Lacs Thirty Two Thousand Seven Hundred and Thirty Sevenand Paise Fifty Only) calculated as Rs. 22.50 per sq.ft. per month on Super area of 41,455 sq.ft., payable from 01st December 2003 only for one quarter i.e. December '2003, January 2004 and Feburary'2004. Starting March'2004 the rent payable shall be Rs. 1296810/- (Rupees Twelve Lacs Ninety Six Thousand Eight Hundred and Ten Only per month), calculated as Rs. 22.50 per sq. ft. per month on consolidated super area of 57,636 sq. ft., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Agreement To Lease may be renewed for such period and on same terms and conditions as described herein (except the increase in base rent) between the parties and a fresh agreement/lease deed shall be executed and registered at the cost of the lessee. On expiry of this Lease term of 3 years, at only Lessee's choice, the Lease may be renewed for another two terms of 3 years each. Should Lessee wants, it can exit this Agreement To Lease by serving a 6 month notice from the date of expiry of the Fixed Lease Term. 5. BASE RENT ESCALATION There shall be an escalation in the base rental only, after every three (3) year lease term. This escalation shall have a lower and upper limit of 10% to 15% respectively. The exact rate of escalation as per said parameter shall be mutually decided by the parties at the end of each three (3) year lease term. Should the Lessor and Lessee not reach at an agreeable rate of escalation, they shall appoint Cushman and Wakefield or any other reputable multinational real estate firm, as a mediator who shall determine the rate of escalation as per the market conditions existing at that time. In all circumstances the rate of escalation shall be within th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fittings, as per prescribed specifications of lessor, more specifically detailed in Annexure- B to original composite agreement at page 22- 34 of paper book. It is seen that each and every fittings from office cabinets to electrical wires, even sanitary ware tiles and door lock system were specifically detailed by lessee. We are afraid submissions of Ld. AR cannot be accepted under these circumstances. From the facts that emerges from agreement dated 25.08.2003, more than clear that agreement between assessee and Agilent Technologies related to building, that was ready for the purposes of being used as office. The agreement does not relate to bare tenement but is in respect of a fully equipped office building. That said building was complete with fittings and fixtures and ready for commencing is apparent from agreement. If it was not so, it would not have been mentioned in the agreement that Agilent Technologies shall have right to advise assessee for purchase of fittings, fixtures installations from exclusive and for architects on a global basis in the building. It is true that, from name given to agreement, one cannot decide true nature of income earned. However, what is import ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specific head of charge is provided for income from house property, rents or other income from ownership of house property has to be under this head and no other head. However, for an income from house property it should be covered by section 22. By a catena of decisions, courts, time and again, have held that where subject matter that is let out or given on licence is not a bare tenement but is a complex one like the one in present facts and circumstances, income derived therefrom which is not separable as income from letting out building and "income letting out from furniture, plant and machinery", etc., such composite income shall not be covered by income from house property. In the present case rental income received from lease of building is not derived either wholly or even substantially from the ownership of the property. The income is not derived from mere letting of a tenement but income is derived from a complex of letting substantial part of which is other than bare tenement. It is further observed from bare reading of agreements that arrangement in the present case, is in the course of and as a part of business of company and enterprise which it has entered upon is of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing decision of Hon'ble Supreme Court in the case of Shambhu Investment Pvt. Ltd vs CIT (supra) and discussions herein above, we are of considered opinion that rental income earned by assessee from lease of building would be taxable under the head "income from business and profession". Ld. AO is directed to grant depreciation on building while computing income from business as per law. Accordingly ground No. 1 and 2 raised by assessee stands dismissed. 25. Ground No. 3 has not been argued by Ld. AR. Accordingly this ground is left unanswered. 26. Ground No. 4 is general in nature and therefore does not call for any adjudication. In the result appeal filed by assessee for assessment year 2008-09 stands dismissed. ITA No. 6550/D/13 (Assessment year 2009-10) 27. Ground No. 1, 2, 3 & 5 deals with issue of treatment of rental income by Ld. AO as business income vis-a-vis income from house property as claimed by assessee. 28. As we have dealt with this ground in detail for assessment year 2008-09, following discussions hereinabove, we dismiss these grounds raised by assessee. 29. Ground No. 4 deals with findings of Ld. CIT(A) and assessing rental income under head income from ..... X X X X Extracts X X X X X X X X Extracts X X X X
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