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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 ..... ing decision of Hon’ble Supreme Court in the case of Shambhu Investment Pvt. Ltd vs CIT (2003 (1) TMI 99 - SUPREME Court) 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. - Decided against assessee. - ITA No. 5641/Del/2012, And ITA No. 6550/Del/2013 - - - Dated:- 5-5-2017 - SH. N. K. SAINI, ACCOUNTANT MEMBER, AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER For The Appellant : Sh. R. S. Singhvi Sh. Satyajeet Goyal, CAs For The Respondent : Sh. Rajesh Kumar, Sr. DR ORDER PER BENCH : 1. The present appeals have been filed by assessee against order dated 29.06.2012 and 26.12.2012 passed by Ld. CIT(A)- XXIII, New Delhi for assessment years 2008-09 and 2009-10 on following grounds of appeal: ITA No. 5641/del/2012 1. The lower authorities have erred in not assessing the rental income from property no.8 9, Udyog Vihar Industrial Area, Phase TV, Gurgaon which was let out to M/s. Agilent Technologies (International) Pvt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9-10 were credited to profit and loss account under head fit out hiring charges and building rent respectively. (ITA No. 5641/del/12) Assessment year 2008-09 4. On examination of details Ld. AO observed that assessee had leased out a portion of premises at plot No. 8 and 9, Udyog Vihar, Budhgarh to M/s Agilent Technologies (International) Pvt. Ltd., alongwith the fit outs installed in premises. Assessee had disclosed rent received from the hiring of building under head income from house property and had claimed deduction under section 24. However, rent received from fit outs was disclosed as income from business. Ld. AO was of opinion that rent is derived from same premises and that of building was in separable from hire of the fit outs. Ld. AO included rent from lease of building as income from business and disallowed deduction claimed by assessee under section 24 and added it back to total income. 5. Aggrieved by assessment order assessee preferred appeal before Ld. CIT(A). Ld. CIT (A) held as under: The Assessing Officer has correctly observed that the income derived from fitouts hiring at ₹ 2,89,65,7397- a is considerably higher than the building ren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that, during year under consideration assessee has renewed lease agreement of building with Agilent Technologies, vide agreement dated 13.12.2006 and lease agreement of fit out vide agreement dated 20.08.2004 and 07.02.2008 (unexpired 2 months period for the relevant assessment year). He submitted that rentals received from lease of fit outs has been offered as business income whereas rental received from lease of building has to be considered as income from house property, as it does not involve any commercial activity. In the paper book Ld. AR placed reliance upon the decision of Hon ble Madras High Court in the case of Kayram Hotels Pvt. Ltd., reported in (2015) 373 ITR 494 and decision Hon ble Calcutta High Court in the case of CIT vs. Shambhu Investments Pvt. Ltd., reported in (2001) 249 ITR 47 which has been subsequently approved by Hon ble Supreme Court in Shambhu Investments Pvt. Ltd vs. CIT reported in (2003) 263 ITR 143. 10. On the other hand, Ld. DR submitted that assessee is into business of hiring of building and therefore, rent received from agreement to lease of building would amount to business income in the hands of assessee. He submitted that Agilent Intern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered its previous decisions, viz., (1) CEPT v. Shri Lakshmi Silk Mills Ltd. [1951] 20 ITR 451 ; (2) Narain Swadeshi Weaving Mills v. CEPT [1954] 26 ITR 765 ; (3) CIT v. Calcutta National Bank Ltd. [1959] 37 ITR 171 ; (4) Sultan Brothers P. Ltd. v. CIT [1964] 51 ITR 353 ; (5) New Savan Sugar and Gur Refining Co. Ltd. v. CIT [1969] 74 ITR 7 and (6) CIT v. Vikram Cotton Mills Ltd. [1988] 169 ITR 597. 14. Keeping in mind aforesaid legal position, we shall now advert to facts of present case more particularly the composite lease agreement dated 25.08.2003. This agreement is entered into between assessee as Lessee and Agilent Technologies (International) Pvt. Ltd. as Lessor, inter alia records that: 2. BASE RENT The rent is payable by the LESSEE of a total sum of ₹ 9,32,737.50 /- (Rupees Nine Lacs Thirty Two Thousand Seven Hundred and Thirty Seven and Paise Fifty Only) calculated as ₹ 22.50 per sq.ft. per month on Super area, payable quarterly in advance from 01st December'2003 or date of Completion of fitouts, whichever is' earliert. For the purpose of this Agreement, the Fitout Completion is defined as interiors completed in all respects as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see on a Global basis, shall be used on Lessee's advise. It is however clearly understood that the cost, quality and time frame for delivery of project shall be the responsibility of the Lessor and due penalties agreed at ₹ 50,000/-/day shall be levied for each days delay beyond 7th Dec 03 shall be imposed by the Lessee on Lessor. It is estimated that by spending a fitout cost of ₹ 5,83,00,000/- (Rupees Five Crore and Eighty Three Lacs Only), on super area the Lessee shall reimburse the Lessor by paying a monthly rent of Rs, 27.22 per sq. ft. per month for a period of 6 years calculated @ 12% per annum, without any escalation, from the date of Lessor handing over the Fully fitted out property for Lessee's occupation. The fitout rentals shall be payable only for a period of six (6) years from the date of execution of the Lease Agreements. In the event of early termination of the lease, Lessee shall pay the residual value' of the fitouts at the time of termination. The residual value being the unamortized value of fitouts from the date of termination of Lease Agreement (refer Annexure C). 4. SECURITY DEPOSIT 4.1 That the LESSEE, as s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osit amount then outstanding by way of Bank Draft/Cheque payable at New Delhi, after deduction of any arrears/dues towards any nonpayment of bills or any other charges payable by the LESSEE in respect of the Demised Premises under the Agreement To Lease. 4.4 That it is further undertaken by the LESSOR that in the event of the LESSOR defaulting in returning the security deposit, the LESSEE may continue to retain possession and use of the Demised Premises without payment of any further rent, fee, compensation, outgoings, whatsoever until the LESSOR duly refunds the amount of security deposit, subject to deductions as contemplated in Clause 3.1. Further, the LESSOR shall refund with interest thereon calculated at 18% per annum to be computed from the date on which the LESSOR was liable to refund the said deposit as provided hereinabove until payment thereof. Such retention of possession by the LESSEE in the Demised Premises in case of non-refund of the security deposit shall be deemed to be an act of trespass and shall not be considered as illegal or rized. 5. LEASE TERM The lease term is for a period from 25th August' 2003 to August 24th, 2006 ( Lease Term). The LES ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be subject to deduction of tax at source, where required under the Income-tax Act, 1961. The LESSEE shall promptly deliver the tax deduction certificate to the LESSOR . The Base rent is inclusive of the cost for 100% power backup through the generator sets. In addition to the rent payable for the Demised Premises as stipulated in this Agreement To Lease, the Lessor and LESSEE agrees to share 50% (Fifty percent)/ half, in respect of the Demised Premises, and only from the dale 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 arc 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. SECURITY DEPOSIT That the LESSEE, as security for its obligations under the AGREEMENT TO LEASE, has already deposited and shall keep deposited with the LESSOR, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Officer, HSDC, Gurgaon for Leasing the Demise Premises to the LESSEE, 6.2 All the Terms and Conditions of this Agreement to Lease shall be operative for the permissible are of the Demised Premises including the entire Security Deposit amount as defined under Clause 3 above. 16. Thereafter, lease was again extended Vide agreement dated 13.12.2006 which was valid till 30.11.2009 on following agreed terms: 17. Further perusal of balance sheet placed at pages 81 to 110, it is observed that assessee included the said building in schedule of fixed assets for the year under consideration details of which are at page 105 to 106 of paper book. At page 108 of the paper book assessee has placed assessment order for assessment year 2004-05, wherein assessing officer records about a high-rise building, constructed on plot No. 8 and 9, Udyog Vihar Industrial Area Phase-IV, Gurgaon and after executing complete furnishing to extent of ready to move in workstations, has let it out to a Call Centre, yielding separately rent from property as well as fittings and fixtures provided from December 2003 onwards Ld. AO therein also records that as evident from rent/lease agreement, pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on thereof, Agilent Technologies shall surrender vacant possession of building and hand over entire building with furniture fittings and installations to assessee. If the agreement between assessee and Agiliant Technologies, was a simple lease or a licence of building, as is sought to be contended by Ld. AR, there would not have been covenant providing that on expiry of term of agreement or sooner determination, Agilent Technologies shall hand over vacant possession of building alongwith furniture fittings and installations as is where is basis. It is true that period for which business assets are let out is always a relevant factor in finding out whether intention of assessee is to let out a business assets and if assessee had never started business, an inference may be drawn that assessee intended to exploit property and not business assets but intention of parties has to be gathered from overall facts and not isolated circumstances. In the facts of present case assessee had already constructed building in the assessment year 2004-05 as recorded in the assessment order referred herein above. 20. It is settled legal position that each case has to be decided on its own facts inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestment Pvt. Ltd reported in 249 ITR 47, which was approved by Hon ble Supreme Court in judgment reported at 263 ITR 143, their Lordships had an occasion to elaborately deal with judicial precedents on whether rental income could be taxed under head business profits, and their Lordships concluded as follows: Taking a sum total of aforesaid discussions, it clearly appears that merely because income is attached to any immovable property cannot be the sole factor for assessment of such income as income 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 main intention is for letting out the property, or any part 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. 8. It is thus clear that when a property is exploited by way of complex commercial activities , income so earned by exploiting the property is to be taxed as business income. Viewed in this perspective, and having ..... X X X X Extracts X X X X X X X X Extracts X X X X
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