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TMI Blog2017 (7) TMI 618X X X X Extracts X X X X X X X X Extracts X X X X ..... n 56 (2) (iii) of the Act and not as 'income from house property'? Background facts 3. The background facts are that the Assessee which has its registered office at E-56, Greater Kailash-I, New Delhi entered into a lease deed dated 5th October 2007 with Feedback Ventures Private Limited ('Lessee') whereby the basement, ground floor, first floor and second floor of the building at Plot No. 811, Udyog Vihar, Phase-V, Gurgaon, Haryana ('the premises in question') were given on rent to the Lessee for a period of four years. 4. The relevant preamble clauses of the lease deed read as under: "(a) The Lessors represent that they are fully seized and possessed plot and built-up area Basement, Ground Floor, First Floor and Second Floor of the Building Plot No. 811, Udyog Vihar, Phase-V, Gurgaon, Haryana (hereinafter referred to as premises and entitled to create a lease. (b) The Lessors have agreed to lease to the Lessee the premises with fully furnished, centrally air conditioned and with adequately power backed through a 200 KVA diesel generator set, which the Lessees have agreed to take for period of 48 months and upon the terms and conditions set out herein below beginning from 1st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the rental income as composite rental income." 8. The AO rejected the above contentions and held that "the rental income declared by the Assessee at Rs. 82,45,000 is held to be composite rent and assessed as per the provisions of Section 56 (2) (iii) of the Act." Consequently, the amount of Rs. 24,73,500 claimed for deduction under Section 24 (a) of the Act was disallowed and added back to the net income of the Assessee. Appeal before the CIT (A) 9. Before the CIT(A), the Assessee pointed out that the issue had been decided in its favour for the AY 2008-09 by an order dated 25th February 2011 of the CIT (A). In its order dated 27th July, 2012, while allowing the appeal of the Assessee, the CIT(A) quoted from the earlier assessment order dated 25th February, 2011 for the AY 2008-09 wherein it was inter alia held as under: "In the present case, the Assessee made a lease agreement on 5.10.2007 with M/s. Feedback Ventures Private Limited in respect of the premises situated at building No. 811 comprising of basement, ground floor, first floor and second floor which was leased out during the year under consideration on monthly rent of Rs. 9,10,000/- with the amenities like wooden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from such letting of building shall be chargeable to income tax under the head 'income from other sources." The order of the AO was restored and the order of the CIT(A) was set aside. Submissions of the Assessee 12. Mr. Salil Kapoor, learned counsel appearing for the Appellant/Assessee submitted that the Lease Deed dated 5th October, 2007 was only for lease of the building and did not provide for any separate rent for the amenities. Initially the building had been let out without the amenities to a previous tenant who had then bought the equipment and fixtures. When that lease came to an end, the Assessee had purchased the equipment and fixtures from the said previous tenant. 13. Mr Kapoor pointed out that even as per the lease deed dated 5th October 2007 entered into with the lessor, the predominant purpose was to lease out the building. The equipment and fixtures were incidental to and inseparable therefrom. Therefore, Section 56 (2) (iii) of the Act was not attracted. Mr. Kapoor submitted that the decision in Garg Dyeing & Processing Industries v. ACIT (supra) was distinguishable on facts. Mr. Kapoor emphasized that the Assessee had not claimed depreciation on plant and machi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ructed a building for the purpose of running a hotel and for certain ancillary purposes. With this objective, the Assessee equipped with the building, furniture and fixtures. The lease deed in that case provided for a monthly rent of Rs. 5,950 for the building and hire of Rs. 5,000 for the furniture and fixtures. 17.2 The Department disallowed the claim of the Assessee stating that the entire sum received under the lease was to be treated as 'income from other sources'. While the rent receipt for the building was treated as 'income from house property', the rent received on account of furniture and fixtures alone was held to be admissible under 'income from other sources'. 17.3 However, the Supreme Court accepted the Assessee's claim by holding that 'when a building, plant, machinery or furniture are inseparably let, the Act contemplates the rent for the building as a residuary head of income'. The Court observed as under: "It seems to us that the inseparability referred to in sub-Section (4) is an inseparability arising from the intention of the parties. That intention may be ascertained by framing the following questions: Was it the intention in making the lease - and it matte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction of the building owned by the Assessee was in progress, the Assessee entered into an agreement with the Export Promotion Council to lease the second floor and part of the first floor of the building to the Council. 21.2 Under the Lease Agreement, the Assessee agreed to provide the necessary partitions, lavatories, closets, air-conditioners, fluorescent tubes, electric meters, water supply etc. According to the Assessee, the Agreement evidenced a hire of machinery, plant and furniture along with the building, and that the income received thereunder was 'income from other sources' falling under Section 56 (2) (iii) of the Act. 21.3 The AO rejected the contention and assessed the income as 'income from house property'. After the Appellate Authority and the Tribunal upheld the above view, the matter came before the High Court by way of reference. Before the High Court, there were no such two lettings in that case. The amenities which the Assessee had provided in the building formed part of the building. In other words, it was held that the income from the letting of the building by the Assessee to the Council was assessable as 'income from house property' and 'not from other so ..... X X X X Extracts X X X X X X X X Extracts X X X X
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