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TMI Blog2005 (7) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... nses were not at all related to business activity? 3. Whether, on the facts and in the circumstances of the case, the hon'ble Tribunal was correct in holding that treatment of receipts from workshop, cold storage, motor garage, Raj oil pump and supervision charges of development division should be taxed under the head 'Income from business' and not under the head 'Income from other sources'? 4. Whether the Tribunal was justified in law in holding that the bank interest on fixed deposits representing the particular amount received from the UP State Electricity Board against a bank guarantee furnished by the assessee was taxable for the assessment years 1987-88 and 1988-89 on the particular facts and circumstances of the case?" The brief facts of the case are as follows: The assessee-company has income from letting out of house property at Nainital and in addition has lease rent from letting out of workshop, cold storage, motor garage, Raj oil and interest income plus miscellaneous income. During the year under consideration the assessee claimed income from letting out of Nainital lodge to SBI on monthly rent of Rs. 22,500/ Rs. 2,77,410 as business income which was rejected and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... offer was for use of the premises throughout the year in contrast to the seasonal character of the tourist trade in Nainital. (vii) The trainees attending the training centre came from various parts of the country and their stay varied from 3 days to 10 days. (viii) A sarai licence was obtained from the D.M. for carrying on the above activity as Balrampur lodge and also a licence from the District Health Officer. Such licences have been issued from year-to-year up to date. (ix) The municipality gave a notice for revision in the municipal taxes after the SBI started the training centre. The assessee represented its case for being assessed as a business activity as in the case of any hotel. The Nainital municipality accepted the contention. (x) Nearly 1/3rd of the main building is still in use of the assessee housing a branch office and the office of the deputy agent and quarters for the visiting directors, secretary and other staff of the company, gardeners, sweepers, etc. have also been engaged for maintenance and upkeep of the property, the lawns and the garden which are in the exclusive possession of the assessee. (xi) The assessee also relies on the fact that the lease wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us and also after on-the-spot inspection, we are of the view that it is a case of exploitation of an asset by a businessman for getting the maximum return on a commercial asset although temporarily let out to State Bank of India, with certain modification. At the time of inspection of the property, we noticed that there was a Nalla passing through the land, which separates the main building from the quarters. Some rooms were still being used for housing the administrative office, faculty members' office while others were used as hotel accommodation for the visiting trainees. It was also noticed that structural changes had been made in the building to suit the requirements of the visiting trainees. The licence granted by the district authorities under the Sarai Act was found displayed in the front portion of the building. The back portion of the building was housing the office of the company and the resident representative of the assessee-company was having his office. One room was being used as the office of the visiting officers of the company, two rooms were used for the stay of the officers of the company visiting Nainital on company's work. The lawns were found to be in the pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n favour of the assessee." With regard to question No. 3, the Tribunal has recorded the following findings: "The next controversy relates to the treatment of receipts from workshop, cold storage, motor garage, Raj oil pump and supervision charges of development division. It was argued before the first appellate authority that the income from commercial asset was treated as business income for earlier years, that the case law cited by the Assessing Officer were not new and despite that case law, income from commercial asset was used as business income and was taxed as such in earlier years, that the leasing was not of house property but a complex operation involving machinery and plant, etc., that no new facts were brought to the notice of the Assessing Officer and that his decision to assess the income under the head 'Other sources' represented only a change of income, that the letting out was a temporary phase and not a permanent arrangement, that the assessee possessed the cold storage, that the 'supervision charges' received for supervision of construction of Digvijaya Complex could not be assessed as income from 'Other sources'. The Commissioner of Income-tax (Appeals) rejecte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elief and the Supreme Court by its order dated May 4, 1982, awarded 50 per cent, of the claim, against provision of bank guarantee. The payment received from the UPSEB was lodged in fixed deposit at 10 per cent, interest against which the bank issued a bank guarantee as required by the Supreme Court. The assessee transferred the interest at 6 per cent, earned from the fixed deposit to the suspense account in which a sum of Rs. 33,84,257 stood credited to the account of the UPSEB until the final outcome of the decision before the Supreme Court. The Supreme Court dismissed the appeal on February 1, 1991. In these facts, The Tribunal held that in view of the dismissal of the appeal filed by the UPSEB, all doubt about the uncertainty of the accrual of interest of compensation has come to an end and it cannot be argued by the assessee now that the compensation claim of the assessee is in jeopardy. The argument raised on behalf of the assessee that the interest earned on the part of such compensation is in jeopardy and cannot be rightly treated as income, has no legs to stand. The Tribunal accordingly, held that the interest accrued on the fixed deposit was the income of the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usly be made owing to paucity of raw materials only for six hours in a working day, and in order to get the best yield out of it, another person who has got the requisite raw materials is allowed to use it as a licensee on payment of certain consideration for three hours; can it be said in such a situation with any justification that the amount realised from the licensee is not a part of the business income of the licensor. In this case the company was incorporated purely as a manufacturing concern with the object of making profit. It installed plant and machinery for the purpose of its business, and it was open to it, if at any time it found that any part of its plant 'for the time being could not be advantageously employed for earning profit by the company itself, to earn profit by leasing it to somebody else ... We are therefore of the opinion that it was a part of the normal activities of the assessee's business to earn money by making use of its machinery by either employing it in its own manufacturing concern or temporarily letting it to others for making profit for that business when for the time being it could not itself run it. The High Court therefore was in error in hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d stalls in the market; (iii) that, on the facts, the taking of the property on lease and subletting portions thereof was part of the business and trading activity of the appellant and the income of the appellant fell under section 10 of the Act." In the present case, the Tribunal found that the property in dispute was 16 being used as a guest-house up to the assessment year 1984-85 and this Nainital lodge was used and accepted by the Department as a business property. The expert project report was commissioned with a view to convert the property into a hotel. During the process of conversion of the property into a lodging house, an offer was received from the SBI to provide this place with furniture and fitting for the use of their training centre with accommodation of 30 beds for the visiting trainees. The hotel business in Nainital was seasonal and the offer of the SBI was accepted. A sarai licence was obtained from the District Magistrate, Nainital, for carrying on the said business and the assessee had also licence from the District Health Officer and this licence has been renewed from year-to-year. The municipality of Nainital has assessed the property as a hotel establishm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee and the entire cost of the property was let out to the occupants and the cost had been recovered as rent from the premises by the assessee, therefore, could not be said that the assessee was exploiting the property for its commercial business activity. In the case of CIT v. Purshottam Dass reported in [2001] 247 ITR 516 (Delhi), property constructed as a residential unit was let out to the Government Department was temporarily used for office purpose earlier. The Division Bench of the Delhi High Court held that construction was made for residential purpose in a residential area and was mere temporary non-user as residence and consequent temporary user for office purposes will not make the rent chargeable as business income. It has been held that liable to be taxed as property income. So far as question No. 3 is concerned, the Tribunal has given reasoning for coming to the conclusion that the rent from cold storage, motor garage, Raj oil mill and approval charges may be taxed under the head "Income from business" and not under the head "Income from other sources". We do not find any error in the view of the Tribunal. We accordingly, answer questions Nos. 1, 2 and 3 i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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