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TMI Blog2020 (7) TMI 216X X X X Extracts X X X X X X X X Extracts X X X X ..... expertise and derive income. There is no sale of assets or retrenchment of employees or even surrender of any licenses, registration etc. As per the agreement, it was the responsibility of the assessee to recruit labour for running the plant and meet all the labour law requirement in respect thereof, to purchase fuel and power required for running the plant, ensure the plant is properly insured, maintain the plant in working condition, undertake its repair and maintenance etc. The expenses so incurred by the appellant for the said responsibilities, were reimbursed by Apollo to it on actual basis. The production now by the appellant is in the name of Apollo and that too, to retain commercial viability in the operations and augment the financial position and at the same time bring about modernization and expansion in the plant. In view of section 56(2)(ii) coupled with the judgments of the VIKRAM COTTON MILLS LIMITED [ 1987 (12) TMI 1 - SUPREME COURT] the income should fall under the head profits and gains of business and not from income from other sources . Accordingly, the ground raised by the assessee is allowed. - ITA No.84/Coch/2020 - - - Dated:- 6-7-2020 - Shri Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 7.50 crores; iii) Agreement dated 1.5.2006 Period 1.4.2005 to 31.3.2006 Lease rent per year ₹ 10 crores; iv) Agreement dated 22.05.2006 Period 1.4.2006 to 31.3.2010 Lease rent per year ₹ 15 crores v) Agreement dated 14.11.2007 Period 1.10.2007 to 31.3.2014 Lease rent per year ₹ 25 crores. (Lease rent was revised w.e.f. 01.04.2019 to ₹ 40 crore vide Appollo Tyre letter dated 31.05.2010) 3.2 The afore said lease rent for assessment year 2014-2015 has been received under the agreement dated 14.11.2007 and revised lease rent agreement. The lease rent so received for the assessment year 2014-2015 was declared as income from business by the assessee. The Assessing Officer, however, rejected the assessee s claim and brought to tax lease rent as income from other sources u/s. 56(2)(ii) of the Act. 4. Aggrieved by the order of the Assessing Officer assessing the lease rent received by the assessee as `income from other sources , the assessee preferred appeal to the first appellate authority for assessment year 2014-2015. The CIT(A) allowed the appeal of the assessee. The CIT(A) directed the Assessing Officer to assess the lease rent received by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 011-2012 to 2013-2014 (supra). The Tribunal after considering various orders of the Tribunal in assessee s own case for assessment year 1996-1997 to 2009- 2010 (some of the orders of the Tribunal are in favour of the assessee and some are against the assessee), decided the issue in favour of the assessee by holding that the lease rent received by the assessee should be assessed as `income from business . The relevant finding of the Tribunal in assessee s own case for assessment years 2011-2012 to 2013-2014 read as follows:- 8. We have heard the rival submissions and perused the material on record. Identical issue was considered by the Cochin Bench of the Tribunal in assessee s own case for assessment year 2010-2011 (supra). The Tribunal after considering various orders of the Tribunal in assessee s own case for assessment year 1996-1997 to 2009-2010 (some of the orders of the Tribunal are in favour of the assessee and some are against the assessee), decided the issue in favour of the assessee by holding that the lease rent received by the assessee should be assessed as `income from business . The relevant finding of the Tribunal in assessee s own case for assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period and receiving rent, such rent is to be treated as income from business. The cases relied upon by the assessee such as 20 ITR 451, 169 ITR 597, 195 ITR 3525, 138 ITR 18, 116 ITR 781, 266 ITR 106, 166 ITR 211, 211 ITR 370, 164 ITR 288 and 237 ITR 454 (mentioned in para 16 of this order) support the case of the assessee. In all these cases, the Hon ble Supreme Court and various High Courts held that rental income received for a limited period by way of letting out plant and machinery because the assessee was unable to operate on account of some difficulties either obtaining the new materials or financial difficulties, etc., then that income has to be treated as income from business. The only limitation is that the assessee should have the present intention to revive the industry/activity in a future date when the difficulties ceased to exist or the assessee is in a position to over come the difficulties. 21. From the facts stated as above, there is nothing on record to show that the assessee had no present intention to revive its business at an appropriate time. Therefore, this issue is decided against the revenue and in favour of the assessee. 8.3 From the aforesaid i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal have held for A.Ys 1996-97 to 2003-04 that income from Apollo is taxable as business income and for A.Ys 2004-05 to 2009-10, it is taxable as income from other sources. 8.5 The Assessing Officer has also relied upon the order of the Tribunal for AY 2004-05 to arrive at the conclusion that in the instant year income of ₹ 25 crores is taxable as income from other sources. The order of the Tribunal dated 21.12.2012 for AY 2004-05 holds as under: 5. Admittedly the original lease period had expired by the year ending 31.3.2003 and for the year under consideration, a new lease rent agreement has been entered. The issue whether the lease rent is assessable under the head income from business or income from other sources was considered by this bench in the assessee s own case in I.T.A. No.659/coch/2010 relating to the assessment year 2007-08, and this Bench has taken a view that the assessee has not proved its claim that it is taking steps to revive the business. The observations made by this Tribunal are extracted below for the sake of convenience: 6. We have heard the rival contentions and carefully perused the material on record. There cannot be any disp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales tax registration etc. while addressing the question and has taken the decision by considering the fact of time gap only, which is not correct. Since this Tribunal is dealing with the miscellaneous petition u/s. 254(2) of the Act, we are of the view that such new factors cannot be considered at this stage. Accordingly, we do not find any merit in the contentions of the assessee on this issue. 8.8 In the light of the above, the Ld. AR submitted that the precedent relied upon by the authorities below to negate the claim of the appellant did not consider the other facts such as expenses, sales tax registration etc. while determining the head for taxability of income received from Apollo and, has taken the decision by considering the fact of time gap, only. It was also highlighted that even the fact of time gap cannot be seen in isolation and, Tribunal itself in order for AY 2007-08 has held that intention to revive business activity is a question of fact and is required to be considered every year on the basis of facts and circumstances prevailing in that year. 8.9. To examine the above contentions, we take note that, for the instant year, assessee received lease rent o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 2006 the parties had agreed to execute the lease of the premises for a period of four years for ₹ 15 crores per annum w.e.f. 1st April, 2006. Whereas ATL has approached PTL that its has plans to make further investments in the plant of PTL and is desirous to extend the period of lease and have a firm eight years lease. Whereas both the parties are desirous of continuing the lease operations arrangement for the present Whereas PTL has requested ATL to enhance the lease rental and security deposit with effect from 1st October, 2007 which ATL has agreed. 8.11 The obligation of the appellant under the arrangement had been provided in clause 6 of the agreement which stipulates as under: 6 In addition to payment of lease rental as aforesaid, ATL will reimburse to PTL actual expenses on account of the following also: a) Power of fuel b) Store and spares c) Repair and maintenance d) Personnel cost e) Expenses under any other head relatable to production manufacture of tyres/tubes. 8.12 It was specifically also agreed that appellant was responsible for compliance of all other statutory rules/regulations including labour, welfare, legisla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x) Director s Fee 3.70 3.70 xi) Payment to statutory auditors 1.47 1.47 Xii) Legal and professional charges 25.39 7.17 xiii) Printing, stationery, postage, telegram telephone etc. 4.69 4.69 xiv) Re-imbursement towards utilization of computer and other ATL facilities 34.45 34.45 xv) Lease premium of lease hold land written off - - xvi) Miscellaneous expenses 0.72 0.72 xx) Total(A) = (I+II 1 05.25 87.03 xxi) Depreciation 8.24 - xxii) Interest and bank charges 646.26 - xxiii) Expenditure incurred i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receiving rent from the said property as its business income, the said income, even if in the nature of rent, should be treated as Business Income because the assessee is having a business of renting his property and the rent which he receives is in the nature of his business income. 8.16. In the case of Chennai Properties and Investment Ltd. (supra), the Hon ble Court followed the judgment of Karanpura Development Co. Ltd. v. CIT 44 ITR 362 (SC) wherein it has been held as under: 8.17 In fact in the case of Rayala Corporation (P) Ltd. (supra), it was undisputed position that assessee company had stopped its other business activities and was having only an activity with regard to the leasing its properties and earning rent therefrom and except leasing the company was not having any other business. 8.18 On the aforesaid factual matrix, it was concluded as under: As has been already pointed out in connection with the other two cases where there is a letting out of premises and collection of rents the assessment on property basis may be correct but not so, where the letting or sub-letting is part of trading operation. The dividing line is difficult to find; but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its property and to earn rent and therefore, the income so earned should be treated as its business income. 8.19 Thus the ratio-descendi of the aforesaid judgment is that rental income is assessable as business income if the only income is from leasing of property even if leasing is not the main business of assessee. The agreement with Apollo is intra-vires the objects of the assessee as per Memorandum of association, which inter-alia includes the following: 9 To bring, buy sell, manufacture, plant, cultivate, prepare, repair, convert, hire, alter, treat, manipulate, exchange, let on hire, import, export, dispose off and deal in machinery, implements, rolling stock plant, hardware, ores, metals, iron, carbon black rayon, hessian, stone materials, tools, appliances, apparatus, products, substance and articles of all kinds (whether referred to in this memorandum or not) which may seem to the company capable of being used or required for the purpose of any of the business which the company is expressly or by implication authorized to carry on or which are usually supplied or dealt in by persons engaged in any such businesses or which may seem to the company capable of being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee company was a manufacturer of silk cloth and as a part of its business, it installed a plant for dyeing silk yarn. During the chargeable accounting period, January, 1, 1943, to 31st December, 1943, owing to difficulty in obtaining silk yarn on account of the war, it could not make use of this plant and it remained idle for some time. In August, 1943, it was let out to a person on a monthly rent. The question was whether such sum representing the rent for five months realized by the assessee was chargeable to excess profits tax as profits of business or was income from other sources and was, therefore, not chargeable to excess profits tax. It was held by the Apex Court 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 and that the dyeing plant had not ceased to be a commercial asset of the business and the sum representing the rent for five months received from the lessee by the assessee was, therefore, income from business and was charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the arrangement between Apollo and appellant it is apparent that the said, arrangement between the parties is that of contract manufacturing whereby the basic raw material for manufacture of the tyres is supplied by Apollo, and using the same the appellant manufactures the tyres for Apollo using its labour, fuel etc. Clearly, if the appellant fails to provide the labour, etc. the arrangement would not be workable, where there is a simple lease of a plant to another party. It is case where the appellant apart from letting Apollo constructively use its plant and machinery, is also managing the entire production activity in the plant by using its labour etc. and accordingly, there is a systematic activity undertaken by the appellant. Accordingly, it is submitted that the activity undertaken by the appellant is that of a business activity and accordingly, any income arising therefrom ought to be treated as business income. 8.26 We are also of the opinion that disclosure in the financial statement as other income or there is one segment of the assessee is an irrelevant consideration. It is well settled principle that treatment in books of accounts is not determinative of the na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judicata does not apply in matters pertaining to tax for different assessment years because res judicata applies to debar courts from entertaining issues on the same cause of action whereas the cause of action for each assessment year is distinct. The courts will generally adopt an earlier pronouncement of the law or a conclusion of fact unless there is a new ground urged or a material change in the factual position. The reason why the courts have held parties to the opinion expressed in a decision in one assessment year to the same opinion in a subsequent year is not because of any principle of res judicata but because of the theory of precedent or the precedential value of the earlier pronouncement. Where facts and law in a subsequent assessment year are the same, no authority whether quasi-judicial or judicial can generally be permitted to take a different view. This mandate is subject only to the usual gateways of distinguishing the earlier decision or where the earlier decision is per incuriam. However, these are fetters only on a coordinate Bench which failing the possibility of availing of either of these gateways, may yet differ with the view expressed and refer the matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the facts in the light of the Memorandum. 8.31 In final analysis we hold that the appellant commenced the business but on account of poor financial viability the appellant company incurred losses and, eroded the entire net worth and was declared sick company under the Sick Industrial Companies Act, 1956. A rehabilitation scheme was prepared and sanctioned by Board for Industrial and Financial Reconstruction. Scheme envisaged joint operation of the plant on an irrecoverable lease of eight years in consideration of lease rentals; which has been extended from time to time. There was thus no intention of letting out the plant, building, machinery and licence to anyone. The set up of the business for carrying on the business. Further, when appellant entered the arrangement with Apollo, the intention was not to lease. The intention was to exploit the commercial assets through its expertise and derive income. There is no sale of assets or retrenchment of employees or even surrender of any licenses, registration etc. As per the agreement, it was the responsibility of the assessee to recruit labour for running the plant and meet all the labour law requirement in respect thereof, to p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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