M/S BATRA PALACE P. LTD. vs. CIT, LUDHIANA

PDF · subscribers
ITA/56/2010HC Punjab & HaryanaPHHC01093506201031 March 2016Author: MR. JUSTICE SURINDER GUPTA,MR. JUSTICE RAMESHWAR SINGH MALIK8 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the Tribunal was justified in reversing the order of the CIT(A) and upholding the order of the Assessing Officer. The Tribunal had correctly distinguished the present case from the facts in CIT vs. Anand Rubber and Plastics (P) Limited (supra). The Memorandum of Understanding (MOU) dated 27.8.2002 between the assessee and the lessee, 'Pizza Hut', clearly indicated that the property was leased for a period of 12 years, renewable for a further period of 12 years. This arrangement did not suggest a temporary lease. The Tribunal rightly concluded that the intention of the assessee was to enjoy rental income from the letting out of the property, which was correctly treated as income from house property by the Assessing Officer. The other judgments relied upon by the assessee were also based on their individual fact situations and did not provide any advantage. Therefore, the substantial question of law was answered against the assessee and in favour of the revenue.

What were the facts?

The assessee, M/s Batra Palace P. Limited, engaged in running a hotel and earning income from house property, filed its return for assessment year 2005-06 declaring nil income. The assessee leased out a portion of its commercial property to 'Pizza Hut', providing various facilities. The Assessing Officer treated the lease income as income from house property, reversing the assessee's claim of business income. The CIT(A) partly allowed the appeal in favour of the assessee. The revenue appealed to the Tribunal, which partly allowed the appeal in favour of the revenue, reversing the CIT(A)'s order and upholding the Assessing Officer's view. The assessee then filed this appeal before the High Court.

What were the issues?

1. Whether the Tribunal was justified in reversing the order of the CIT(A) and upholding the order of the Assessing Officer, while treating the lease income from leasing out commercial property to a concern engaged in parallel business activities as income from house property and not income from business, when the appellant had to provide various basic facilities as that to a franchisee? (Question of law and fact, concerning Sections 14, 28, 56 of the Income Tax Act, 1961). Assessee's contention: The Tribunal erred in reversing the CIT(A)'s order. The assessee relied on the judgment in CIT vs. Anand Rubber and Plastics (P) Limited (1989) 178 ITR 301, arguing that the lease was for a temporary period and constituted commercial exploitation of the asset. Revenue's contention: The revenue supported the impugned order of the Tribunal.

Which sections of the Income-tax Act were involved?

Section 143(2),Section 260A,Section 14,Section 28,Section 56

AI-generated summary — verify with the full judgment below

Cited by 5 judgments on BharatTax

See all citing judgments →

Counted from the text of the judgments hosted here. Most recent first.

Cause title — parties, addresses and appearances
ITA No.56 of 2010 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No.56 of 2010 Date of decision:31.3.2016 M/s Batra Palace P. Limited ……Appellant Commissioner of Income Tax, Aayakar Bhawan, Rishi Nagar, Ludhiana, Punjab …..Respondent CORAM: HON’BLE MR. JUSTICE AJAY KUMAR MITTAL HON’BLE MRS. JUSTICE RAJ RAHUL GARG 1. Whether Reporters of local papers may be allowed to see the judgment? 2. To be referred to the Reporters or not? YES 3. Whether the judgment should be reported in the Digest? Present: Mr. Rajiv Sharma, Advocate for the appellant-revenue. Mr. Rajesh Katoch, Advocate for the respondent-revenue. Ajay Kumar Mittal, J. 1. This appeal has been preferred by the appellant-assessee under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 15.5.2009, Annexure A.1 passed by the Income Tax Appellate Tribunal, Chandigarh Bench 'A', Chandigarh (in short, “the Tribunal”) in ITA No.133/CHANDI/2009, for the assessment year 2005-06. It was admitted by this Court vide order dated November 23, 2010 to consider the following substantial question of law:- GURBAX SINGH 2016.05.06 12:12 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.56 of 2010 2 “ Whether the ITAT was justified in reversing the order of CIT(A) and upholding the order of Assessing Officer, while treating the lease income out of leasing out commercial property to concern engaged in parallel business activities as income from House property and not income from business when the appellant has to provide various basic facilities as that to franchisee?” 2. A few facts relevant for the decision of the controversy involved as narrated in the appeal may be noticed. The appellant-assessee is a company engaged in the business of running a hotel and also earning income from house property. It filed its return of income for the assessment year 2005-06 on 30.10.2005 declaring nil income. The return was selected for scrutiny and notice under Section 143(2) of the Act was issued to the assessee on 30.10.2006. The assessee appeared before the Assessing Officer and filed reply. The appellant submitted that it was earning income by way of rent but was providing various facilities like 60 ton AC, 100% power backup, false ceiling, front elevation with glazing and flooring, sanitary facilities as per brand requirements etc. The lease was for a total period of 12 years but subject to the condition as per clause (3) of Memorandum of Understanding (MOU) that the lease rent will be subject to increase of 15% after completion of every three years. The tenant 'Pizza hut' was in the business of running Pizza Hut which had the potential of advertising the business of the assessee and introducing new customers and therefore, was beneficial for the business of the assessee and for this reason only, the assessee had offered the space to it on lease as it was not having a restaurant in its hotel which was required for running the hotel business efficiently and profitably. The tenant left the premises in a short GURBAX SINGH 2016.05.06 12:12 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.56 of 2010 3 period. The assessee submitted before the Assessing Officer that the collaboration with Pizza Hut as lease agreement was to tide over the financial crunch period, to gain edge in business and to exploit the business opportunity in the best possible way. After examining the matter, the Assessing Officer held the income from lease of commercial property declared as business income as income from house property vide order dated 28.12.2007, Annexure A.3. Aggrieved by the order, the assessee filed appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. Vide order dated 18.11.2008, Annexure A.2, the CIT(A) partly allowed the appeal and decided the issue in favour of the assessee. Not satisfied with the order, the revenue filed appeal before the Tribunal. Vide order dated 15.5.2009, Annexure A.1, the Tribunal partly allowed the appeal and decided the issue in favour of the revenue and against the assessee while distinguishing the judgment of this court in CIT vs. Anand Rubber and Plastics (P) Limited, (1989) 178 ITR 301. Hence the instant appeal by the appellant-assessee. 3. Learned counsel for the appellant-assessee submitted that the Tribunal erred in reversing the order passed by the CIT(A) and upholding the order passed by the Assessing Officer. Primary reliance was placed on judgment of this Court in Anand Rubber and Plastics (P) Limited's case (supra). On the other hand, learned counsel for the respondent-revenue

supported the impugned order.

4.

We have heard learned counsel for the parties.

5.

Admittedly, the assessee was owning a building in which it was running a hotel and restaurant business. A portion of the said property was GURBAX SINGH 2016.05.06 12:12 integrity of this document High Court Chandigarh leased out to another concern for running a restaurant by the name of 'Pizza Hut'. The assessee claimed that this was done for a temporary period as the premises were vacated after two years and therefore the same had to be viewed as commercial exploitation of the asset. The Assessing Officer treated the income received from M/s Pizza Hut as income from house property instead of income from business. The CIT(A) treated the income earned by the assessee as business income. It has been categorically recorded by the Tribunal on appeal by the revenue that perusal of the memorandum of Understanding dated 27.8.2002 between the assessee and the lessee i.e. M/s Pizza Hut showed that the property in question was given for use for a period of 12 years which was renewable for a further period of 12 years. It was nowhere shown that the intention to let out was only for a temporary period. Thus, the CIT(A) was not held to be justified in concluding that the letting out was to be taken as commercial exploitation of the property. The intention of the assessee was to enjoy rental income from the letting out of the property which was rightly treated as income from house property by the Assessing officer. The relevant findings recorded by the Tribunal while reversing the order of the CIT(A) on this issue read thus:- “17. We have considered the rival submissions carefully. The short controversy before us resolves around the accessibility of rental income derived by the assessee. The question is whether the rent is assessable as income from property or business income. It is a settled proposition that in order to address such controversy, what has to be seen is whether the asset in question is being exploited commercially by way of renting out or whether it is being rented out for the purpose of enjoying the GURBAX SINGH 2016.05.06 12:12 integrity of this document High Court Chandigarh rental income. The Hon'ble Punjab and Haryana High Court in the case of M/s Anand Rubber & Plastics Pvt. Limited, 178 ITR 301 has further observed that the distinction between the two approaches is a narrow one and has to depend on certain facts peculiar to each case. In the case of M/s Anand Rubber and Plastics Pvt. Limited (supra), the Hon'ble High Court found it as fact that property was leased out temporarily as a commercial asset and therefore, it was held that the rental income was assessable as business income. The CIT(Appeals) has also relied upon the aforesaid judgment to decide the controversy in favour of the assessee. In this regard, we have carefully examined the facts of the present case. In the present case, the facts are that the assessee is owning a building in which it is running a hotel and restaurant business. A portion of the said property was leased out to another concern for running a restaurant by the name of Piza Hut. The claim of the assessee is that such renting was done for a temporary period as the premises were vacated after two years and therefore, such letting out of the asset has to be viewed as commercial exploitation of the assets. In this regard, we have attempted to cull out the intention of the assessee while letting out the property in question. The assessee has placed on record a copy of MOU dated 27.8.2002 with the lessee. It is evident from perusal of the same that the property in question was given over for use for a period of 12 years which was renewable for a further period of 12 years as mutually agreed upon by both the parties. From such an arrangement, it does not show that the intention to let out was only for a temporary period. No doubt, the property has been put to use by the lessee also for running a restaurant business as done by the assessee, so however, the lease cannot be termed to be for a short period or temporary. We are conscious that the property has been vacated within a period of 2 to 3 years as canvassed by the assessee. However, what is of relevance is to cull out the intention of the assessee at GURBAX SINGH 2016.05.06 12:12 integrity of this document High Court Chandigarh the time of letting out of the property which clearly does not show that the letting out was for a temporary period. Thus, in our view, having regard to the facts and circumstances of the case, the CIT(Appeals) was not justified in inferring that the letting out in this case was to be taken as commercial exploitation of the property. The intention was clearly to enjoy rental income from the letting out of the property which in our considered opinion, was rightly brought to tax under the head 'income from house property' in the assessment order. The judgment of the Hon'ble Punjab and Haryana High Court in the case of Anand Rubber & Plastics (P) Limited (supra) was clearly inapplicable because of different facts. In view of the aforesaid discussion, we therefore, set aside the order of the CIT(Appeals) on this issue and restore that of the Assessing Officer.”

6.

Adverting to the judgments relied upon by the learned counsel for the appellant-assessee, it may be noticed that in Anand Rubber and Plastics (P) Limited's case (supra), the factory premises of the assessee consisted of three portions – the main building, a front shed and a rear shed. In order to curtail the losses, production was reduced with the result that the rear shed became surplus. The said portion was leased out with a view to reduce the losses. After examining the matter, it was recorded by this court that in order to determine whether rent is assessable as income from property or business income, what has to be seen is whether the asset is being exploited commercially by the letting out or whether it is being let out for the purpose of enjoying the rent. It was held that the portion of the property was leased out temporarily as a commercial asset. Thus, the rent received was assessable as business income. Such is not the position in the present case. Herein the property was leased out for a period of 12 years as GURBAX SINGH 2016.05.06 12:12 integrity of this document Income Tax Act, 1922 (in short, “the 1922 Act”) and in the case of income from the furniture and fixtures, to those mentioned in sub section 3, and that no part of the income could be assessed under section 9 or 10 of the 1922 Act. The other judgments relied upon by the learned counsel for the appellant-assessee in CIT vs. Superfine Cables P. Limited, (1985) 154 ITR 532 (Del.), Commissioner of Excess Profits Tax, Bombay City vs. Shri 2016.05.06 12:12 integrity of this document High Court Chandigarh case law on the point. Learned counsel for the appellant-assessee has not been able to show any illegality or perversity in the impugned order. Thus, the substantial question of law is answered against the assessee and in favour of the revenue. Consequently, the appeal stands dismissed. (Ajay Kumar Mittal)

Judge March 31, 2016 (Raj Rahul Garg) ‘gs’ Judge GURBAX SINGH 2016.05.06 12:12 integrity of this document High Court Chandigarh

More judgments on Section 14

All 685 judgments and leading authorities on Section 14 →

Recent GST High Court judgments

Search GST case law →