THE PRINCIPAL COMMISSIONER OF INCOME TAX vs. PTL ENTERPRISES LIMITED

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS FRIDAY, THE 23RD DAY OF JULY 2021 / 1ST SRAVANA, 1943 ITA NO. 15 OF 2017 AGAINST THE ORDER IN ITA 200/2015 OF I.T.A.TRIBUNAL, COCHIN BENCH, ERNAKULAM APPELLANT/ APPELLANT/ RESPONDENT/ REVENUE : THE PRINCIPAL COMMISSIONER OF INCOME TAX, KOCHI-1, KOCHI, INCOME TAX OFFICES, CENTRAL REVENUE BUILDING, I.S. PRESS ROAD, KOCHI. BY ADVS. SRI.P.K.R.MENON, SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/ APPELLANT/ REVENUE/ ASSESSEE : M/S. PTL ENTERPRISES LIMITED, 6TH FLOOR, CHERUPUSHPAM BUILDINGS, SHANMUGHAM ROAD, KOCHI – 682 031 BY ADVS. SRI.JOSEPH MARKOSE (SR). SRI.V.ABRAHAM MARKOS SRI.ABRAHAM JOSEPH MARKOS SRI.ISAAC THOMAS THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 23.07.2021, ALONG WITH ITA.231/2019 AND ITA NO. 250 OF 2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING :

ITA Nos.15, 231/2019 & 250/2019 2 IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS FRIDAY, THE 23RD DAY OF JULY 2021 / 1ST SRAVANA, 1943 ITA NO. 231 OF 2019 AGAINST THE ORDER IN ITA 160/2017 OF I.T.A.TRIBUNAL, COCHIN BENCH, ERNAKULAM APPELLANT/ APPELLANT : THE PRINCIPAL COMMISSIONER OF INCOME TAX, KOCHI-1, KOCHI, INCOME TAX OFFICES, CENTRAL REVENUE BUILDING, I.S.PRESS ROAD, KOCHI-682018. BY ADVS. P.K.RAVINDRANATHA MENON (SR.) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/ RESPONDENT : M/S.PTL ENTERPRISES LIMITED, 6TH FLOOR, CHERUPUSHPAM BUILDING, SHANMUGHAM ROAD, KOCHI-682031. BY ADVS. SRI.JOSEPH MARKOSE (SR.) SRI.ABRAHAM JOSEPH MARKOS SRI.ISAAC THOMAS SRI.P.G.CHANDAPILLAI ABRAHAM SHRI.VIPIN ANTO H.M. SHRI.ALEXANDER JOSEPH MARKOS SHRI.SHARAD JOSEPH KODANTHARA THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 23.07.2021, ALONG WITH ITA.NOS.15/2017 & 250/2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ITA Nos.15, 231/2019 & 250/2019 3 IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS FRIDAY, THE 23RD DAY OF JULY 2021 / 1ST SRAVANA, 1943 ITA NO. 250 OF 2019 AGAINST THE ORDER IN ITA 161/2017 OF I.T.A.TRIBUNAL, COCHIN BENCH, ERNAKULAM APPELLANT/ APPELLANT : THE PRINCIPAL COMMISSIONER OF INCOME TAX, KOCHI-I, KOCHI, CENTRAL REVENUE BUILDING, I.S.PRESS ROAD, KOCHI - 682 018 BY ADVS. SRI.P.K.RAVINDRANATHA MENON (SR.) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/ RESPONDENT : PTL ENTERPRISES LIMITED, 6TH FLOOR, CHERUPUSHPAM BUILDING, SHANMUGHAM ROAD, KOCHI - 682 031 BY ADVS. SRI.JOSEPH MARKOSE (SR.) SRI.ISAAC THOMAS SRI.P.G.CHANDAPILLAI ABRAHAM SHRI.VIPIN ANTO H.M. SHRI.ALEXANDER JOSEPH MARKOS SHRI.SHARAD JOSEPH KODANTHARA THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 23.07.2021, ALONG WITH ITA.NOS.15/2017 & 231/2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ITA Nos.15, 231/2019 & 250/2019 4 JUDGMENT ITA Nos.15/2017, 231/2019 & 250/2019 Dated this the 23rd day of July, 2021 Bechu Kurian Thomas, J. ITA.No.15 of 2017 This appeal arises from the assessment year 2010-11. The main issue for consideration in this appeal relates to whether the lease rent received by the assessee should be treated as a business income, or as income from other sources. 2. Before we refer to the specific questions raised for our consideration, it is apposite to mention the circumstances arising in the instant case. The assessee was incorporated on 29.10.1959 with the object of carrying on the business of manufacture of tyres. As the years passed, the company incurred business losses and its entire net worth got depleted, resulting in the assessee being declared as a sick company under the Sick Industrial Companies (Special Provisions) Act, 1985. Thereafter, a scheme for rehabilitation was prepared, which obtained the approval of the Board for Industrial and Financial Reconstruction (BIFR) on 17.04.1995. Under the approved scheme, M/s.Apollo Tyres Ltd. was to operate the plant and machinery of the assessee on a lease deed for eight years i.e.

ITA Nos.15, 231/2019 & 250/2019 5 01.04.1995 till 31.03.2003. A rent of Rs.45.5 Crores was fixed for the entire period of eight years and all expenses incurred for operating the plant were to be reimbursed to the assessee by M/s. Apollo Tyres Ltd.

ITA Nos.15, 231/2019 & 250/2019 6 business income. 6. Be that as it may, the assessee had filed his return of income for the assessment year 2010-11, declaring an income of Rs.8,50,60,330/- and the regular assessment was completed on 21.03.2013. The total income was determined by the assessing officer at Rs.24,60,77,239/-. In the assessment so made, the lease rent of Rs.25 Crores received by the assessee for the assessment year 2010-11, from M/s. Apollo Tyres Ltd. for leasing its plant and machinery, though claimed as income from business, was treated by the assessing officer as income from other sources as per Section 56(2)(ii) of the Income Tax Act. Assessee's claims to exclude an amount of Rs.18,21,609/- under the head 'Professional Charges', another sum of Rs.6,46,25,550/- as interest under Section 14(A) and a further sum of Rs.9,45,69,750/- as value of shares gifted to the CEO of the subsidiary company were also disallowed by the assessing officer. 7. Though assessee preferred an appeal before the CIT (Appeals), the same was dismissed. A second appeal was filed by the assessee before the Tribunal. By the impugned order, the Tribunal allowed the appeal and held that the rental income ought to be treated as business income. The Revenue has preferred this appeal

ITA Nos.15, 231/2019 & 250/2019 7 on the following questions of law :- 1(a). Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact in holding the lease rent as income from business and is not such a finding perverse? 1(b). Whether, on the facts and in the circumstances of the case, should not the Tribunal have followed its own earlier order held in favour of the Revenue as “Income from Other Sources”? and is not the present inconsistent order perverse and against judicial decorum always insisted on by the Tribunal? 2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in - (i) allowing the expenditure towards professional charges; (ii) allowing interest expenditure; (iii) allowing expenditure incurred on gift of shares to the CEO and is not allowing the above allowances unjustified and perverse? 8. Before we consider the aforesaid questions of law, it is appropriate to mention that we had, by separate judgments, dealt with the lease rent received by the assessee in a varied manner for different periods. For the assessment years 1995-96 to 2003-04, during which the lease was entered into under a scheme approved by the BIFR, we held that the lease rent received by the assessee was its business income. However, for the assessment year 2004-05 onwards till 2009-10, we had, by our judgment in ITA.No.185/2013

ITA Nos.15, 231/2019 & 250/2019 8 and connected cases held the rent received from M/s.Apollo Tyres Ltd. to be an income from other sources. We had thus considered each case on the basis of the facts arising in each assessment year. 9. For the assessment year 2010-11, we notice a variance in the facts as pointed out to us by the learned Senior Counsel appearing for the assessee. It is in such circumstances that we decided to consider the appeals relating to assessment years 2010- 11, 2011-12 and 2012-13 separately. 10. We have heard Adv. Jose Joseph, the learned Senior Standing Counsel for the Income Tax Department as well as Senior Advocate Joseph Markose duly instructed by Adv. Abraham Markose on behalf of the respondent. 11. As mentioned earlier, we could not decipher any real intention on the part of the assessee to indulge in any element of risk taking for carrying on a manufacturing activity. We had held by our judgment in ITA.No.185/2013 and connected cases that the assessee had no intention from the assessment year 2004-05 to conduct any business so as to earn a business income and that the income received by the assessee by renting out its plant and machinery from the year 2004-05 was not business income but was income from other sources. The position was the same for the assessment years

ITA Nos.15, 231/2019 & 250/2019 9 till 2009-10. 12. Distinct from the earlier years, it was pointed out by the learned Senior Counsel that, in the year 2008 (09.01.2008), the assessee had obtained a lease of 20.78 acres of land on a 90 year lease to set up a new tyre manufacturing facility. According to the learned Senior Counsel, the said conduct was a clear indication of an intention on the part of the assessee to revive its business and also that since the Tribunal had by a detailed order treated the said circumstance as sufficient enough to evidence the absence of intention to exit the business and hence treated the rental income as a business income from the assessment year 2010-11 onwards. Notwithstanding the above, it was brought to our notice that the lease was surrendered by the assessee on 28.10.2017. On a perusal of the order of the Tribunal, we observe that the Tribunal proceeded on the basis of the lease executed but had not (and could not have) appreciated the surrender of that lease by the assessee on the ground of non-commencement of business in the leased portion of land. Of course, at the time when the Tribunal decided the appeal, the surrender of the lease was not in existence. 13. Since we have been apprised of the surrender of the lease that took place in 2017 and that too for the reason that the

ITA Nos.15, 231/2019 & 250/2019 10 assessee had not commenced any activity in the leased land, it is necessary to reconsider the issue regarding whether the rental income could be treated as a business income or income from other sources, in the light of the said development for the period from 2010-11 onwards. None of the authorities had the benefit of appreciating the assessees' claim in the light of the surrender of lease in 2017 and the fact that the surrender was occasioned due to the failure of the assessee to commence any manufacturing activity in the leased land. 14 In view of the above, we are of the opinion that the claim of the assessee to treat the rental income for the year 2010-11 as a business income and not as an income from other sources is required to be revisited by the assessing officer himself, after considering the entire matter afresh and after giving an opportunity of hearing to the assessee. 15. The second and third questions relate to the disallowance of the professional charges, interest charges and value of shares gifted to the CEO. We are of the view that those issues are ancillary or incidental to the first question and hence the said questions can also be revisited by the assessing officer. We, therefore, set aside the order of the Tribunal in

ITA Nos.15, 231/2019 & 250/2019 11 ITA.No.200/Coch/2015 dated 29.09.2016 and remand the case to the assessing officer for a fresh consideration of all the questions in accordance with law. ITA.No.231 of 2019 This appeal relates to the assessment year 2011-12. The questions of law raised in this appeal are also identical to the first two questions raised in ITA.No.15 of 2017. Since we have already remanded ITA.No.15 of 2017 for reconsideration by the assessing officer afresh, this appeal is also liable to be allowed and remanded. Accordingly, we set aside the order of the Income Tax Appellate Tribunal, Cochin Bench in ITA.No.160 of 2017 dated 06.05.2016 for the assessment year 2011- 12 and remand the same to the assessing officer for fresh consideration, in accordance with law. ITA.No.250 of 2019 This appeal relates to the assessment year 2012-13. The questions of law raised in this appeal are also identical to the first two questions raised in ITA.No.15 of 2017.

ITA Nos.15, 231/2019 & 250/2019 12 Since we have already remanded ITA.No.15 of 2017 for reconsideration by the assessing officer afresh, this appeal is also liable to be allowed and remanded. Accordingly we set aside the order of the Income Tax Appellate Tribunal, Cochin Bench in ITA.No.161 of 2017 dated 06.05.2016 for the assessment year 2012-13 and remand the same to the assessing officer for a fresh consideration, in accordance with law. In view of the above, these three appeals are allowed and the same are remanded to the assessing officer for fresh consideration, in accordance with law, after hearing the parties concerned. Sd/- S.V.BHATTI, JUDGE

Sd/- BECHU KURIAN THOMAS, JUDGE RKM

ITA Nos.15, 231/2019 & 250/2019 13 APPENDIX OF ITA 15/2017 PETITIONER'S ANNEXURES : ANNEXURE A COPY OF ASSESSMENT ORDER U/S 143(3) DATED 21.03.2013 FOR THE A.Y.2010-11 ANNEXURE B COPY OF CTI (APPEALS) ORDER IN ITA No.28/ R-4/E/CIT(A)-1/12-13 DATED 29.01.2015 ANNEXURE C CERTIFIED PLUS COPY OF THE APPELLATE ORDER OF THE ITAT COCHIN BENCH IN ITA No.200/COCH/2015 DATED 29.09.2016 FOR A.Y.2010-11

ITA Nos.15, 231/2019 & 250/2019 14 APPENDIX OF ITA 231/2019 PETITIONER'S ANNEXURES : ANNEXURE A COPY OF THE ASSESSMENT YEAR U/S.143(3)DT.24/10/2013 FOR A.Y.2011-12 ANNEXURE B COPY OF CIT (APPEALS) ORDER IN ITA 690/R- 4/E/CT(A)-II/13-14 DT.13/02/2017 ANNEXURE C COPY OF THE APPELLATE OF THE ITAT COCHIN BENCH,COCHIN IN ITA NO.160/COCH/2017 DT.06/05/2019 FOR A.Y.2011-12. ANNEXURE C COPY OF THE APPELLATE ORDER OF THE ITAT COCHIN BENCH IN ITA NO 160, 161 & 162/COCH/2017 DATED 6/5/2019 FOR A.YRS 2011-12,2012-13 AND 2013-14

ITA Nos.15, 231/2019 & 250/2019 15 APPENDIX OF ITA 250/2019 PETITIONER'S ANNEXURES : ANNEXURE-A COPY OF ASSESSMENT ORDER U/S.143(3) DATED 26/0-3/2015 FOR THE A.Y.2012-13 ANNEXURE-B COPY OF CIT (APPEALS) ORDER IN ITA 36/R- 1/E/CIT(A)-1/2015-16 DATED 14/02/2017 ANNEXURE-C COPY OF THE APPELLATE ORDER OF THE ITAT /COCHIN BENCH IN ITA NO.160,1621 & 162/COCH/2017 DATED 06/05/2019 FOR A.YRS.2011-12,2012-13