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IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS MONDAY, THE 19TH DAY OF JULY 2021 / 28TH ASHADHA, 1943 ITA NO. 757 OF 2009 AGAINST THE ORDER IN ITA 346/Coch/2003 DATED 14.12.2004 OF I.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM APPELLANT: THE COMMISSIONER OF INCOME TAX, COCHIN. BY ADVS. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT: M/S.PREMIER TYRES LTD., 7TH FLOOR, CHERUPUZHAM BUILDING, SHANMUGHAM ROAD, COCHIN- 31. BY ADVS. SRI.K.P.ABDUL AZEES SRI.V.ABRAHAM MARKOS SRI.BINU MATHEW SRI.JOSEPH MARKOSE SR. SRI.B.J.JOHN PRAKASH SRI.MATHEWS K.UTHUPPACHAN SRI.TERRY V.JAMES SRI.TOM THOMAS KAKKUZHIYIL THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 19.07.2021, ALONG WITH ITA.483/2009, 758/2009 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:
ITA Nos.757/2009 and batch cases 2 IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS MONDAY, THE 19TH DAY OF JULY 2021 / 28TH ASHADHA, 1943 ITA NO. 483 OF 2009 AGAINST THE ORDER IN ITA 315/COCH/2006 DATED 18.1.2007 OF I.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM APPELLANT/APPELLANT: THE COMMISSIONER OF INCOME TAX, COCHIN. BY ADVS. SRI.JOSE JOSEPH, SC, FOR INCOME TAX SRI.CHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENT SRI.K.M.V.PANDALAI, INCOME TAX DEPARTMENT RESPONDENT/RESPONDENT: PTL ENTERPRISES LIMITED, (FORMERLY PREMIER TYRES LTD.), CHERUPUZHPAM BUILDING,SHANMUGHAM ROAD, COCHIN-682031. BY ADVS. SRI.V. ABRAHAM MARKOS SRI. BINU MATHEW SRI. JOSEPH MARKOSE SR. SRI.B.J. JOHN PRAKASH SRI. MATHEWS K.UTHUPPACHAN SRI. TERRY V.JAMES SRI. TOM THOMAS KAKKUZHIYIL THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON
ITA Nos.757/2009 and batch cases 3 19.07.2021, ALONG WITH ITA.757/2009 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:
ITA Nos.757/2009 and batch cases 4 IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS MONDAY, THE 19TH DAY OF JULY 2021 / 28TH ASHADHA, 1943 ITA NO. 758 OF 2009 AGAINST THE ORDER IN ITA 1153/COCH/2004 DATED 14.12.2004 OF I.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM APPELLANT: THE COMMISSIONER OF INCOME TAX COCHIN. BY ADV SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT: M/S PREMIER TYRES LTD. 7TH FOOR, CHERUPUZHAM BUILDING, SHANMUGHAM ROAD, COCHIN- 31. BY ADVS. SRI.K.P.ABDUL AZEES SRI.V. ABRAHAM MARKOS SRI. BINU MATHEW SRI. JOSEPH MARKOSE SR. SRI.B.J. JOHN PRAKASH SRI. MATHEWS K.UTHUPPACHAN SRI. TERRY V.JAMES SRI. TOM THOMAS KAKKUZHIYIL THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 19.07.2021, ALONG WITH ITA.757/2009 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:
ITA Nos.757/2009 and batch cases 5 IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS MONDAY, THE 19TH DAY OF JULY 2021 / 28TH ASHADHA, 1943 ITA NO. 860 OF 2009 AGAINST THE ORDER IN ITA 347/COCH/2003 OF I.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM APPELLANT/RESPONDENT: THE COMMISSIONER OF INCOME TAX COCHIN. BY ADVS. SRI.JOSE JOSEPH, SC, FOR INCOME TAX SRI.P.K.R.MENONSR.COUNSEL GOITAXES RESPONDENT/APPELLANT: M/S PREMIER TYRES LTD. 7TH FLOOR, CHERUPUZHPAM BUILDING,, SHANMUGHAM ROAD,COCHIN-31. BY ADVS. SRI.V. ABRAHAM MARKOS SRI. BINU MATHEW SRI. JOSEPH MARKOSE SR. SRI.B.J. JOHN PRAKASH SRI. TERRY V.JAMES SRI. TOM THOMAS KAKKUZHIYIL THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 19.07.2021, ALONG WITH ITA.757/2009 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:
ITA Nos.757/2009 and batch cases 6 IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS MONDAY, THE 19TH DAY OF JULY 2021 / 28TH ASHADHA, 1943 ITA NO. 903 OF 2009 AGAINST THE ORDER IN ITA 1154/COCH/2004 OF I.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM APPELLANT/RESPONDENT: THE COMMISSIONER OF INCOME TAX COCHIN. BY ADVS. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/APPELLANT: M/S REMIER TYRES LTD. 7TH FLOOR, CHERUPUZHPAM BUILDING, SHANMUGHAM ROAD, COCHIN - 31. BY ADVS. SRI.V.ABRAHAM MARKOS SRI.BINU MATHEW SRI.JOSEPH MARKOSE SR. SRI.B.J.JOHN PRAKASH SRI.MATHEWS K.UTHUPPACHAN SRI.TERRY V.JAMES SRI.TOM THOMAS KAKKUZHIYIL THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 19.07.2021, ALONG WITH ITA.757/2009 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:
ITA Nos.757/2009 and batch cases 7 IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS MONDAY, THE 19TH DAY OF JULY 2021 / 28TH ASHADHA, 1943 ITA NO. 929 OF 2009 AGAINST THE ORDER IN ITA 659/COCH/2005 DATED 28.11.2007 OF I.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM APPELLANT/APPELLANT: THE COMMISSIONER OF INCOME TAX COCHIN. BY ADVS. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/RESPONDENT: M/S PREMIER TYRES LTD. 7TH FLOOR, CHERUPUZHPAM BUILDING, SHANMUGHAM ROAD, KOCHI- 31. BY ADVS. SRI.V.ABRAHAM MARKOS SRI.BINU MATHEW SRI.JOSEPH MARKOSE SR. SRI.B.J.JOHN PRAKASH SRI.MATHEWS K.UTHUPPACHAN SRI.TERRY V.JAMES SRI.TOM THOMAS KAKKUZHIYIL THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 19.07.2021, ALONG WITH ITA.757/2009 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:
ITA Nos.757/2009 and batch cases 8 IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS MONDAY, THE 19TH DAY OF JULY 2021 / 28TH ASHADHA, 1943 ITA NO. 1046 OF 2009 AGAINST THE ORDER IN ITA 660/COCH/2005 DTED 28.11.2007 OF I.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM APPELLANT/APPELLANT: THE COMMISSIONER OF INCOME TAX. COCHIN. BY ADVS. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/RESPONDENT: PREMIER TYRES LTD., 7TH FLOOR, CHERUPUSHPAM BUILDING,, SHANMUGHAM ROAD, KOCHI-31. BY ADVS. SRI.K.P.ABDUL AZEES SRI.V. ABRAHAM MARKOS SRI. BINU MATHEW SRI. JOSEPH MARKOSE SR. SRI.B.J. JOHN PRAKASH SRI. MATHEWS K.UTHUPPACHAN SRI. TERRY V.JAMES SRI. TOM THOMAS KAKKUZHIYIL THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 19.07.2021, ALONG WITH ITA.757/2009 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:
ITA Nos.757/2009 and batch cases 9 IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS MONDAY, THE 19TH DAY OF JULY 2021 / 28TH ASHADHA, 1943 ITA NO. 1482 OF 2009 AGAINST THE ORDER IN ITA 658/COCH/2005 OF I.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM APPELLANT/APPELLANT: THE COMMISSIONER OF INCOME TAX, COCHIN COCHIN. BY ADV SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/RESPONDENT: PREMIER TYRES LTD., KOCHI 7TH FLOOR, CHERUPUZHPAM BUILDING,, SHANMUGHAM ROAD, KOCHI-31. BY ADVS. SRI.V.ABRAHAM MARKOS SMT.A.S.BEENU SRI.BINU MATHEW SRI.JOSEPH MARKOSE SR. SRI.B.J.JOHN PRAKASH SRI.MATHEWS K.UTHUPPACHAN SRI.TERRY V.JAMES SRI.TOM THOMAS KAKKUZHIYIL THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 19.07.2021, ALONG WITH ITA.757/2009 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:
ITA Nos.757/2009 and batch cases 10 JUDGMENT [ITA Nos.757/2009, 483/2009, 758/2009, 860/2009, 903/2009, 929/2009, 1046/2009, 1482/2009] S.V.Bhatti, J. Heard learned Standing Counsel Mr.Jose Joseph for the appellant and learned Senior Counsel Mr.Joseph Markose for the respondent. 2. Revenue is the appellant in the instant batch of Tax Appeals. M/s Premier Tyres Ltd. Cochin/Assessee is the respondent. The Tax Appeals arise from the orders of the Income Tax Appellate Tribunal (Cochin Bench) from independent orders made in Tax Appeals preferred by the assessee. The details of the appeals, the assessment years etc. are stated thus: Sl.No. Assessment year Date
of Assessment order Appeal before CIT (Appeals) and date of disposal IT Appeal in High Court 1 1996-1997 28.3.2002 Appeal No.ITA-19/R-2/E/CIT- II/02-03 dated 28.8.2003 ITA No.757 of 2009
ITA Nos.757/2009 and batch cases 11 2 2003-04 28.7.2005 Appeal No.ITA 74/R-II/E/CIT- II/05-06 dated 7.2.2006 ITA No.483/2009 3 1998-99 29.12.2003 Appeal No.ITA-58/R-2/E/CIT- II/03-04 dated 3.9.2004 ITA No.758/2009 4 1997-98 17.3.2003 Appeal No.ITA-3/R-11/E/CIT- II/03-04 dated 28.8.2003 ITA No.860/2009 5 2001-02 16/01/2004 Appeal No.ITA-69/R-2/E/CIT- II/03-04 dated 3.9.2004 ITA No.903/2009 6 2000-01 16.12.2004 Appeal No.ITA-41/R-2/E/CIT- II/04-05 dated 11.2.2005 ITA No.929/2009 7 2002-03 17.12.2004 Appeal No.ITA 42/R-2/E/CIT- II/04-05 dated 11.2.2005 ITA No.1046/2009 8 1999-2000 15.12.2004 ITA-40/R-2/E-CIT-II/04-05 dated 11.2.2005 ITA No.1482/2009 3. The substantial questions of law raised in the batch of appeals deal with the exercise of jurisdiction by the Assessing Officer (AO) under Section 147 of the Income Tax Act (for short 'the Act') and the rental income received by the assessee from Apollo Tyres Ltd. (for short 'ATL') whether constitutes business income or income from other sources. The background circumstances relevant for
ITA Nos.757/2009 and batch cases 12 disposing of the batch cases are substantially similar. Hence the learned counsel appearing for both the parties have treated ITA No.757 of 2009 as the leading case for making their submissions and have further stated that the consideration of circumstances and questions of law in this appeal would have bearing on the disposal of the other appeals since the questions of law formulated by the appellant are same in the other appeals as well. A few admitted circumstances occasioning prior to the previous year for the assessment year 1996-1997 are adverted to, before considering the controversy between the revenue and the assessee on the re-opening of the assessment and upon such re-opening, treating the lease rental received by the assessee from ATL as income from other sources instead of income from business. 4. The assessee is a company engaged in the manufacture and sale of tyres. The assessee since had business loss in excess to the paid up capital, moved an application under Sec.15 of the Sick Industries (Special
ITA Nos.757/2009 and batch cases 13 Provisions) Act 1985 (for short 'Act 1985') before the Board for Industrial and Financial Reconstruction (BIFR) for framing scheme under Act 1985. The application moved by the assessee was registered as Case No.023/91 (39/87). For disposal of appeals it is sufficient to note that the BIFR through its order dated 17.4.1995 has approved a scheme for the rehabilitation and revival of the assessee company and thus enabling the assessee to come back into the business which the assessee was doing prior to moving the application before BIFR. Through the order dated 17.4.1995, while sanctioning rehabilitation scheme for the assessee, BIFR approved/sanctioned the arrangement between the assessee and ATL, viz. that ATL under an irrevocable lease of 8 years will operate the plant and pay a total lease rental of Rs.45.5 crores as per the profitability statement at Annexure-II appended to the scheme over the period of rehabilitation to the sick industrial company i.e. the assessee and that ATL will take over the production made from the assessee plant. The
ITA Nos.757/2009 and batch cases 14 assessee made over the plant operation to ATL for manufacturing tyres. Thus the plant and machinery etc. were given in lease by assessee to ATL for the eight years stipulated in scheme. In the instant batch of appeals, this Court is considering the circumstances, clauses between the assessee and ATL, consequences/conclusion thereof for a period of eight years ending with 31.3.2004. 5. On 29.11.1996, the assessee filed return of income for the assessment year 1996-97, declaring taxable income as 'nil'. The assessee arrived at taxable income as 'nil' by setting off the brought forward unabsorbed losses of the preceding assessment years against the current years by computing income of Rs.6,61,75,914/- received from ATL as income from business. On 30.12.1998, the assessment was completed under section 143(3). The assessment was completed by treating the lease rent received from Apollo Tyres Ltd. amounting to Rs.6,61,75,914/- as income from business of the assessee. Thereafter the AO issued notice dated 23.3.2001 and
ITA Nos.757/2009 and batch cases 15 reopened the assessment under Section 148 of the Act. The proposed re-assessment principally was on the ground that the income received as lease rent from ATL could not have been treated as business income, and the lease rental amount qualifies as income from other sources. The case of assessee and the department in this behalf has been stated in sufficient detail by all the three authorities who have considered this controversy and recorded their findings which finally resulted in the appeal on hand. For brevity and also on account of the fact that there is not much of controversy on the tenor of respective versions and the arguments have been put forward, we bear in view the narrative considered by the authorities under the Act in the orders made by them and do not propose to state these circumstances in detail. The revenue categorized the receipt of lease rental as income from other sources, because the assessee was not actually manufacturing the tyres and selling the manufactured tyres in the market, but lent the existing facilities to ATL
ITA Nos.757/2009 and batch cases 16 and merely received lease rental amount from ATL. Per contra, the assessee claims the arrangement as exploitation of commercial asset for earning profits under a scheme approved by BIFR, a statutory scheme, therefore in isolation the activity authorised by BIFR is not understood for deciding whether the lease rental received is business income of the assessee or income from other sources. 6. The AO through re-assessment order in Annexure-A dated 28.3.2002 treated the receipt from ATL as income from other sources, finally added the said income to the gross income of the assessee and refused the allowances/expenditure claimed by the assessee. The AO demanded Rs.2,99,20,093/- together with interest from the assessee. The assessee aggrieved by order dated 28.3.2002 filed appeal before CIT (Appeals) and through the order in Annexure-B dated 28.8.2003 the appeal filed by the assessee was allowed in part. To the extent of the disallowance confirmed by the CIT (Appeals) and treating
ITA Nos.757/2009 and batch cases 17 the receipts from ATL as income from other sources, the assessee filed IT Appeal No.346/Coch/2003. Through the order in Annexure-C the appeal filed by the assessee was allowed and the Tribunal held that the lease rental received by the assessee from ATL under rehabilitation scheme comes within the meaning of business income, particularly, in the circumstances of the case. Hence the instant Income Tax Appeal at the instance of revenue. The following substantial questions of law are raised for decision. 1. Whether, on the facts and in the circumstances of the case, is not the reassessment completed under the main provision within four years, in accordance with law. 2. Whether on the facts and in the circumstances of the case should not the Tribunal have applied the ratio of the decision of the Supreme Court reported in 129 taxmann 72 in CIT v Forainer France. 3. Whether, on the facts and in the circumstances of the case and also for the factual reasons highlighted in paragraph 5(a) to (f) of the statement of the case, the Tribunal is right in law and fact in holding that the assessee “is existing”, “it continues to exist” and the leave for a limited period of 8 years?” and are not the above findings wrong, baseless, unsupported by material evidence against facts and perverse? 4. Whether, on the facts and in the circumstances of the case and also for the reasons highlighted in paragraph 5(a) to (f) of
ITA Nos.757/2009 and batch cases 18 the statement of the case the Tribunal is right in law and fact in holding that “there is nothing on record to show that the assessee had no present intention to revive its business at an appropriate time” and is not the finding wrong, perverse, quixotic and perverse? 5. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact in holding rental income as business income? 7. Substantial Question Nos. 1 and 2 refer to the controversy in reopening the assessment and whether the circumstances now stated by the AO come within jurisdiction of AO for reopening the assessment completed under Section 143(3) of the Act. Substantial Question Nos.3 to 5 relate to whether the lease rental received by the assessee for the subject assessment years, constitutes income from business or income from other sources. 8. The counsel made submissions principally on substantial question Nos.3 to 5 and a decision on these questions would render consideration of other questions either unnecessary or academic. Hence we first consider question Nos.3 to 5.
ITA Nos.757/2009 and batch cases 19 9. Learned Standing Counsel Mr.Jose Joseph contends that the Tribunal fell in serious error of law and fact, by ignoring a few antecedent circumstances and/or contemporaneous circumstances applicable to the assessment years in question while treating the lease rental receipt as income from business. To wit the assessee moved application in 1987 and by the time the assessee moved BIFR under Act 1985, the assessee either was unable to do business or net worth had diminished substantially. The arrangement made by BIFR through its order dated 17.4.1995 sanctioning rehabilitation scheme for the assessee company substantially substitutes or replaces the assessee from driver's seat of business and ATL is kept in charge of the affairs of the assesse's manufacturing process facilities at Kalamassery. The agreement between the assessee and ATL is for a definite period of 8 years, and an intention of coming back to business after the lease period, is an important consideration and it is established by the assessee, for
ITA Nos.757/2009 and batch cases 20 treating the lease rental receipt as income from business. These crucial aspects are looked at from assessee's perspective, but not from objective viewing of the controversy. The Tribunal failed to appreciate and apply the broad tests laid down by the Supreme Court in Universal Plast Limited and Ors. v Commissioner of Income Tax, Calcutta (237 ITR 454 SC) to the admitted situation of the case. According to him, the arrangement between the assessee and ATL, in effect and substance, is not an attempt to exploit the commercial asset for the business purpose of the assessee but the income received by way of lease/rent, is a passive receipt received by the assessee for substantially letting the land, buildings, available plant etc. of the assessee in favour of ATL. Inability to do the business by the assessee is projected by inviting our attention to additional investment agreed to be made by ATL for modernising the then existing plant and machinery in the premises of the assessee. Section 14 deals with the heads of income and income derived by the
ITA Nos.757/2009 and batch cases 21 assessee is profit and gain of business or profession of the assessee. The permissible deductions or expenses available while computation of income from the business are covered by Sections 28 to 44 of the Act. Without doing business or any activity, passive receipt recognised in the books of accounts of assessee, cannot be treated as income by way of profit and gains of business/profession of the assessee. The acceptance of case of assessee would facilitate deductions under Sections 28 to 44 of the Act irrespective of doing business. He prays for answering substantial question Nos. 3 to 5 in favour of revenue and against the assessee. 10. Senior Adv.Mr.Joseph Markose argues that the assessee moved BIFR in 1987 and the case of assessee has been taken up for enquiry in 1991, BIFR found that the assessee could be subjected to a relief and rehabilitation scheme since the assessee was capable of reviving the business of manufacture of tyres. The arrangement of manufacture of tyres for the subject eight assessment
ITA Nos.757/2009 and batch cases 22 years is in terms of the rehabilitation scheme approved by BIFR. While accepting the relief and rehabilitation scheme, BIFR examines the viability of the proposals given by the applicant before it, the remedial measures proposed, deferred payment of dues etc. and conditions incorporated in the scheme. It is, with considerable force, argued by him that the subject eight assessment years are regulated by the arrangement sanctioned by BIFR and the assessee to survive the storms must conduct its affairs as per the scheme. The sanctioned rehabilitation scheme acknowledges the arrangement, the assessee had with ATL viz. ATL shall lift the entire production of M/s PTL and will sell the products under their brand name i.e. ATL. It may be that under the scheme manufacturing expenses are completely reimbursed by ATL but the labour of PTL, plant and machinery of PTL are utilised for exploiting capital assets of the assessee for deriving the receipt in dispute i.e. lease rental. The Tribunal applied the parametres laid down by the Apex Court in Universal Plast Ltd. No
ITA Nos.757/2009 and batch cases 23 exception to the findings of fact recorded by the Tribunal could be pointed out by the revenue. He explains, by inviting our attention to the scheme approved by BIFR, that the scheme envisages the assessee remaining in business, attains positive net worth within the period granted by the approved scheme and survives the impact of losses by turning positive net worth. The positive net worth could arrive only when unaccounted balances are suitably adjusted from the income now received as business income. He does not dispute the proposition viz. whether in a particular case, the receipt of income irrespective of its nomenclature used by the assessee constitutes profits or gains of business or falls under any other head but would depend on the facts and circumstances of each case. He relies on the judgments reported in Commissioner of Excess Profits Tax, Bombay City v Shri Lakshmi Silk Mills Ltd. (1951 20 ITR 451), Commissioner of Income Tax, Lucknow v Vikram Cotton Mills Ltd. [(1988) 169 ITR 597)], Rayala Corporation Pvt. Ltd. v Asst.
ITA Nos.757/2009 and batch cases 24 Commissioner of Income Tax (2016) 386 ITR 500(SC)], Chennai Properties and Investments Ltd. v Commissioner of Income Tax (2015) 373 ITR 673 (SC)], Commr. of Income Tax, Thiruvananthapuram v M/s Oberon Edifices and Estates (P) Ltd. (2019 KHC 279), CIT & Anr. v Mysore Wine Products Ltd. (2015) 373 ITR 102]. He concludes by arguing that the Tribunal for recording a finding in favour of assessee has taken over all view of the admitted circumstances, statutory scheme to which the assessee was a party, the conditions in the agreement between the assessee and ATL. Therefore the findings of fact recorded by the Tribunal that the income of lease rental from ATL to assessee qualifies the meaning of profit or gain of business of the assessee are tenable. In other words, the argument points out the limitation in fact and law in the appeal filed by the revenue under Sec.260A of the Act. 11. Let us before examining the rival contentions state the gist of consideration in the subject orders by the
ITA Nos.757/2009 and batch cases 25 authorities under the Act. Firstly the Assessing Officer adverted to the judgment of the Supreme Court in Universal Plast Limited (supra) and decided the nature of receipt from lease/ rent as income from business or other sources. Then AO considered whether there is possibility of assessee reviving its earlier business, as per the terms of the lease agreement entered between the assessee and ATL. The AO then held that there is no lease agreement, i.e. for restarting the business as such. We are, at the outset, constrained to observe that the AO preferred to decide the contemporaneous activity undertaken by the assessee by referring to the lease agreement and absence of a clause in the lease agreement about the revival of business of assessee. This consideration throughout weighed with AO for reaching the final conclusion. The fallacy in this behalf is further evident that the AO, inspite of noticing that all the terms and conditions are governed by the scheme sanctioned by the BIFR, declines to give effect to the working of scheme by observing that the
ITA Nos.757/2009 and batch cases 26 scheme is not clear on what would happen after the expiry or completion of lease period. 11.1. The next reason stated by AO is that under the scheme, the assessee has reduced its overhead expenditure by closing down the head office, sales and marketing offices. With the closure of these divisions, there is no chance of revival of business of the assessee as Tyre manufacturer. These observations are very centric or influenced the conclusion. We are, prima facie, of the view that there is no objective consideration of the modus operandi or working of the scheme, the statutory obligation under which the assessee had come by filing an application before BIFR. The subtle difference between a voluntary arrangement between parties and arrangement approved as part of a statutory consideration for revival is not noticed by the AO, while concluding that the lease rental income shall be computed under the head income from other sources. The Appellate Authority has confirmed the order of AO and the dismissal of first appeal resulted in
ITA Nos.757/2009 and batch cases 27 filing of appeal before the Tribunal. 12. The Tribunal in the impugned order first appreciated the scheme approved by BIFR, agreement between parties for irrevocable lease for 8 years of assessee's plant, machinery, land etc. and held that inspite of the agreement with ATL the assessee continues to exist as a corporate entity. The additional investment of 110 crores by ATL for eight years is to modernise the plant and again to make the manufacturing viable, the induction of a few directors from ATL in Board of the assessee is merely change in administration and of administrative officers, such changes could not be understood as the existence of assessee as corporate entity has disappeared or the assessee ceases to exist. The taking over of the manufacturing activity by ATL is not to take over the assessee company. The consideration of future happening of reviving the business by assessee is not a circumstance in the facts of the case. Finding is recorded that the lease rental receipt is income of business of the assessee.
ITA Nos.757/2009 and batch cases 28 Substantial Question Nos.3 to 5: 13. From a reading of the decisions of Supreme Court in Commissioner of Excess Profits Tax, Bombay City v Shri Lakshmi Silk Mills Ltd. [1951] 20 ITR 451 (SC)], Commissioner of Income Tax, Lucknow v Vikram Cotton Mills Ltd. [1988] 169 ITR 597 (SC)] and Universal Plast Limited v Commissioner of Income Tax, Calcutta [1999] 237 ITR 454 (SC)] the following parametres or criterion could be noted as follows: 1) Shri Lakshmi Silk Mills Ltd. i) “It makes no difference what an assessee does with a commercial asset belonging to him. The assessee may use it as assessee likes it and so long as the asset yields income, it is the income of his business”. ii) “The ratio of all these cases, to my mind, is that if there is a commercial asset which is capable of being worked by the assessee himself for the purpose of earning profits and the assessee instead of doing so, either voluntarily allows someone else to use it on payment of a certain sum or is compelled by law to allow it to be used in such manner, then what he receives is income from business. But if the commercial asset has ceased to be a commercial asset in the hands of the assessee and thereafter he gets what he can out of it by letting it out to be used by others, then the rent he receives is not
ITA Nos.757/2009 and batch cases 29 income from any business that he carries on”. iii) “That no general principle can be laid down which is applicable to all cases and each case has to be decided on its own circumstances”. (iv) “In Sutherland v Commissioners of Inland Revenue, it is held that a commercial asset susceptible of being put to a variety of different uses in which gain might be acquired and whichever of these uses it was put to by the appellant, the profit earned was a user of the asset of the same business. A mere substituted use of the commercial asset does not change or alter the nature of that asset. Whatever the commercial asset produces is income of the business of which it is an asset, the process by which the asset makes the income being immaterial”. 2) Vikram Cotton Mills Ltd. (i) The assets of the company were exploited and there was no intention of the assessee to discontinue the business activities. (ii) Whether a particular income received by the assessee as a result of activities carried on by the assessee is business income or rental income depends upon the manner of exploitation of the assets of the assessee. It only varies on the facts and circumstances of each case. (iii) In each case the intention has to be gathered as to whether the commercial asset was intended to be exploited by the assessee or whether it was intended to be used by letting out for a temporary period. It depends upon the facts and circumstances of each case. (iv) Whether it constitutes business income or otherwise
ITA Nos.757/2009 and batch cases 30 is predominantly a matter of intention. Intention is an inference to be drawn from the relevant facts. All the facts are appreciated from the correct stand point, i.e. an ordinary prudent businessman or as in England, it used to be “man on the top of the platform omnibus” or “director's arm chair.”. If, on that test, a plausible conclusion has been drawn, no objection can be taken. (emphasis supplied) 3) Universal Plast Limited and others “In the light of the above discussion, the propositions may be summarised as follows: (i) No precise test can be laid down to ascertain whether income (referred to by whatever nomenclature, lease amount, rents, licence fee) received by an assessee from leasing or letting out of assets would fall under the head 'Profits and Gains of business or profession'; (ii) It is a mixed question of law and fact and has to be determined from the point of view of a businessman in that business on the facts and in the circumstances of each case including true interpretation of the agreement under which the assets are let out; (iii) Where all the assets of the business are let out, the period for which the assets are let out is a relevant factor to find out whether the intention of the assessee is to go out of business altogether or to come back and restart the same. (iv) If only or a few of the business assets are let out temporarily while the assessee is carrying out his other business activities then it is a case of exploiting the business assets otherwise than employing them for his own use for making profit for that business; but if the business never started or has started but ceased with no intention to be resumed, the assets also will cease to be business assets and
ITA Nos.757/2009 and batch cases 31 the transaction will only be exploitation of property by an owner thereof, but not exploitation of business assets. 14. The other decisions relied on by the assessee, firstly, are specific to the controversy in fact in those cases and secondly, for what is noted supra the controversy is determined on case to case basis, hence we are not discussing other judgments relied on by the assessee. 15. Let us take up the admitted circumstances of the appeals on hand. In hindsight from the details available on record it is appreciated that the assessee in the Assessment year 1986-1987 due to mounting loses and liabilities had realized the inability to carry on the business of manufacturing tyres. The assessee presented a case for revival and rehabilitation of its business before BIFR. The feasibility of options given by the assessee were considered by BIFR and as recorded in the order dated 17.4.1995 of BIFR, the relief scheme was accepted for rehabilitation of the assessee. The workings and the modus operandi of the scheme are intrinsic to the revival
ITA Nos.757/2009 and batch cases 32 of the company, therefore, an arrangement was made for utilization by the assessee of its business assets albeit with additional investment by ATL. The operation of scheme envisages ATL lifting the total production made by the assessee. The approved scheme of BIFR aims at revival of a sick company and the revival is expected in a time span, however subject to other adjustments approved by BIFR. Therefore the premise i.e. there is no clause for revival of unit in the agreement, in the orders of A.O. etc. is begging the question. The efficacy of workings of a draft scheme is unsatisfactory, the relief rehabilitation would not have been considered or granted by BIFR. Further, the scheme is operated as agreed, then the assessee is automatically back into business or is on its own to manufacture tyres. The stipulation in the approved scheme is that the period of lease is for eight years. In other words, two eventualities are anticipated, firstly, that the assessee is revived and rehabilitated and alternatively inspite of working of the scheme, the affairs are not improving then
ITA Nos.757/2009 and batch cases 33 the assessee considers other options. As held in Vikram Cotton Mills case these considerations or options are examined through the optics of an ordinary prudent businessman, a man on the top of the platform omnibus; directors arm chair. And from such optics a conclusion is arrived at to implement the business plan, then no objection to such a conclusion and computation of receipt as income from business could be taken. The word ‘business’ in Sec.14 of the Act is not a word of art, but a word of commercial implication. Therefore in any given year or situation, the activity claimed by the assessee is neither accepted through interpretative or expressive narrative of the activity claimed by the assessee, nor the claim for business income is refused through the prism of the revenue. The bottom line is the availability of assets, activities carried for exploiting the assets, that the assessee is not a mere onlooker at the activities in the company or a passive recipient of rent for utilization of facilities other than business assets. It is kept in view that
ITA Nos.757/2009 and batch cases 34 net income of business pre-supposes computation of income after allowing permissible expenses and deductions in accordance with the Act. Therefore denying eligible deduction/expense by treating business activity as any other activity and on the other hand allowing deduction/expense without just eligibility is equally illegal. The circumstances therefore are weighed in an even scale by the authority/court while deciding the activity stated by the assessee merits inclusion as income from business or other sources. 16. We hasten to add that these controversies are determined not only on case to case basis, but also on year to year basis as well. In other words, the presumption of doing business, while implementing the scheme is unavailable automatically to the assessee and after completion of eight years or attaining positive net worth circumstances are verified for accepting the claim of assessee. The view taken by us in this judgment is confined to eight years i.e. the implementation of scheme
ITA Nos.757/2009 and batch cases 35 and the subsequent assessment years are examined on the details of those cases. 17. The assessee, under approved scheme is obligated to exploit the business assets, earn income, adjust/get off accumulated losses/unadjusted depreciation, and turn as a positive company. Any other view in a situation as the present is unavailable and again counterproductive to an approved scheme under Act, 1985. Sequentially enquired, it transpires that the assessee was obligated to work under a statutory approved scheme; the lease of eight years is to ATL, which is into the same business and lease was for utilising the Plant, Machinery etc. for manufacturing tyres; the actuals are reimbursed to assessee by ATL; the work force of assessee has been deployed for manufacturing tyres; the total production from the assessee unit is taken over by ATL; over all affairs of assessee company are made viable by entering into settlement etc; at this juncture, we are convinced that coupled with all other primary
ITA Nos.757/2009 and batch cases 36 circumstances, the assessee employed commercial assets to earn income. Unless and until the income is treated as business income, the scheme does not result on expected lines for losses; unavailed depreciation etc. will continue to be present in the accounts of assessee. The scheme is appreciated as one providing a solution to business problem of the assessee. From the above discussion we are convinced that the claim of lease rental receipt as income of business is justifiable for the subject assessment years and the findings of the Tribunal even if treated as mixed question of law and fact, we hold that the findings are justifiable and warranted in the circumstances of the case. Hence substantial question Nos.3 to 5 are answered in favour of the assessee and against the revenue. In view of the conclusion reached on substantial question Nos.3 to 5, we are of the opinion that, having regard to above discussion, question Nos.1 and 2 need not be answered. Hence ITA No.757/2009 is dismissed. For the same reasoning and conclusions all other ITA's are dismissed by
ITA Nos.757/2009 and batch cases 37 answering the questions against the revenue and in favour of assessee. sd/-S.V.BHATTI JUDGE sd/- BECHU KURIAN THOMAS JUDGE CSS/
ITA Nos.757/2009 and batch cases 38 APPENDIX OF ITA 483/2009 PETITIONER'S ANNEXURE ANNEXURE A COPY OF ORDER U/S. 143(3) DATED 28/07/2005 FOR THE ASST. YEAR 2003-04. ANNEXURE B COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 07/02/2006. ANNEXURE C COPY OF THE ORDER DATED 18/01/2007 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH IN ITA NO.315/COCH/2006.
ITA Nos.757/2009 and batch cases 39 APPENDIX OF ITA 758/2009 PETITIONER ANNEXURE ANNEXURE A COPY OF ASSESSMENT ORDER DATED 29.12.2003 U/S. 143(3) R.W.S 147 OF THE INCOME TAX ACT FOR THE ASST. YEAR 1998-99. ANNEXURE B COPYOF THE ORDER DATED 3.9.2004 OF THE COMMISSIONER OF INCOME TAX (APPEALS). ANNEXURE C COPY OF THE ORDER DATED 14.12.2004 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN IN ITA NO.1153/COCH/2004 FOR THE ASST. YEAR 1998-99.
ITA Nos.757/2009 and batch cases 40 APPENDIX OF ITA 860/2009 PETITIONER ANNEXURE ANNEXURE A COPY OF ASSESSMENT ORDER DATED 17.3.2003 U/S. 143(3) R.W.S 147 OF THE INCOME TAX ACT FOR THE ASST. YEAR 1997-98. ANNEXURE B COPY OF THE ORDER DATED 28.8.2003 OF THE COMMISSIONER OF INCOME TAX (APPEALS). ANNEXURE C COPY OF THE ORDER DATED 14.12.2004 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN IN ITA NO.347/COCH/2003 FOR THE ASST. YEAR 1997-98.
ITA Nos.757/2009 and batch cases 41 APPENDIX OF ITA 903/2009 PETITIONER ANNEXURE ANNEXURE A COY OF ASSESSMENT ORDER DATED 16.1.2004 U/S. 143(3) OF THE INCOME TAX ACT FOR THE ASST. YEAR 2001-02. ANNEXURE B COPY OF THE ORDER DATED 3.9.2004 OF THE COMMISSIONER OF INCOME TAX (APPEALS). ANNEXURE C COPY OF THE ORDER DATED 14.12.2004 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN IN ITA NO.1154/COCH/2004 FOR THE ASST. YEAR 2001-02.
ITA Nos.757/2009 and batch cases 42 APPENDIX OF ITA 929/2009 PETITIONER ANNEXURE ANNEXURE A COPY OF ORDER U/S. 143(3) R.W.S.147 DATED 16.12.2004 FOR THE ASSESSMENT YEAR 2000-01. ANNEXURE B COPY OF ORDER DATED 11.2.2005 OF THE COMMISSIONER OF INCOME TAX (APPEALS). ANNEXURE C COPY OF THE ORDER DATED 27.11.2007 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH IN ITA NO.659/COCH/2005.
ITA Nos.757/2009 and batch cases 43 APPENDIX OF ITA 1046/2009 PETITIONER'S ANNEXURE ANNEXURE A COPY OF ORDER U/S. 143(3) R.W.S.147 DATED 17/12/2004 FOR THE ASSISTANT YEAR 2002-03. ANNEXURE B COPY OF ORDER DATED 11/02/2005 OF THE COMMISSIONER OF INCOME TAX (APPEALS). ANNEXURE C COPY OF THE ORDER DATED 28/11/2007 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH IN ITA NO.660/COCH/2005.
ITA Nos.757/2009 and batch cases 44 APPENDIX OF ITA 1482/2009 PETITIONER ANNEXURE ANNEXURE A COPY OF ORDER U/S.143(3) R.W.S.147 DATED 15/12/2004 FOR THE ASSESSMENT YEAR 1999-2000. ANNEXURE B COPY OF ORDER DATED 11/02/2005 OF THE COMMISSIONER OF INCOME TAX (APPEALS). ANNEXURE C COPY OF THE ORDER DATED 28/11/2007 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH IN ITA NO.658/COCH/2005.
ITA Nos.757/2009 and batch cases 45 APPENDIX OF ITA 757/2009 PETITIONER ANNEXURE ANNEXURE A COPY OF ASSESSMENT ORDER DATED 28/03/2002 U/S.143(3) R.W.S.147 OF THE INCOME TAX ACT FOR THE ASST. YEAR 1996-97. ANNEXURE B COPY OF THE ORDER DATED 28/08/2003 OF THE COMMISSIONER OF INCOME TAX (APPEALS). ANNEXURE C COPY OF THE ORDER DTD. 14/12/2004 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN IN ITA NO.346/COCH/2003 FOR THE ASST. YEAR 1996-97.