Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, DELHI BENCH “E”, NEW DELHI
Before: SH. N. K. SAINI & SMT. BEENA A. PILLAI&
PER BENCH :
The present appeals have been filed by assessee against order dated 29.06.2012 and 26.12.2012 passed by Ld. CIT(A)- XXIII, New Delhi for assessment years 2008-09 and 2009-10 on following grounds of appeal: ITA No. 5641/del/2012 1. The lower authorities have erred in not assessing the rental income from property no.8 & 9, Udyog Vihar Industrial Area, Phase TV, Gurgaon which was let out to M/s. Agilent Technologies (International)
2 ITA No. 6550/Del/2013 and ITA No. 6541/Del/2011
Pvt. Ltd. as per the lease deed under the head property income. 2. The lower authorities have erred in not considering that the Lessee was deducting tax at source, in respect of the rental income of the property. 3. The Assessing Officer erred in assessing the income from this property under the head business income without allowing the depreciation. 4. The CIT(A) has erred in assessing the income from this property under the head income from other sources. ITA No. 6550/del/2013 1. The lower authorities have erred in not assessing the rental income from property no. 8 & 9, Udyag Vihar Industrial Area, Phase IV, Gurgaon which was let put to M/s Agilent Technologies (International) Pvt. Ltd. as per the lease deed under the head Income from House Property. 2. The lower authorities have erred in not considering that the Lessee was deducting tax at source, in respect of the rental income of the property. 3. The Assessing Officer erred in assessing the income from this property under the head lusiness income without allowing the depreciation. 4. The CIT(A) has erred in assessing the income from this property under the head income from other sources U/s 56 of the Income Tax Act. 5. The Lower authorities have erred in ignoring the settled position in the light of the preceding three assessment order i.e 2004-05 to 2007-08 without bringing on record any fresh material to deviate from the principle of consistency by holding that Income from rental Income would be assessed under the head business Income / Income from other sources.
3 ITA No. 6550/Del/2013 and ITA No. 6541/Del/2011
The main issues involved in both these assessment years are in respect of assessing the rental income received from property No. 8 and 9, Udyog Vihar Industrial Area, Phase- 4, Budhgarh, which was let out to M/s Agilent Technologies (International) Pvt. Ltd., as business income or income from house property. Since it is common in both the years they are being disposed off with common order. 3. Brief facts of case are as under: Assessee is engaged in business of manufacture and export of ready-made garments and hire of machinery and building. During the years under consideration scrutiny assessment proceedings were undertaken by assessing officer who noted that Rs.2,89,65,739/- and Rs.1,80,15,978/- for assessment year 2008-09, Rs.2,89,67,736/- and Rs.1,80,15,978/- for assessment year 2009-10 were credited to profit and loss account under head “fit out hiring charges” and “building rent” respectively. (ITA No. 5641/del/12) Assessment year 2008-09 4. On examination of details Ld. AO observed that assessee had leased out a portion of premises at plot No. 8 and 9, Udyog Vihar, Budhgarh to M/s Agilent Technologies (International) Pvt. Ltd., alongwith the fit outs installed in premises. Assessee had disclosed rent received from the hiring of building under head income from house property and had claimed deduction under section 24. However, rent received from fit outs was disclosed as income from business. Ld. AO
4 ITA No. 6550/Del/2013 and ITA No. 6541/Del/2011
was of opinion that rent is derived from same premises and that of building was in separable from hire of the fit outs. Ld. AO included rent from lease of building as income from business and disallowed deduction claimed by assessee under section 24 and added it back to total income. 5. Aggrieved by assessment order assessee preferred appeal before Ld. CIT(A). Ld. CIT (A) held as under: The Assessing Officer has correctly observed that the income derived from fitouts hiring at Rs. 2,89,65,7397- a is considerably higher than the building rent of Rs. 1,80,15,978/-. However, the Assessing Officer has erred in holding that the rental income from the building is to be assessed as income from business, in addition to the income from lease of equipments. The letting of the building is inseparable from the letting of the machinery, plant and furniture and is therefore, assessable under section 56(2)(iii). As held by the Supreme Court in the case of Sultan Bros Pvt Ltd. (supra), the inseparability referred to in section 56(2)(iii) is one that arises from the intention of the parties. It is certain that the tenant in this case would not have accepted the lease of the building without the lease of the equipments. The Assessing Officer is directed accordingly to assess the composite rent from building and equipments as income from other sources. The appellant is entitled to the deductions enumerated in section 57(ii), including actual expenditure on repairs & insurance, and depreciation on WDV of the building and other assets, and the appellant shall provide the necessary evidences to the Assessing Officer in support of the same.
Ld. CIT(A) treated income from letting off of building as income from other sources.
5 ITA No. 6550/Del/2013 and ITA No. 6541/Del/2011
Against order of Ld. CIT(A) assessee is in appeal before us. 8. Ld. AR submitted that assessee entered into two separate agreements for lease of building, and lease of fit-outs, the details of which are as under: Lease of building S. Particulars of agreement Period covered No. 1. Agreement dated 25/08/2003 25/08/2003 to 28/08/2006 (composite lease agreement) 2. Revised agreement dated 01/12/2003 to 13/11/2006 12/04/2004 3. Agreement dated 30/12/2006 01/12/2006 to 13/11/2009
Lease of fit outs S.No. Particulars of agreement Period covered 1. Agreement dated 01/12/2003 01/12/2003 to 31/11/2006 2. Agreement dated 20/08/2004 01/02/2005 to 31/01/2008 3. Agreement dated 07/02/2008 01/02/2008 to 31/01/2011
Ld. AR submitted that, during year under consideration assessee has renewed lease agreement of building with Agilent Technologies, vide agreement dated 13.12.2006 and lease agreement of fit out vide agreement dated 20.08.2004 and 07.02.2008 (unexpired 2 months period for the relevant assessment year). He submitted that rentals received from lease of fit outs has been offered as business income whereas rental received from lease of building has to be considered as
6 ITA No. 6550/Del/2013 and ITA No. 6541/Del/2011
income from house property, as it does not involve any commercial activity. In the paper book Ld. AR placed reliance upon the decision of Hon’ble Madras High Court in the case of Kayram Hotels Pvt. Ltd., reported in (2015) 373 ITR 494 and decision Hon’ble Calcutta High Court in the case of CIT vs. Shambhu Investments Pvt. Ltd., reported in (2001) 249 ITR 47 which has been subsequently approved by Hon’ble Supreme Court in Shambhu Investments Pvt. Ltd vs. CIT reported in (2003) 263 ITR 143. 10. On the other hand, Ld. DR submitted that assessee is into business of hiring of building and therefore, rent received from agreement to lease of building would amount to business income in the hands of assessee. He submitted that Agilent International lessee would not have taken building on lease without fit outs, as it appears from composite agreement entered into by assessee and lessee dated 25.08.2003 which is placed at page 1 to 34 of the paper book. He placed reliance on the findings of Ld. AO. 11. We have perused submissions advanced by both sides in the light of records placed before us and judicial decisions relied upon by them. 12. We refer to decision relied upon by Ld. AR in the case of Keyram Hotels Pvt. Ltd., vs DCIT (supra) wherein Hon’ble Madras High Court, has reiterated that methodology that must be applied to identify true nature of receipts on letting out of
7 ITA No. 6550/Del/2013 and ITA No. 6541/Del/2011
building by relying on the decision of Hon’ble Supreme Court therein. The same is reproduced herein below: “11. The Supreme Court in the decision of (1) Universal Plast Ltd., (2) Guntur Merchants Cotton Press Co. Ltd. v. CIT [1999] 237 ITR 454 (SC) laid down the following ratio (page 461): "(1) 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 profes sion'; (2) 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 ; (3) 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 ; (4) if only 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 the transaction will only be exploitation of property by an owner thereof, but not exploitation of business assets." 13. While laying down aforesaid general principles and summarizing legal position, Hon’ble Supreme Court considered its previous decisions, viz., (1) CEPT v. Shri Lakshmi Silk Mills Ltd. [1951] 20 ITR 451 ; (2) Narain Swadeshi Weaving Mills v.
8 ITA No. 6550/Del/2013 and ITA No. 6541/Del/2011
CEPT [1954] 26 ITR 765 ; (3) CIT v. Calcutta National Bank Ltd. [1959] 37 ITR 171 ; (4) Sultan Brothers P. Ltd. v. CIT [1964] 51 ITR 353 ; (5) New Savan Sugar and Gur Refining Co. Ltd. v. CIT [1969] 74 ITR 7 and (6) CIT v. Vikram Cotton Mills Ltd. [1988] 169 ITR 597.
Keeping in mind aforesaid legal position, we shall now advert to facts of present case more particularly the composite lease agreement dated 25.08.2003. This agreement is entered into between assessee as Lessee and Agilent Technologies (International) Pvt. Ltd. as Lessor, inter alia records that:
BASE RENT The rent is payable by the LESSEE of a total sum of Rs. 9,32,737.50 /- (Rupees Nine Lacs Thirty Two Thousand Seven Hundred and Thirty Seven and Paise Fifty Only) calculated as Rs. 22.50 per sq.ft. per month on Super area, payable quarterly in advance from 01st December'2003 or date of "Completion" of fitouts, whichever is' earliert. For the purpose of this Agreement, the Fitout "Completion" is defined as interiors completed in all respects as per specifications defined in Annexure "B". In addition, the building should have operational Air-conditioning, Power backup, and all essential services of the building like connected raw power, lifts, fire services, water supply in perfect working condition. All payments made by the LESSEE under this Agreement To Lease shall be made by account payee cheque in favour of the LESSOR and shall be subject to deduction of tax at source, where required under the Income-tax Act, 1961. The LESSEE shall promptly deliver the tax deduction certificate to the LESSOR.
9 ITA No. 6550/Del/2013 and ITA No. 6541/Del/2011
The Base rent is inclusive of the cost for 100% power backup through the generator sets. In addition to the rent payable for the Demised Premises as stipulated in_this Agreement To Lease, the Lessor and LESSEE agrees to share 50% (Fifty percent)/ half, in respect of Demised Premises, and only from the date of possession, all kinds of fresh impositions thereof including the increases, if any, as applicable on the Site/Demised premises to pay~any increase due to variation and any statutory increase(s) in or if fresh levies, taxes, charges, rates, cesses, and fees etc, as may relate to the Demised Premises are imposed by Government and/or Municipal and/or Local Authorities from time to time. Provided however, the municipal taxes will be shared between the LESSOR & the LESSEE as per clause 9 (h) of this Agreement To Lease. 3. FITOUT Lessor shall be responsible to furnish the area leased by the Lesse. Lessor shall incur to a maximum of Rs. 5,83,00,000/-(Rupees Five Crore and Eighty Three Lacs Only), estimated as per Annexure "B" (plus or minus 5% on Rs. 5,83,00,000/- to be validated by Architect for time and cost),, estimated as per Annexure "B", [cost includes the complete furniture and fixtures, Air-conditioning - package units of a total of 250 TR (Configuration as decided between the Lessor and Lessee), Networking, Electrical cabling along with AMF and LT and or HT panels, Servo regulators /Transformers with Tap changers and all other fitments as may be necessary to have a robust and seamless infrastructure]. _The specifications and quality is decided by Lessee as per Annexure B. Lessor in conjunction with Lessee shall decide the Architect for the project. The vendors for the project shall be decided by the Lessor except the vendors who are authorised to exclusively work with Lessee
10 ITA No. 6550/Del/2013 and ITA No. 6541/Del/2011
on a Global basis, shall be used on Lessee's advise. It is however clearly understood that the cost, quality and time frame for delivery of project shall be the responsibility of the Lessor and due penalties agreed at Rs. 50,000/-/day shall be levied for each days delay beyond 7th Dec’ 03 shall be imposed by the Lessee on Lessor. It is estimated that by spending a fitout cost of Rs. 5,83,00,000/- (Rupees Five Crore and Eighty Three Lacs Only), on super area the Lessee shall reimburse the Lessor by paying a monthly rent of Rs, 27.22 per sq. ft. per month for a period of 6 years calculated @ 12% per annum, without any escalation, from the date of Lessor handing over the Fully fitted out property for Lessee's occupation. The fitout rentals shall be payable only for a period of six (6) years from the date of execution of the Lease Agreements. In the event of early termination of the lease, Lessee shall pay the residual value' of the fitouts at the time of termination. The residual value being the unamortized value of fitouts from the date of termination of Lease Agreement (refer Annexure C). 4. SECURITY DEPOSIT 4.1 That the LESSEE, as security for its obligations under the AGREEMENT TO LEASE, has deposited and shall keep deposited with the LESSOR, so long as the AGREEMENT TO LEASE is in force and effect, a sum of Rs. 55,96,4257- (Rupees Fifty Five Lacs Ninetysix Thousand Four Hundred and Twenty Five Only)) as and by way of interest-free refundable security deposit (hereinafter referred to as "the said deposit"). The said amount of security deposit shall be returned by the LESSOR on the expiry or earlier termination for any reason whatsoever of the AGREEMENT TO LEASE, but in any case simultaneously upon the LESSEE surrendering all its
11 ITA No. 6550/Del/2013 and ITA No. 6541/Del/2011
rights under the AGREEMENT TO LEASE in respect of the Demised Premises. The LESSOR will deduct any arrears/dues/obligations payable on any account with respect tc Demised Premises, as reasonably assessed by the LESSOR, frorn_tiiis Security Deposit amount at the time of such refund. Payment of Security Deposit 4.1.1 Rs. 20,00,OOOA (Rupees Twenty Lacs) with 14 days of signing of this AGREEMENT TO LEASE. 4.1.2 Balance of Rs. 35,96,425/- (Rupees Thirty Five Lacs Ninetysix Thousand Four Hundred and Twenty Five only) within 10 days of Lessor having delivered the Generators at site. 4.2 Notwithstanding what is stated herein it is further agreed that if during the period of the Lease, the LESSOR shall, sell, or create any third party right in the whole or any part of the Demised Premises/Building, then and in that event such sale shall be subject to the terms and conditions outlined in this Agreement To Lease and the purchaser shall be given Notice of this Agreement To Lease. Further, such sale shall not in any way prejudice, jeopardize or diminish the right of the LESSEE under this Agreement To Lease or its right to recover the said amount and any sale in favour of a third party shall always be subject to the Lease in favour of the LESSEE. Notwithstanding what is stated herein and7or in any other agreement or document it is further agreed that the LESSOR will furnish an acknowledgement of the receipt of the said Deposit amount transferred to the purchaser and a copy of such acknowledgement shall be passed on to the LESSEE. 4.3 That it is understood by the parties that the surrendering of all rights of the LESSEE under the Agreement To Lease in respect of the Premises shall
12 ITA No. 6550/Del/2013 and ITA No. 6541/Del/2011
be done simultaneously with1 the return of the security deposit amount then outstanding by way of Bank Draft/Cheque payable at New Delhi, after deduction of any arrears/dues towards any non- payment of bills or any other charges payable by the LESSEE in respect of the Demised Premises under the Agreement To Lease. 4.4 That it is further undertaken by the LESSOR that in the event of the LESSOR defaulting in returning the security deposit, the LESSEE may continue to retain possession and use of the Demised Premises without payment of any further rent, fee, compensation, outgoings, whatsoever until the LESSOR duly refunds the amount of security deposit, subject to deductions as contemplated in Clause 3.1. Further, the LESSOR shall refund with interest thereon calculated at 18% per annum to be computed from the date on which the LESSOR was liable to refund the said deposit as provided hereinabove until payment thereof. Such retention of possession by the LESSEE in the Demised Premises in case of non-refund of the security deposit shall be deemed to be an act of trespass and shall not be considered as illegal or rized. 5. LEASE TERM The lease term is for a period from 25th August' 2003 to August 24th, 2006 ("Lease Term). The LESSEE shall not have the right to terminate this Agreement to Lease to August 24th, 2006 ("Fixed Term"). On expiry of the Fixed Term this t To Lease may be renewed for such period and on same terms and as described herein (except the increase in base rent)between the parties afresh agreement/lease deed shall be executed and registered at the cost of the On expiry of this Lease term of 3 years, at only Lessee's choice, the Lease renewed for another two terms of 3 years each. Should Lessee wants, it can Agreement To Lease by serving a 6 month notice from the date of expiry of Lease Term.
13 ITA No. 6550/Del/2013 and ITA No. 6541/Del/2011
BASE RENT ESCALATION There shall be an escalation in the base rental only, after every three (3) year lease term. This escalation shall have a lower and upper limit of 10% to 15% respectively. The exact rate of escalation as per said parameter shall be mutually decided by the fee end of each three (3) year lease term. Should the Lessor and Lessee not reach at an agreeable rate of escalation, they shall appoint Cushman and Wakefield or any other reputable multinational real estate firm, as a mediator who shall determine rate of escalation as per the market conditions existing at the time. In all circumstances the rate of escalation shall be within the parameters as mentioned above “15. The parties extended- the lease vide agreement dated 12.04.2004 which was valid till 30.11.2006 under following agreed terms:
BASE RENT It is made clear that rent commences only from December'2003 and no rent has been paid or is payable before December'2003. The rent is payable by the LESSEE of a total sum of Rs. 9,32,737.50 /- (Rupees Nine Lacs Thirty Two Thousand Seven Hundred and Thirty Sevenand Paise Fifty Only) calculated as Rs. 22.50 per sq.ft. per month on Super area of 41,455 sq.ft., payable from 01st December 2003 only for one quarter i.e. December '2003, January 2004 and Feburary'2004. Starting March'2004 the rent payable shall be Rs1296810/- (Rupees Twelve Lacs Ninety Six Thousand Eight Hundred and Ten Only per month), calculated as Rs. 22.50 per sq. ft. per month on consolidated super area of 57,636 sq. ft., payable every quarter
14 ITA No. 6550/Del/2013 and ITA No. 6541/Del/2011
by the 10 date of start month of every quarter. All payments made by the LESSEE under this Agreement To Lease shall be made by account payee cheque in favour of the LESSOR and shall be subject to deduction of tax at source, where required under the Income-tax Act, 1961. The LESSEE shall promptly deliver the tax deduction certificate to the LESSOR. The Base rent is inclusive of the cost for 100% power backup through the generator sets. In addition to the rent payable for the Demised Premises as stipulated in this Agreement To Lease, the Lessor and LESSEE agrees to share 50% (Fifty percent)/ half, in respect of the Demised Premises, and only from the dale of possession, all kinds of fresh impositions thereof including the increases, if any, as applicable on the Site/Demised Premises to pay any increase due to variation and any statutory increase(s) in or if fresh levies, taxes, charges, rates, cesses, and fees etc. as may relate to the Demised Premises arc imposed by Government and/or Municipal and/or Local Authorities from time to time. Provided however, the municipal taxes will be shared between the LESSOR & the LESSEE as per clause 9 (h) of this Agreement To Lease. SECURITY DEPOSIT That the LESSEE, as security for its obligations under the AGREEMENT TO LEASE, has already deposited and shall keep deposited with the LESSOR, so long as the AGREEMENT TO LEASE is in force and effect, a sum of Rs, 55,96,425/- (Rupees Fifty Five Lacs Ninety Six Thousand Four Hundred and Twenty Five Only)) as and by way of interest-free refundable security deposit. LESSEE shall additionally pay a sum of Rs. 2184435/-
15 ITA No. 6550/Del/2013 and ITA No. 6541/Del/2011
(Rupees Twenty One Lacs Eighty Four Thousand Four Hundred and Thirty with interest thereon calculated al 18% per annum to be computed from the date on winch the LESSOR was liable lo refund the said deposit as provided hcreinabove until payment thereof. Such retention of possession by the LESSEE in the Demised Premises in case of non-refund of the security deposit shall not be deemed to be an act of trespass and shall not be considered as illegal or unauthorized, 4. LEASE TERM The lease term is for a period from 01st December' 2003 to 30th November' 2006 ("Lease Term"). The LESSEE shall not have the right to terminate this 'Agreement To Lease prior to 30th November'2006 ("Fixed Term"). On expiry of the Fixed Term this Agreement To Lease may be renewed for such period and on same terms and conditions as described herein (except the increase in base rent) between the parties and a fresh agreement/lease deed shall be executed and registered at the cost of the lessee. On expiry of this Lease term of 3 years, at only Lessee's choice, the Lease may be renewed for another two terms of 3 years each. Should Lessee wants, it can exit this Agreement To Lease by serving a 6 month notice from the date of expiry of the Fixed Lease Term. 5. BASE RENT ESCALATION There shall be an escalation in the base rental only, after every three (3) year lease term. This escalation shall have a lower and upper limit of 10% to 15% respectively. The exact rate of escalation as per said parameter shall be mutually decided by the parties at the end of each three (3) year lease term.
16 ITA No. 6550/Del/2013 and ITA No. 6541/Del/2011
Should the Lessor and Lessee not reach at an agreeable rate of escalation, they shall appoint Cushman and Wakefield or any other reputable multinational real estate firm, as a mediator who shall determine the rate of escalation as per the market conditions existing at that time. In all circumstances the rate of escalation shall be within the parameters as mentioned above. 6. PERMISSION FOR LEASING
6.1 The LESSOR has obtained a Permission to Lease dated 02.04.2004 from the Estate Officer, HSDC, Gurgaon for Leasing the Demise Premises to the LESSEE, 6.2 All the Terms and Conditions of this Agreement to Lease shall be operative for the permissible are of the Demised Premises including the entire Security Deposit amount as defined under Clause 3 above.
Thereafter, lease was again extended Vide agreement
dated 13.12.2006 which was valid till 30.11.2009 on following
agreed terms:
17 ITA No. 6550/Del/2013 and ITA No. 6541/Del/2011
18 ITA No. 6550/Del/2013 and ITA No. 6541/Del/2011
Further perusal of balance sheet placed at pages 81 to 110, it is observed that assessee included the said building in schedule of fixed assets for the year under consideration details of which are at page 105 to 106 of paper book. At page 108 of the paper book assessee has placed assessment order for assessment year 2004-05, wherein assessing officer records about a high-rise building, constructed on plot No. 8 and 9, Udyog Vihar Industrial Area Phase-IV, Gurgaon and after executing complete furnishing to extent of ready to move in workstations, has let it out to a Call Centre, yielding separately rent from property as well as fittings and fixtures provided from December 2003 onwards Ld. AO therein also records that as evident from rent/lease agreement, property was finally completed in February 2004, which resulted in enhancement of rent from March 2004. 18. For the year under consideration it is observed that assessee has purchased plant and machinery, equipment and fit outs such as HT Distribution Transformer, ST Switchgear, LT panel and Associated Switchgear, Server stabiliser, Insulations Transformers, UPS, DG sets, easy plants and control panels, additional safety features and lifts etc. On reading of clause 3 of original composite agreement (which has been reproduced hereinabove), it is observed that the lessor is responsible for obtaining/maintaining specifications and quality decided by lessee as per Annexure-B therein in respect of the fit outs. It is also observed that in the event the
19 ITA No. 6550/Del/2013 and ITA No. 6541/Del/2011
lessor defaults on the cost, quality and timeframe for delivery of fit out, lessor shall pay a penalty of Rs. 50,000/-, for each day delay beyond 07.12.2003. 19. The sequence of events reveals the intention of assessee which was to commercially exploit the building. It is for that reason that assessee had fit in fittings, as per prescribed specifications of lessor, more specifically detailed in Annexure- B to original composite agreement at page 22- 34 of paper book. It is seen that each and every fittings from office cabinets to electrical wires, even sanitary ware tiles and door lock system were specifically detailed by lessee. We are afraid submissions of Ld. AR cannot be accepted under these circumstances. From the facts that emerges from agreement dated 25.08.2003, more than clear that agreement between assessee and Agilent Technologies related to building, that was ready for the purposes of being used as office. The agreement does not relate to bare tenement but is in respect of a fully equipped office building. That said building was complete with fittings and fixtures and ready for commencing is apparent from agreement. If it was not so, it would not have been mentioned in the agreement that Agilent Technologies shall have right to advise assessee for purchase of fittings, fixtures installations from exclusive and for architects on a global basis in the building. It is true that, from name given to agreement, one cannot decide true nature of income earned. However, what is important is the intention of parties. The
20 ITA No. 6550/Del/2013 and ITA No. 6541/Del/2011
agreement provides that upon expiration of terms of agreement or sooner determination thereof, Agilent Technologies shall surrender vacant possession of building and hand over entire building with furniture fittings and installations to assessee. If the agreement between assessee and Agiliant Technologies, was a simple lease or a licence of building, as is sought to be contended by Ld. AR, there would not have been covenant providing that on expiry of term of agreement or sooner determination, Agilent Technologies shall hand over vacant possession of building alongwith furniture fittings and installations as is where is basis. It is true that period for which business assets are let out is always a relevant factor in finding out whether intention of assessee is to let out a business assets and if assessee had never started business, an inference may be drawn that assessee intended to exploit property and not business assets but intention of parties has to be gathered from overall facts and not isolated circumstances. In the facts of present case assessee had already constructed building in the assessment year 2004-05 as recorded in the assessment order referred herein above. 20. It is settled legal position that each case has to be decided on its own facts including construction of the agreement, under which assets have been let out or handed over to a third party and no precise test can be applied to ascertain, as to under which head income received by assessee from leasing or letting out of assets should fall. The
21 ITA No. 6550/Del/2013 and ITA No. 6541/Del/2011
longer duration of agreement could have been for many reasons. The fact that all licences, permissions and no objection certificates required for leasing the building to be obtained in the name of assessee is a pointer to aspect that assessee intended to exploit business assets. 21. Section 22 of Income-Tax Act deals with income from house property and it reads thus:
“22. Income from house property.—The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head ‘Income from house property’.” 22. It needs no emphasise that when a specific head of charge is provided for income from house property, rents or other income from ownership of house property has to be under this head and no other head. However, for an income from house property it should be covered by section 22. By a catena of decisions, courts, time and again, have held that where subject matter that is let out or given on licence is not a bare tenement but is a complex one like the one in present facts and circumstances, income derived therefrom which is not separable as income from letting out building and “income letting out from furniture, plant and machinery”, etc., such
22 ITA No. 6550/Del/2013 and ITA No. 6541/Del/2011
composite income shall not be covered by income from house property. In the present case rental income received from lease of building is not derived either wholly or even substantially from the ownership of the property. The income is not derived from mere letting of a tenement but income is derived from a complex of letting substantial part of which is other than bare tenement. It is further observed from bare reading of agreements that arrangement in the present case, is in the course of and as a part of business of company and enterprise which it has entered upon is of providing special facilities. 23. We also find that decision Hon’ble Calcutta High Court in CIT vs. Shambhu Investment Pvt. Ltd reported in 249 ITR 47, which was approved by Hon’ble Supreme Court in judgment reported at 263 ITR 143, their Lordships had an occasion to elaborately deal with judicial precedents on whether rental income could be taxed under head business profits, and their Lordships concluded as follows: “Taking a sum total of aforesaid discussions, it clearly appears that merely because income is attached to any immovable property cannot be the sole factor for assessment of such income as income from property; what has to be seen is what was the primary object of the assessee while exploiting the property. If it is found, applying such test, that main intention is for letting out the property, or any part thereof, the same must be considered as rental income or income from property. In case, it is found that the main intention is to exploit the immovable
23 ITA No. 6550/Del/2013 and ITA No. 6541/Del/2011
property by way of complex commercial activities, in that event, it must be held as business income. 8. It is thus clear that when a property is exploited by way of “complex commercial activities”, income so earned by exploiting the property is to be taxed as business income. Viewed in this perspective, and having regard to the fact that it is not a case of simplicitor renting of premises but significant value addition to premises by providing all incidental and support services to facilitate cine shooting and related activities, the income is earned by complex commercial activities which can only be taxed under the head business income. The fact that it is clearly a commercial adventure, involving marketing and promotions as also appropriate improvisations on a case to cases basis, takes these receipts out of the ambit of income under the head property income. Similarly, as regards classification of the nature of payments in the TDS certificates, nothing on turns on the same because the nature of payment, as the law is well settled, need not be the same in the hands of the recipient as in the case of the payer. That apart, it is only elementary that definition of ‘rent’ in Section 194I is not conclusive of taxability of the related income under the head ‘income from house property’. The conclusions arrived at by the Ld. CIT (A) thus do not call for any interference.” 24. Respectfully following decision of Hon’ble Supreme Court in the case of Shambhu Investment Pvt. Ltd vs CIT (supra) and discussions herein above, we are of considered opinion that rental income earned by assessee from lease of building would be taxable under the head “income from business and profession”. Ld. AO is directed to grant depreciation on building while computing income from business as per law.
24 ITA No. 6550/Del/2013 and ITA No. 6541/Del/2011
Accordingly ground No. 1 and 2 raised by assessee stands dismissed. 25. Ground No. 3 has not been argued by Ld. AR. Accordingly this ground is left unanswered. 26. Ground No. 4 is general in nature and therefore does not call for any adjudication. In the result appeal filed by assessee for assessment year 2008-09 stands dismissed. ITA No. 6550/D/13 (Assessment year 2009-10) 27. Ground No. 1, 2, 3 & 5 deals with issue of treatment of rental income by Ld. AO as business income vis-a-vis income from house property as claimed by assessee. 28. As we have dealt with this ground in detail for assessment year 2008-09, following discussions hereinabove, we dismiss these grounds raised by assessee. 29. Ground No. 4 deals with findings of Ld. CIT(A) and assessing rental income under head income from other sources. As there is a specific head that can be assigned to income earned by assessee from leasing of building, it need not be considered under miscellaneous head being “income from other sources”. In our considered view, those income which cannot be fit in any of heads of income being income from salary, income from house property, income from business and profession and income from capital gains, only then it could be considered under head “income from other sources.”
25 ITA No. 6550/Del/2013 and ITA No. 6541/Del/2011
In the present case we have already decided hereinabove that rental income earned from leasing of building would be considered as income from business. Therefore, we do not agree with findings of Ld. CIT(A). Accordingly, this ground raised by assessee stands allowed. In the result appeal filed by assessee for assessment year 2009-10 stands partly allowed. Order pronounced in the open court on 5th May 2017. Sd/- Sd/- (N. K. SAINI) (BEENA A. PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER Date: 05.05.2017 @m!t