OBEROI BUILDINGS & INVESTMENTS PVT. LTD.,KOLKATA vs. ACIT, CIR-5, KOLKATA, KOLKATA

IN THE INCOME TAX APPELLATE TRIBUNAL “D”, BENCH KOLKATA BEFORE SHRI A. T VARKEY, JM &DR. A.L.SAINI, AM आयकरअपीलसं./ITA No.1204/Kol/2014 (िनधा�रणवष� / Assessment Year: 2007-08 Vs. A.C.I.T, Circle – 5, Kolkata Oberoi Investments Pvt. Ltd. 4, Mangoe Lane, 6th Floor, Kolkata – 700 001. �थायीलेखासं./जीआइआरसं./PAN/GIR No. : AAACO 2859E (ASSESSEE) .. (RESPONDENT) & आयकरअपीलसं./ITA No.1205/Kol/2014 (िनधा�रणवष� / Assessment Year: 2007-08 Oberoi Buildings & Investments Vs. A.C.I.T, Circle – 5, Kolkata Pvt. Ltd. 4, Mangoe Lane, 6th Floor, Kolkata – 700 001. �थायीलेखासं./जीआइआरसं./PAN/GIR No. : AAACO 2860 R (ASSESSEE) .. (RESPONDENT) Assesseeby : Shri A. K. Gupta, FCA Respondent by :Shri Kalyannath, ACIT(DR) सुनवाईकीतारीख/ Date of Hearing : 07/09/2017 घोषणाकीतारीख/Date of Pronouncement : 04/10/2017 आदेश / O R D E R Per Dr. Arjun Lal Saini, AM: The captioned two appeals filed by the Assessee(group companies` appeals), pertaining to Assessment Year 2007-08, in respect of M/s Oberoi Investments Pvt. Ltd. andM/s Oberoi Buildings & Investments Pvt. Ltd., are directed against the orders passed by the Commissioner of Income Tax (Appeals)-VI, which

Oberoi Investments Pvt. Ltd. & Oberoi Buildings & Investments Pvt. Ltd. ITA No.1204& 1205/Kol/2014 Assessment Year: 2007-08 in turn arise out of assessment orders passed by the Assessing Officer u/s 143(3) of the Income Tax, 1961 (hereinafter referred to as the ‘Act’). 2. Since these two appeals relate to same group of assessee, same Assessment Year, identical issues are involved, therefore, these have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity. The appeal of the assessee in ITA No.1204/Kol/2014, A.Y 2007-08, is taken as the lead case. 3. We take assessee’s appeal in ITA No.1204/Kol/2014( lead case) wherein the grounds of appeal raised by the assessee reads as under: “1.That while dealing with ground numbers 1 to 5, the Ld. ClT(Appeals) instead of mechanically following the decision of the ITAT in respect of a group company, should have applied his mind and adjudicated the issue afresh considering the fact that the Hon'ble Calcutta High Court has already admitted the appeal challenging the said ITAT Order and has also stayed the operation of that order. 2.That the Ld. ClT(Appeals) erred in holding that the order of the ITAT in respect of a group-company is operational as on date ignoring the fact that the Hon'ble High Court has already passed an order staying the operation of the said ITAT order. 3.That the Ld. ClT(Appeals) erred in considering the contribution received from the shops as income from ‘house property’ and not as ‘business income’ as claimed by the assessee. 4.That the Ld. ClT(Appeals) erred in holding that 1% of the dividend income should be disallowed under section 14A on an ad-hoc basis. 5.That the assessee craves leave to add, amend, modify, rescind, supplement or alter any of the grounds stated here-in-above either before or at the time of hearing of the appeal.” 4.Ground No. 1, 2 and 3 raised by the assessee relate to the same issue whether contribution received from the Shops is assessable under the head “Income from House Property” or under the head “ Income from business or profession”. Assessee claimed contribution received from the Shops under the head “Income from business or profession”, whereas the Assessing Officer assessed the same under the head “Income from House Property”. Page | 2

Oberoi Investments Pvt. Ltd. & Oberoi Buildings & Investments Pvt. Ltd. ITA No.1204& 1205/Kol/2014 Assessment Year: 2007-08 4.1The brief facts qua the issue are that during the relevant previous year the assessee had booked income towards contribution from shops amounting to Rs.3,52,680/-. Against that income the assessee booked expenses amounting to Rs.1,15,398/- towards compensation for license fees and other charges. During the course of assessment proceedings, the assessee was asked to furnish the details of contribution from shops, details of compensation paid and copies of agreement about acquisition of the space and letting out of the space. The same were furnished by the assessee. On examination of the compensation paid, it was noted by AO that the amount consists of license fees, service fees, air-condition fees and special service charges. The contributions for shops are in the nature of charges received from the tenants. The assessee company acquired 5,665 sq. ft. Shopping area from Oberoi Sheraton Hotel at Bombay by virtue of a written agreement. According to that written agreement, the acquisition of the licensed space by the assessee will take effect not earlier than 1st September,1972 and not later than 31st December, 1972 on certain terms and conditions as mentioned in the said written agreement. According to point No.2(xiv) it has been mentioned that the live and license shall be irrevocable for a period of 50 years i.e. ending on 31st December 2022. After acquiring the said shopping space, the assessee company further let out different portion of shopping spaceto different persons on certain terms and conditions. This letting out income have been shown by the assessee as "contribution from shops” and the amount paid to the Oberoi Sheraton Hotel has been shown as "license fees and other charges". Since the assessee has become irrevocable owner of the space for 50 years, the assessee was specifically asked by the AO to explain why the income from letting out of such assets will not be treated as "income from house property". In response to this question, the assessee replied to the AO stating that in terms of section 22 of the Act any income is chargeable under the head 'lncome from house property' only on fulfilling the following conditions:  lncome should be derived from a property consisting of any building or lands appurtenant thereto.  The assessee is the owner of the said property. Page | 3

Oberoi Investments Pvt. Ltd. & Oberoi Buildings & Investments Pvt. Ltd. ITA No.1204& 1205/Kol/2014 Assessment Year: 2007-08  The property should not be used for the purpose of business or profession carried on by him, the profits of which are chargeable to Income Tax. Evidently, only in case of legal owner the income from property could be assessable as house property income and the company is not the owner of the shopping arcade.Apart from legal owner, section 27 of the Act also provides for certain circumstances where a person is treated as ‘deemed owner’ of house property for the purpose of taxability under the head “Income from house property'. As per section 27(iiib) of the Act, a person, who acquires any right in or with respect to any building or part thereof by virtue of any transaction which is referred to in clause (f) of section 269UA, is deemed to be the owner of the building.In order to appreciate whether the company could at all be considered as deemed owner under section 27 (iiib), the provision of clause (f) of section 269UA needs to be examined. As per the said clause (f) transfer in relation to any immovable property referred to in sub- clause (i) of clause (d) means transfer of such property by way of sale or exchange or lease for a term of not less than 12 years and includes allowing the possession of such property to be taken or retained in part performance of a contract of a nature referred to in section 53A of the Transfer of Property Act, 1882(4 of 1882). The assessee submitted before AO that section 269UA(f) covers cases of transfer of property only under sale, exchange or lease. However, in the instant case, the shopping arcade has been acquired by the company under lease, which is different from a lease. By entering into a licence agreement with EIH Limited what the company has received is only a right to use the said shopping space. The same would be evident from clause7(i) of the agreement which provides that 'this agreement does not create any interest or any other right in favour of Licensee in the said shopping centre or any part thereof but it is mere license to use the said shopping centre given to the Licensee’. A license to use the property is distinguished from a lease in respect that a licensee does not have any possession or interest in the property. In case of license, all the ingredients of ownership including the right to possession vest in the owner licensor and not in the licensee. Since a leave and license is materially different from lease and also does not transfer any interest in the property to the licensee, it will obviously be outside the scope of section 269UA(f). A pure and simple licensee cannot, therefore, be treated as a deemed owner under section 27(iiib). Again, there are restrictive clauses e.g. Page | 4

Oberoi Investments Pvt. Ltd. & Oberoi Buildings & Investments Pvt. Ltd. ITA No.1204& 1205/Kol/2014 Assessment Year: 2007-08 clauses 2(v), (vi), (vii), (viii), (ix), (xii), (xv), (xvi), (xvii) & (xviii) in the licence agreement between EIH Limited and the company, which establish the fact that the user right of the company is not absolute. As such section 27(iiib) read with section 269UA(f) is not applicable in the instant case as the agreement is only for use of property and not for the transfer of the same. Since the company is neither the owner nor the deemed owner in terms of section 27(iiib) so the "Contribution from Shops” can not be assessed under the head "Income from house property". The assessee stated before the AO that, the company had basically been formed with the main objective of carrying on the business of an investment company and the business of acquiring on licence or by purchase, Iease, exchange, hire of lands and property and to sublease or sublicense such land or property. lt is the business of the company to acquire premises on licence and to sublicense the same in order to earn revenue. The assessee also pointed out before the AO that the Memorandum of Association of the company clearly provides the objects for which the company has been formed. Clause lll, Part B of the Memorandum providing the objects ancillary to the main objects covers under point No.3 the following: "To acquire on a license premises suitable for housing and accommodating shops, boutiques, stores, offices, show rooms for the purpose of making the same available on the basis of lease and licence or sub-licence (and not for leasing or renting the same out) to any person, firm or company". Therefore, based on the object clause of the company, the assessee submitted before the AO that the company had been formed for the purpose of taking premises on licence and for granting the same for housing shops, offices, etc. together with all infrastructure not on a mere lease or rent but as a business activity and therefore the said income will be assessable under the head business income. The assessing officer has examined the submissions of the assessee and held that the assessee tried to argue that the he is not the legal owner of the said shopping space and it was merely a license.The Assessing Officer also relied on the judgment of Hon’ble Supreme Court in the case of CIT vs. Poddar Cement Ltd., 226 ITR 625, which ruled that under the common law, ‘owner’ means a person who has Page | 5

Oberoi Investments Pvt. Ltd. & Oberoi Buildings & Investments Pvt. Ltd. ITA No.1204& 1205/Kol/2014 Assessment Year: 2007-08 got valid title legally conveyed to him after complying with the requirements of law such as the Transfer of Property Act, Registration Act, etc But, in the context of Section 22 of the Income Tax Act having regard to the ground realities and further having regard to object of the Income Tax Act, namely, ‘to tax the income’, ‘owner’ is a person who is entitled to receive income from the property in his own right. The requirement of Registration of the Sale Deed in the context of Section 22 is not warranted. Based on the judgment of the Hon`ble High Court (supra), the AO held that since the assessee was having the irrevocable right for 50 years over the shopping space, in view of provisions of section 27(iiib) of the I. T. Act, 1961 and findings of the Apex Court of the country stated above, the assessee is the owner of the building or shopping space. Therefore, the income derived from the said building or shopping space are to be taxed under the head “income from House property. 5. Aggrieved by the order of the Assessing Officer, the assessee filed an appeal before the CIT(A) who has confirmed the order passed by the Assessing Officer. The ld CIT(A) observed in case of the said assessee a similar addition was made in the year Assessment Year 2005-06 vide his order 14.02.2008 in appeal No.168/CIT(A)-VI/06-07/6(3) by his Predecessor. His Predecessor had accepted the contention of the assessee and directed for that the income should be treated as business income only. However, it was seen that in his order, he had relied upon the order dated 7.1.2008 in appeal No.179/CIT(A)(-VI/07-08/6(3) in the assessee’s group concern Oberoi Building and Investment Pvt. Ltd. for Assessment Year 2005- 06. In that case, under similar facts and circumstances his predecessor had allowed relief. Revenue filed appeal against the said order. Vide its order dated 23.07.2010 in ITA No.330/Kol/2008, Hon’ble Tribunal reversed the order of his predecessor and upheld the action of the assessing officer in treating income from shopping space as ‘income from house property’. At the time of hearing it was informed by the assessee that the aforesaid order of ITAT had been disputed by the assessee Page | 6

Oberoi Investments Pvt. Ltd. & Oberoi Buildings & Investments Pvt. Ltd. ITA No.1204& 1205/Kol/2014 Assessment Year: 2007-08 before Hon’ble Calcutta High Court which have vide its order dated 4.10.10 stayed order of Hon’ble Tribunal. According to the assessee, in view of the High Court’s order, the tribunal order is no longer required to be followed. However, it is settled position of law that merely because an appeal had been filed before a higher court, which had grated stay, the order of lower court does not become invalid. As long as the higher court does not overrule and reverses the order of the lower court, the latter remains very much valid. Admittedly, the relevant facts in the assessee’s case are practically identical to that in the case of Oberoi Building and Investment Pvt. Ltd. for Assessment Year 2005-06. Therefore, CIT(A) following the ratio laid down by the Hon’ble Tribunal in the case of Oberoi Building and Investment Pvt. Ltd. in Assessment Year 2005-06 confirmed the addition made by Assessing Officer. 6. Not being satisfied with the order of CIT(A), the assessee is in appeal before us.The Ld. Counsel for the assessee has submitted that this issue is fully covered by the order of the Hon’ble ITAT, Kolkata in assessee`s own group company case. The Ground No.1, 2 and 3 raised by the assessee are squarely covered by the judgment of the Hon’ble ITAT, Kolkata in ITA No.1640/Kol/2014, Assessment Year 2006-07 dated 26.07.2017 wherein the Hon’ble Tribunal observed thatthe order of the ITAT for Assessment Year 2005-06 has been stayed by the Hon’ble High Court. But the Hon’ble Supreme Court in Chennai Properties & Investment Ltd. Vs. CIT(2005) 373 ITR 673 has categorically held that in case, letting of the properties was in fact the business of the assessee, then the assessee disclosing the same under the head income from business had to be upheld and it cannot be treated as income from house property. This proposition of law had been reiterated by the Hon’ble Supreme Court in Royala Corporation Pvt. Ltd. Vs. ACIT (2016) 386 ITR 500 (SC). Taking into consideration the ratio laid down by the Hon’ble Supreme Court, the coordinate Bench of this Tribunal “B” Bench, Kolkata in the case of the sister concern of the assessee i.e. Bombay Plaza Pvt. Ltd. Vs. ACIT, ITA No. 1641 & 1203/Kol/2014 for AYs 2006-07 and 2007-08 was pleased to uphold the assessee’s claim that the income from granting premises on sub-license was to be assessed under the head income from business. In this case, the Tribunal also Page | 7

Oberoi Investments Pvt. Ltd. & Oberoi Buildings & Investments Pvt. Ltd. ITA No.1204& 1205/Kol/2014 Assessment Year: 2007-08 took note of the order of the assessee’s case in which the Coordinate Bench had decided in favour of the revenue by treating the contribution received from shop as income from house property at para 8 of its order. On similar and identical facts the Coordinate Bench of the Tribunal after taking note of the fact that assessee’s main business was letting out of properties after perusal of the lease deed which we find to be identical to that of the Bombay Plaza Pvt. Ltd. wherein also that assessee took license from the East India Hotels Ltd., which fact is evident from page 10 and 11 of that order. Taking note of these facts, the Tribunal had been pleased to come to the conclusion that the assessee carried on a systematic and regular activity in the nature of business by letting out premises on rent and, therefore, the income from granting sub-license was to be assessed under the head income from business. We note that in the assessee’s case for AY 2005-06, the order of the Tribunal is dated 23.07.2010 whereas the Hon’ble Supreme Court’s decision in Chennai Properties & Investment Ltd., supra, has been passed on 09.04.2015 and that in Royala Corporation Pvt. Ltd., supra was passed on 11.08.2016 so, these judgments were passed after the Tribunal’s order in assessee’s own case for AY 2005-06. In the instant case, we take note of the fact that the assessee’s main object as stated in its Memorandum of Association was to acquire on license or by purchase, lease, exchange, hire or otherwise lands and property of any tenure, or premises in any part of India and to license or sub-license or lease or sub-lease or let, such lands or property or premises or any part thereof, clearly spells out that the assessee’s main business is to carry out systematic and regular activity in the nature of business of letting out property. Therefore, the entire income which accrued and was assessed was from letting out of these properties. The assessee showed the rental income received as income from business in its return and we uphold the said claim of the assessee in the facts and circumstances and the law and on the ratio-decidendi laid down by the Hon’ble Supreme Court in Chennai Properties & Investment Ltd. (supra) and Royala Corporation Pvt. Ltd. (supra). Therefore, Tribunal set aside the order of the Ld. CIT(A) and allowed the claim of the assessee and held that the income from contribution received from the shop has to be assessed as business income. 7. On the other hand, ld DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. Page | 8

Oberoi Investments Pvt. Ltd. & Oberoi Buildings & Investments Pvt. Ltd. ITA No.1204& 1205/Kol/2014 Assessment Year: 2007-08 8. We have heard both the parties and perused the materials available on record,we take note of the fact that the assessee’s main object as stated in its Memorandum of Association was to acquire on license or by purchase, lease, exchange, hire or otherwise lands and property of any tenure, or premises in any part of India and to license or sub-license or lease or sub-lease or let, such lands or property or premises or any part thereof, clearly spells out that the assessee’s main business is to carry out systematic and regular activity in the nature of business of letting out property. We also note that section 27(iiib) read with section 269UA(f) of the Act, is not applicable in the instant case as the agreement is only for use of property and not for the transfer of the same. Since the company is neither the owner nor the deemed owner in terms of section 27(iiib) of the Act, therefore the "Contribution from Shops” cannot be assessed under the head "Income from house property. Besides, the said issue is squarely covered by the Hon’ble Supreme Court judgment in Chennai Properties & Investment Ltd. Vs. CIT(2005) 373 ITR 673 wherein it had been held that in case, letting of the properties was in fact the business of the assessee, then the assessee’s income disclosing the same under the head income from business has to be upheld and it cannot be treated as income from house property. This proposition of law has been reiterated by the Hon’ble Supreme Court in Royala Corporation Pvt. Ltd. Vs. ACIT (2016) 386 ITR 500 (SC). Taking into consideration the ratio laid down by the Hon’ble Supreme Court, the coordinate Bench of this Tribunal “B” Bench, Kolkata in the case of the sister concern of the assessee i.e. Bombay Plaza Pvt. Ltd. Vs. ACIT, ITA No. 1641 & 1203/Kol/2014 for AYs 2006-07 and 2007-08 was pleased to uphold the assessee’s claim that the income from granting premises on sub-license was to be assessed under the head income from business. Therefore, considering the factual position and respectfully following the judgment of the ITAT in assessee’s own sister Page | 9

Oberoi Investments Pvt. Ltd. & Oberoi Buildings & Investments Pvt. Ltd. ITA No.1204& 1205/Kol/2014 Assessment Year: 2007-08 concern case, we therefore, set aside the order of CIT(A) and allow the claim of the assessee and hold that income from contribution received from the shops has to be assessed under the head Income from business. 8. In the result, the appeal filed by the assessee (Ground No.1,2 and 3 of ITA No.1204/Kol/2014 and ITA No.1205/Kol/2014), are allowed. 9. During the course of hearing, the ld. Counsel for the assessee has submitted before us that assessee is not going to press Ground No.4 and 5 of both the appeals (that is, ITA No.1204/Kol/2014 and ITA No.1205/Kol/2014). Therefore, we dismiss ground No. 4 and 5 of both the appeals and do not adjudicate the same. 10. In the result, appeals of both the assessees are partly allowed. Order pronounced in the open court on this 04/10/2017. Sd/- Sd/- (A. T. VARKEY) (DR. A.L.SAINI) �ाियक सद� / JUDICIAL MEMBER लेखा सद� / ACCOUNTANT MEMBER कोलकाता /Kolkata; िदनांक Dated 04/10/2017 RS,SPS आदेशकी�ितिलिपअ�ेिषत/Copy of the Order forwarded to : अपीलाथ�/ The Assessee – (i) Oberoi Investments Pvt. Ltd. & 1. (ii) Oberoi Buildings & Investments Pvt. Ltd. ��थ�/ The Respondent-A.C.I.T, Circle – 5, Kolkata 2. आयकरआयु�(अपील) / The CIT(A), :Kolkata. 3. आयकरआयु�/ CIT 4. िवभागीय�ितिनिध, आयकरअपीलीयअिधकरण, कोलकाता/ DR, ITAT, Kolkata 5. गाड�फाईल / Guard file. 6. स�ािपत�ित //True Copy// By Order Senior Private Secretary, Head of Office/D.D.O, I.T.A.T, Kolkata Benches, Kolkata.