DCIT, CIRCLE-6(1) vs. MAYAR INDIA LD.,,

Date of hearing: 02.06.2016 Date of Pronouncement: 13.07.2016 ORDER

PER BEENA A. PILLAI, JM:

3 I.T.A.No.4123/Del/2005 with assessee’s contention and considered the rental income under the head ‘Income from House Property’. The contention of the assessee before the authorities below was that, as the assessee has shifted its branch office to Mayar Tower, the industrial property at Okhla Industrial Area had become surplus which was exploited by the assessee, subjecting it to lease agreement. The assessee was also getting maintenance charges from the tenant for proper upkeep of the building as per the maintenance agreement entered into between the parties. 3.1 Ld. CIT(A) agreed with the submissions made by the assessee and directed the Assessing Officer to consider the rental income under the head ‘Income from Business’. The coordinate bench of this Tribunal in an appeal by Revenue in upheld the findings of Ld. CIT(A) vide order dated 31.10.2007. 3.2 Aggrieved by the order of this Tribunal, the revenue preferred an appeal u/s 260A of the Act before the Hon'ble High Court. On considering the arguments advanced by the Revenue, the Hon'ble High Court sent back the issue to this Tribunal for re-verification of the facts in the light of decision passed by Hon'ble Supreme Court in the case of Universal Plast Ltd. (supra).

4 I.T.A.No.4123/Del/2005 “(i)No general principle could be laid down which is applicable to all cases and each case has to be decided on its own facts and circumstances.

(ii)Whether an income falls under one head or another has to be decided according to the common notions of a practical and reasonable man, for the Act does not provide any guidance in the matter.

(iii) In each case, what has to be seen is whether the asset is being exploited commercially by the letting out or whether it is being let out for the purpose of enjoying the rent. The distinction between the two in a narrow one hand has to depend on certain facts peculiar to each cases. Pure and simple. Commercial, asset like machinery, plant, tools, industrial sheds on godowns having high business potential stand on a different fooling from assets like land or building. iv) If an assessee derived income from a commercial assets which is capable of being used as a commercial asset, then it is income from his business. Whether he uses that commercial asset himself for lets it out to somebody else to be used. The asset would not cease to be commercial asset simply because temporarily it was put out of use or it was let out to another person for his use. v) So long as the Commercial asset is capable of being exploited as such, its income is business income irrespective of the manner in which the asset is exploited by the owner of the business. He entitled to exploit it to his best advantage and be may do so either by using it himself personally or by letting it out to somebody else.

(vi) If the commercial asset is not capable of being used as such or as a commercial asset, then its being let out to other does not result in the accrual of business income.

5 I.T.A.No.4123/Del/2005 (vii) When the assessee has stopped doing business altogether and when the asset ceases to have the character of business or commercial asset's, it becomes a capital asset. Qua such asset, the assessee is not carrying on any business. As the owner of the asset, he may exploit such asset but, in such circumstances, income which he receives is no longer business income but income from property owned by him and, hence, "income from house property".

(viii) When the asset is in the nature of land or building capable of being used for any other purpose and when the assessee ceases to use it is as a commercial asset either himself or even through others, the income derived by him by renting out the same would made appropriately fall under the head "Income from house property" as, like any other owner of property, he gets income from that property as owner. In such cases, it is not the factotum of his business or commercial activity which brings income to him but it is his investment in property or his ownership of property which brings income to him. In such cases, leasing of property itself is the activity. It is leased with a view to produce income, a transaction quite apart from the ordinary business activities of the assessee.

(ix) In the descending whether an assessee dealt with its property as owner or as a businessman or as a prudent man of commerce. One must see not the form which it gave to the transaction but to the substance of the matter. In which that property is used, ownership of property and leasing it out may be done as a part of business or it may be done as a landowner. Whether it is the one or the other must necessarily depend upon the object with which the act is done. If the dominant object of leasing out is incidental to and for the purpose of the assessee's business, the income would be business income. What

6 I.T.A.No.4123/Del/2005 has to be discovered is whether the property is subservient to the main business of the assessee."

4.1 It has been submitted by the Ld. A.R. that the industrial property at F-83, Okhla was used by assessee for its printing press business since 1986. The Ld. A.R. submitted that assessee had temporarily shut down the activity of printing press as it had shifted its branch office to Mayar Tower. Ld. A.R. submitted that the assessee had let out the industrial property temporarily for a period of 3 years, except for one room on the first floor which was retained by the assessee, which contained the machinery used for printing press activity.

4.2 If we apply the tests laid down by the Supreme Court in Universal Plast Ltd.'s case (supra), to the facts of the present case, we find that all the assets of the business were not rented out by the assessee-company. It was doing the business of trading of import and sale of timber during the period when the branch office was being shifted. In the interest of the company, it decided to let out the property to M/s. ALS Ltd., by way of exploitation of business assets, for making profit. The asset was let out, while carrying out other business activity. There was nothing on record to show that the assessee had sold away the properties or abandoned its business. In the circumstances, in order to exploit business assets, assessee shifted its Branch Office. In this commercial venture, the assessee received a higher income regularly

7 I.T.A.No.4123/Del/2005 from its commercial assets, which was used to maintain the premises. There is no dispute that the property under consideration, is not capable of being used only as a commercial asset. 4.3 In the judicial citation cited above, it has been laid down that in such situations the property under consideration would not lose its character of being a "commercial property" only because it was let out. Thus, it has been laid down that income earned from letting out of such commercial asset would squarely fall in the domain of business income. 4.4 The asset was retained the character of productive/commercial/industrial assets since their inception. The assets included factory buildings, land appurtenant thereto along with functional plant and machineries. Therefore, there cannot be any case that the nature of the assets has been Changed. The commercial assets exploited by the assessee for the purpose of its business remained the same and its character has not been converted into a house property or non commercial asset.

4.5 Further, on perusal of the lease agreement, placed at page 105 of the Paper Book, it is observed that the assessee had given the commercial property for a short period of 3 years on rental basis. This is evident from clause 2 of the agreement which is reproduced below:

8 I.T.A.No.4123/Del/2005

2. The period of the lease shall be for a term of 36 months commencing form the 25th day of August, 2000 and expiring on 24h day of Augusts, 2003. The lease has an option to renew the Agreement for a further period of 36 months on the same terms and conditions as laid down in this agreement. Such option shall be exercised by the lessee 60 days before the date of the expiry of the Agreement. The lessee also undertakes to hand-over vacant and peaceful possession of the said premises after expiry of 6 years from the date of the Agreement i.e. 24th day of August, 2006. After the initial period of 3 yeas a fresh lease deed will be executed.

4.6 It has been submitted by the Ld. A.R. that on expiry of this agreement the assessee has neither extended lease with the same party nor has given it on lease to any other party thereafter. 4.7 Ld. A.R. has submitted that commercial property was subjected to lease temporarily due to shifting of branch office to Mayar Tower, Yamuna Marg, Delhi. It has been categorically recorded by Ld. CIT(A) that the property is a commercial property and the assessee has not closed down its business activities pertaining to printing press. Ld. A.R. has relied upon the decision of coordinate bench of this Tribunal in I.T.A.No. 337/RJT/2013 in the case of ITO Vs Ultra Vision Associates, for the Assessment Year 1010-11 New Delhi 2011-12. This Tribunal vide order dated 09.03.2016, on similar facts, has allowed the claim of rental income to be taxed under t he head ‘income from business’ by relying upon the decision of Hon'ble Supreme Court in the case of 9 I.T.A.No.4123/Del/2005 Universal Plast Ltd. (supra). The Hon'ble Supreme Court in Universal Plast Ltd. (supra), has held that if business assets are let out temporarily while assessee is carrying out other business activities, then it is the case of exploiting of business asset otherwise than employment of them for his own use for making profits for their business. The ratio has been followed in various decisions which are as under: i) Scientific Instrument Co. Ltd. Vs CIT 14 Taxman.com 157 (2011) (Alld.) ii) CIT Vs New India Industsries Ltd. 201 ITR 208 (Guj.) iii) Vyline Glass Works Ltd. 20 Taxman.com 32 iv) Narayan Maket Complex Vs ITO 21 Taxman.com 325.

10 I.T.A.No.4123/Del/2005 irrespective of the manner in which it is exploited by the owner of business. 5.2 In the present case, the asset is a commercial asset, has not been controverted by the Revenue. Respectfully following the judicial pronouncements discussed above, it is concluded that the property under consideration let out by the assessee is a commercial property, which can only be exploited commercially, the income earned therefore, on account of letting, deserves to be taxed as income from business and not as income from house property. 5.3 If an assessee derived income form a commercial assets which is capable of being use as a commercial asset, then it is income from his business. Whether he uses that commercial asset himself for lets it out to somebody else to be used. The asset would not cease to be commercial asset simply because temporarily it was put out of use or it was let out to another person for his use. 5.4 The Coordinate Bench of Rajkot Tribunal in I.T.A.No. 337/Rjt/2003 and C.O. No.3/Rjt/2004, in case of ITO Vs M/s. Ultravision Associates has held as under: “If we apply the tests laid down by the Supreme Court in Universal Plast Ltd.'s case (supra), to the facts of the present case, we find that all the assets of the business were not rented out by the assessee- company. It was doing the main business of manufactures, imports, purchases and dealing In scientific apparatus, chemicals, chemical products, articles of glass, metal, wood, paper etc., more or less connected with science, as given in clause 3(a) of the 11 I.T.A.No.4123/Del/2005 Memorandum of Association. Out of the three properties in Mumbai, the property in dispute was being used for its Regional Office. In the interest of the company, it decided to let out one of its properties, to the City Bank, by way of exploitation of business assets, for making profit. The assets were let out, while carrying out other business activities. There was nothing on record to show that the assessee had sold away the properties or abandoned its business activities. In the circumstances, in order to exploit business assets, as a prudent business decision, the assessee took interest free loan from the City Bank, rented out, one of its properties to it, and shifted its Regional Office. In this commercial venture, the assessee received a higher income regularly from its commercial assets .... ".

5.5 Subsequently, Hon’ble Gujarat High Court in the case of CIT Vs New India Industries Ltd. reported in 201 ITR 208 has held that the property let out by assessee was a commercial asset which could only be exploited commercially and therefore, the income earned was treated as business income. Further, Hon’ble Calcutta High Court in the case of Shyam Burlap Co. Ltd. Vs CIT reported in (2016) 280 ITR 151 has taken a view that when the object in memorandum permitted the assessee to carry on business in letting out properties and when 85% of the income was by way of deriving rent from lease, the income from letting was considered as business income of the assessee.

5.6 Respectfully following the judicial decisions discussed above and applying the tests laid down therein,

12 I.T.A.No.4123/Del/2005 it is concluded that as the property under consideration before us let out by the assessee being a commercial property, can only be exploited commercially and the income earned there from, on account of letting, deserves to be taxed as income from business. 6. In the result, issue stands answered in favour of the assessee. Order pronounced in the open court on 13th July, 2016.