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

On 25.04.1972 the assessee entered into an agreement with M/s. East India Hotels Ltd. (now re-named as EIH Ltd.) to acquire under licence (for the use of certain area earmarked for shopping centre) in the company’s Oberoi Hotel in Mumbai. In terms of this agreement, after acquiring the license in the shopping area the assessee company gave sub- license to various parties who were interested in setting up shops there with the condition that the shopkeepers had to subscribe to a specific number of shares of the assessee company apart from payment of monthly charges (termed as ‘contribution’ from shops). Since inception, the contribution from shops has been assessed as business income. However, in the AY 2005-06, the AO had changed the head of such income from ‘business Income’ to ‘income from house property’ which order of the AO has been confirmed by the Tribunal “C” Bench, Kolkata vide its order dated 23.07.2010 in wherein it was held as under: “In the case before us, the assessee company has acquired 5665 Sft. of office space from EIH for a period of 50 years and subsequently, sub-let it to different persons on a monthly fixed free/rent. We are of the considered view that the assessee company, in the facts and circumstances of the case has exploited the Office space in the building i.e. Oberoi Sheraton Hotel at Bombay to realize the rental income in its own right and as such the said rental income has rightly been assessed by the Assessing Officer as income from house property u/s 22 of the Act and not as business income as claimed by the assessee. Accordingly, we vacate the order of the Ld. CIT(A) by allowing the grounds of appeal taken by the Department and confirm the order of the Assessing Officer.”

We have heard rival submissions and gone through facts and circumstances of the case. It has been brought to our knowledge by the Ld. AR that the order of the ITAT for AY 2005-06 has been stayed by the Hon’ble High Court. According to the Ld. Counsel, the Hon’ble Supreme Court in Chennai Properties & Investment Ltd. Vs. CIT (2015) 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 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, & 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 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 has 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, we set aside the order of the Ld. CIT(A) and allow the claim of the assessee and hold that the income from contribution received from the shop has to be assessed as business income.

In the result, appeal of assessee is partly allowed.