MOHAN SINGH, A.M. PHOOL SINGH, J.M. VIMAL GANDHI, PRESIDENT (AS THIRD MEMBER) September, 2003 2. In brief, relevant facts are that assessee constructed building complex for purpose of carrying on business of hotel, restaurant, caf , etc., as per first main object of assessee-company. Besides main objects, assessee-company has other objects which among other objects at Sl. No. 28 included "to acquire, establish and maintain one or more nursing home(s), hospital(s), clinics, dispensaries, maternity homes, family planning centres, etc." and in board meeting resolution dt. 12th March, 1989 it was unanimously decided that company cannot run hospital in area of remote locality as per survey conducted by directors. area being far off from railway head and being remote for hotel business, therefore, company may go into losses. Under this compelling situation, company decided to adopt other objects of memorandum and articles of association of company as mentioned at sl. No. 28 and it was decided that company will run hospital or nursing home either in its own supervision or may lease out business asset being building with plant and machinery along with generator, lifts or other amenities for said purposes to any doctor(s) or medical institutions and for this purposes, managing director was authorized to act in accordance with board s decision to do needful in best interests of company and accordingly, after running hotel for some time, company entered into lease agreement with Deva Nursing Home (P) Ltd. for running nursing home from said premises in terms of agreement dt. 2nd May, 1989 which was made effective from 10th May, 1989 for limited period of five years. In agreement itself, company reserved for its use generator and lift installed in premises including its operation and maintenance as well as maintenance of building, plant and machinery. Accordingly, appellant- assessee claimed lease money received from Deva Nursing Home (P) Ltd. amounting to Rs. 3,23,000 as business income, but AO treated receipt as income from other sources. On appeal, learned CIT(A)-II, Kanpur, vide order dt. 2nd March, 1995, treated lease money as income from house property on ground that running of hospital and nursing home is not as per main object clause and in view of decision of Hon ble Supreme Court in case of Sultan Brothers (P) Ltd. vs. CIT (1 96 4) 51 ITR 353 (SC), income earned on leasing out of asset was treated as property income, against which appellant-assessee is in present appeal before Tribunal on ground that learned CIT(A) is not justified in treating income of appellant- assessee as income from house property instead of business income whereas AO treated it as income from other sources. ground is taken against disallowance of depreciation without giving opportunity to appellant- assessee. Ground is also taken that learned CIT(A) is not justified in sustaining Rs. 5,000 out of expenses claimed for maintaining lift and generator and also against disallowing claim of director s remuneration at Rs. 36,000. 3 . On behalf of appellant-assessee, Shri S.K. Garg, advocate, while referring to paper book filed by appellant-assessee, submitted that in view of other objects of memorandum and articles of association of company, appearing at cl. 28, company passed resolution dt. 12th March, 1989 in its board meeting for leasing out premises to Deva Nursing Home (P) Ltd. for running hospital. He further submitted that subsequent to resolution dt. 12th March, 1989, running of nursing home was adopted as one of main clauses through resolution dt. 15th March, 1989 and after complying with formalities, appellant-assessee leased out premises to Deva Nursing Home (P) Ltd. for purpose of running nursing home owing to appellant- company found it difficult to run successfully hotel, therefore, in order to exploit assets for gainful substituted utilization and to avoid losses and in order to realize object of running hospital and nursing home for gaining required experience and to ensure some clientele from in and around areas, premises were given on lease to Deva Nursing Home (P) Ltd. for limited period with view to run its own business as soon as it was feasible not only for realizing object of running nursing home/hospital but also to earn profit and to serve humanity. Therefore, totality of circumstances were that company had put its assets for substituted commercial use rather than going out of business. Shri Garg further submitted that it was case where commercial asset of company which were earlier meant for running of hotel had been put to its substituted use, therefore, facts distinguished case from that of Sultan Brothers (P) Ltd. (supra) and lease money received from lessee was liable to be treated as business income of assessee. He further submitted that decision of Hon ble Supreme Court in case of CEPT vs. Shri Lakshmi Silk Mills Ltd. (1951) 20 ITR 451 (SC) support assessee s case. 4 . In case of appellant-assessee, it was not case of letting out property or building simpliciter but case of leasing out business premises from where business had actually been carried out and assets were conveniently put to use as nursing home even if nursing home was not being run by assessee. Therefore, resultant income is liable to be treated as business income and in support of his contention, Shri Garg relied upon case laws reported in case of New Savan Sugar & Gur Refining Co. Ltd. vs. CIT (1 96 9) 74 ITR 7 (SC), CIT vs. Vikram Cotton Mills Ltd. (1988) 67 CTR (SC) 169 : (1988) 169 ITR 597 (SC) and S.K. Sahana & Sons Ltd. & Ors. vs. CIT (1999) 156 CTR (SC) 90 : (1999) 236 ITR 432 (SC), wherein Hon ble Supreme Court has relied upon its decision in case of Vikram Cotton Mills Ltd. (supra). 5. Shri Garg further submitted that in view of facts and circumstances, appellant-assessee s income for asst. yr. 1998-99 has been assessed as income from running nursing home for which he invited attention of Bench to pp. 26 and 27 of paper book being assessment order dt. 22nd March, 2000 for asst. yr. 1998-99 passed by ITO Ward-2(1), Kanpur, wherein even AO has allowed unabsorbed depreciation of Rs. 1,34,154 to be carried forward for set off against profit of subsequent years. Therefore, Shri Garg pleaded that during period relevant for assessment year, facts and circumstances remaining same, income of appellant-assessee should be assessed as income under head of Business income . 6 . On other hand, Shri M.K. Singhania, senior Departmental Representative, submitted that running of nursing home under lease agreement is not one of objects of assessee-company but he could not answer query of Bench in respect of resolution dt. 12th March, 1989, copy of which appears at p. 20 of paper book filed by assessee. But in order to reply and to find out correct position and for making reference to case laws, his request for adjournment was granted even on subsequent date of hearing, he could not rebut submissions made by learned counsel for assessee. 7. After considering rival submissions, facts and circumstances as obtainable in appellant-assessee s case, we find that appellant-company entered into agreement with another company and in order to make substituted use of its assets for purpose of running nursing home, leased out property as area was not found suitable for running hotel business. Therefore, it was case of substituted usage of commercial asset and income earned on account of such substituted use can be nothing but business income as has been held in large number of cases as mentioned by Shri Garg. Whereas from Revenue s side, it could not be established that assessee has gone out of business whereas assessee-company established that it firmly remained in business and in order to overcome losses in hotel business, it entered into lease agreement temporarily and under these facts and circumstances, in our opinion, yielded income earned by assessee-company from leasing out its commercial assets to Deva Nursing Home (P) Ltd., business income remained intact and same should have been assessed accordingly and in that case, appellant-assessee is entitled to deductions as are admissible while computing business income. AO has himself completed assessment for asst. yr. 1998-99 treating assessee-company enjoying income from business and has even allowed depreciation and other expenses as deduction and has also allowed unabsorbed depreciation to be carried forward and set off against profit of subsequent years, therefore, order of AO supports appellant-assessee s contention. 8 . Regarding disallowance of Rs. 5,000 out of lift and generator expenses, as same is based on account of unverifiable expenses, therefore, we do not find any infirmity in order of learned CIT(A), hence, ground against same is treated as rejected. 9 . next issue in appellant-assessee s appeal is against disallowance of directors remuneration. As we have held that appellant- assessee is retaining character of business income and business is being carried on by its directors and there were submissions before learned CIT(A) that directors looked into proper upkeep and maintenance of assets and they devoted sufficient time not only to realize lease rent but also in order to get lift and generator in proper condition for which payment of salary was obvious, as directors are required to be paid salary even when company is not working to its full capacity, therefore, remuneration of Rs. 36,000 to its four directors cannot be said to be excessive or arbitrary. fact remains that appellant-company enjoyed substantial income even by way of lease and it is also fact that AO considered appellant-company to have been carrying on business which is evident from subsequent order of AO for asst. yr. 1998-99, reference of which appears in paras 5 and 7 above, therefore, learned CIT(A) is not justified in confirming disallowance of same. Under facts and circumstances and there being meager allowance as remuneration, we direct it to be allowed as deduction to appellant-company because corporate entity works through its directors who assume number of responsibilities and are required to discharge lot of obligations. Therefore, ground of appellant-assessee in this respect is treated as allowed. 1 0 . As result, appellant-assessee s appeal is treated as partly allowed. 9th Dec., 2003 2. relevant facts which may elucidate controversy in detail are that assessee-company, M/s Hotel Arti Deluxe (P) Ltd. was incorporated on 28th March, 1987 and copy of memorandum of association which is appearing at pp. 1 to 10 of paper book go to reveal that main objects to be pursued by company on its incorporation are as under : 3. objects incidental or ancillary to attainment of main objects are elucidated in cl. B and running into 21 sub-clauses and these are in respect of business relating to hotel activities. Clause C of memorandum of association provides other objects for which company is established and sub-cl. 28 relevant for deciding controversy reads as under : 4 . perusal of above shall show that assessee-company came into existence to carry on business of hotel, restaurant, cafe, bar, etc., and for that purpose, it constructed building. It appears that assessee-company could not run business of hotel and resolution was passed at general meeting held on 12th March, 1989 which reads as under : 5 . In pursuance of this, assessee let out building of hotel to M/s Deva Nursing Home (P) Ltd., another company, through lease deed dt. 2nd May, 1989, copy of which is appearing at pp. 20 to 21 of paper book. 6. For asst. yr. 1990-91, year under consideration, assessee filed return at loss of Rs. 64,482. AO noted that assessee constructed building complex which had been given on rent to M/s Deva Nursing Home (P) Ltd. from whom rental income is being enjoyed by assessee-company. AO was of view that assessee had shown monthly hire charges of Rs. 3.23 lakhs in P&L a/c in respect of properties so let out by it to M/s Deva Nursing Home (P) Ltd. for purpose of running said nursing home and all equipments and instruments required for purpose of nursing home have been brought in by said M/s Deva Nursing Home (P) Ltd. AO was of view that assessee was not justified to show income from hire charges as income from business and he assessed it as income from other sources and doing so AO did not allow past year s losses to be set off in year under consideration. 7. Being aggrieved, assessee came in appeal and it was submitted that AO was not justified to assess income from letting out of building as income from other sources, but it should have been assessed as income from business because assessee had put business assets to use for better utilization of letting it out on rent instead using it as hotel which was original objective behind construction of building. alternative plea of assessee was that in case income was to be assessed as income from other sources, AO should have allowed all outgoings claimed by assessee as deduction. 8. learned CIT(A) considered submission and after going through memorandum and articles of association of assessee-company, observed that main object for which company was set up was to carry on business of hotel, restaurant, cafe, bar, etc. along with lodging. He further observed that incidental or ancillary objects to attainment of main objects were also similar relating to running of hotel. He recorded categorical finding that there was not single object in memorandum of association which authorized assessee-company to derive income by letting out any immovable property on lease or rent. learned CIT(A) concluded that since assessee-company was not authorized to carry on such activity in its memorandum of association, it cannot be said that income derived from letting out of building to M/s Deva Nursing Home (P) Ltd. constituted income from business. He also concluded that no doubt, building was asset owned by assessee-company, but it did not become commercial asset whose letting out constituted business activity. For this, he derived support from decision of apex Court in case of Sultan Brothers (P) Ltd. vs. CIT (1 96 4) 51 ITR 353 (SC) and concluded that facts in that case were identical to facts of case before him. Accordingly, learned CIT(A) affirmed action of AO that rental income did not constitute income from business. 9 . However, learned CIT(A) proceeded further and noted from lease deed executed on 2nd May, 1989 between assessee-company and M/s Deva Nursing Home (P) Ltd. that what had been let out or leased was building fitted with lift, generator, tubewell and electric fittings. learned CIT(A) was of view that for purpose of assessing income under head "Income from other sources", only clause that can be applicable in case of assessee was s. 56(2)(iii) of IT Act, 1 96 1, and assessee s case is not covered as there was no machinery, plant or furniture that has been let out along with building. lift, generator, tubewell and electric fittings were said to be common convenience without which building could not have been let out. learned CIT(A) was of view that by providing lift and generator, assessee cannot be said to have made out plant and machinery along with building and for that he placed reliance on decision of Hon ble along with building and for that he placed reliance on decision of Hon ble Kerala High Court in case of Dr. P.A. Varghese vs. CIT (1971) 80 ITR 180 (Ker) and on basis of above discussion, he concluded that lease rent received by assessee-company was assessable as income under head income from house property. assessee, feeling aggrieved from said finding is in appeal. 1 0 . learned counsel for assessee submitted that learned CIT(A) had not appreciated factual position correctly as according to him, sub-cl. 28 of ancillary and other object in memorandum of association clearly provides that assessee can establish and maintain one or more nursing homes. contention was that by letting out property to M/s Deva Nursing Home (P) Ltd., assessee is fulfilling very object and thus it can be easily said that leasing out of property was also covered under object. learned counsel for assessee also submitted that circumstances under which property was let out is also to be looked into and for that learned counsel pointed out copy of resolution passed in general meeting of board of directors held on 12th March, 1989, in which assessee was authorized to rent out hotel either in its own supervision or may lease out building with plant and machinery, generator and other amenities. It was also pointed out in that very resolution, as per report of directors, hotel cannot be run in area of Acharya Nagar where building was constructed that is why they have again changed very object and forced to let out building. 11. next contention of learned counsel for assessee is that hotel building was commercial asset and it is being utilized by assessee in letting out to M/s Deva Nursing Home (P) Ltd. and thus substitute use of commercial asset will tantamount to business activities of assessee and income so earned is liable to be assessed under head "Income from business". learned counsel referred to decision of Hon ble Supreme Court of India in case of CEPT vs. Shri Lakshmi Silk Mills Ltd. (1951) 20 ITR 451 (SC), in which income derived from letting out dyeing plant was held to b e income from business activity. learned counsel also referred to decision of jurisdictional High Court in case of CIT vs. Vikram Cotton Mills Ltd. (1977) 106 ITR 829 (All), in which same view was taken which stands duly affirmed by Hon ble Supreme Court of India in case of CIT vs. Vikram Cotton Mills Ltd. (1988) 67 CTR (SC) 169 : (1988) 169 ITR 597 (SC). learned counsel also referred to decision in case of S.K. Sahana & Sons Ltd. & Ors. vs. CIT (1999) 156 CTR (SC) 90 : (1999) 236 ITR 432 (SC), in which assessee-company let out its colliery to managing contractor and assessee was to be paid profit at certain rate on amount of coal raised. T h e question was about nature of income arose out of contractual relationship between principal and agent and it was held that income received under agreement was to be assessed as income from business. learned counsel for assessee submitted that same ratio is applicable to facts in present case as assessee had let out its building for utilization by lessee to fulfil one of objects of assessee-company and thus income so received will be income from business and views taken by AO and learned CIT(A) are not tenable. 12. As against it, learned Departmental Representative placed reliance on order of AO and learned CIT(A) and contended that running of nursing home under lease agreement was not one of objects of assessee- company and thus income received by assessee out of lease deed executed between assessee and M/s Deva Nursing Home (P) Ltd. was (not) to be treated as income from business as rightly held by learned CIT(A) and his order is to be upheld. 13. After considering rival submissions and going through law on point, it is to be noted that Hon ble Supreme Court of India in case of CIT vs. Vikram Cotton Mills Ltd. (supra) has observed to this effect that whether particular income is income from business or from investment must be decided according to general commonsense view of those who deal with those matters in particular circumstances and conduct of parties concerned. To apply above observation to facts of present case, I have to reproduce some relevant portion of lease deed dt. 2nd May, 1989, copies of which are appearing at pp. 20 and 21 of paper book of assessee. same is as under : "Lease Deed 14. remaining portion of lease deed deals with monthly rent which will be Rs. 25,000 and other clauses which as usual formed part of such lease deed. 15. From perusal of above recital of lease deed, it will be seen that assessee was said to be owner of building fitted with lift, generator, tubewell and electric fittings and it had decided to lease it out to lessee for purpose of running nursing home. recital of above, read with conduct of assessee as well as lessee, goes to establish that it was simple case of letting out building to M/s Deva Nursing Home (P) Ltd. Except lift and generator set, there is no plant and machinery as learned CIT(A) had taken note of this fact that it was lessee who has installed all plant and machinery required for running nursing home and not assessee. These facts have not been rebutted. Accordingly, it is concluded that assessee had let out building along with lift and generator set. 16. Law on point was discussed by Hon ble Calcutta High Court in case of CIT vs. Shambhu Investment (P) Ltd. (2001) 168 CTR (Cal) 237 : (2001) 249 ITR 47 (Cal) and in that case portion of property was being used by assessee and remainder portion was let out to various occupants with furniture, fixtures, lights, air-conditioners for being used as table space. assessee claimed rental income as income from business and AO accepted this version of assessee, but CIT exercising power under s. 263 of Act was of view that action of AO was erroneous and prejudicial to interest of Revenue. He set aside assessment order to that extent and remanded matter back to AO with direction to assess said income as property income. assessee preferred appeal and Tribunal after considering all facts and circumstances was of view that order of AO was not erroneous and prejudicial to interest of Revenue and cancelled order of CIT recorded under s. 263 of Act. moot question before Hon ble High Court was as to whether income derived from said premises was rental income or business income. Lordships have discussed case law cited before Court and relevant portion is as under : Sultan Brothers (P) Ltd. vs. CIT (1 96 4) 51 ITR 353 (SC) : five Judges Bench of apex Court herein has considered case wherein assessee constructed building and fitted it up with furniture and fixtures and let it out on lease fully equipped and furnished for purpose of running hotel. lease provided for monthly rent for building and hire charge for furniture and fixtures. CIT vs. National Storage (P) Ltd. (1 96 7) 66 ITR 5 96 (SC) : three Judges Bench of apex Court herein decided case where assessee had set up film laboratory wherein first floor had several vaults which were licensed to various film distributors for keeping film negatives. ground floor of same building would be used only for purpose for examination, cleaning, washing and rewinding of films. key of each vault was retained by respective vault holders. However, key to main gate was in exclusive possession of assessee. fire alarm charges and other maintenance were paid by assessee. CIT vs. Admiralty Flats Motel (1982) 133 ITR 895 (Mad) : Here income of partnership firm carrying on business of lodging house keepers has been directed to be assessed as business income by Division Bench of Madras High Court. CIT vs. Associated Building Co. Ltd. (1982) 28 CTR (Bom) 252 : (1982) 137 ITR 339 (Bom) : In this case, assessee being owner of building was carrying on similar nature of business by providing office accommodation to various persons like present case up to certain period and allowed its income to be assessed under head Other sources . Subsequently, auditorium was constructed in basement of building and assessee h d set up air-conditioning plant not only for providing cool air to auditorium but also to entire office premises. There had been other facilities given by assessee attached to such office accommodation and other portions of building. CIT vs. K.L. Puri (HUF) (1999) 151 CTR (Del) 170 : (1998) 233 ITR 43 (Del) : In instant case there had been two separate agreements, one for rent for accommodation and other for hire charges of furniture and fixtures. Division Bench of Delhi High Court held that since agreement for providing furniture and fixtures was done by separate agreement, rent realised pursuant to such agreement referable to furniture and fixtures should not be treated as income from property. Saswad Mali Sugar Factory Ltd. vs. CIT (1999) 153 CTR (Bom) 338 : (1999) 236 ITR 706 (Bom) : In this case, Bombay High Court has held that income from student hostel should be taxed as business income. CIT vs. Halai Nemon Association (2000) 162 CTR (Mad) 373 : (2000) 243 ITR 439 (Mad) : building completely furnished including microphone, fittings, fixtures, etc. and letting out for limited period for marriage ceremony and other social functions has been considered by Madras High Court as business as not letting out. Mukherjee Estate (P) Ltd. vs. CIT (2000) 161 CTR (Cal) 470 : (2000) 244 ITR 1 (Cal) : In this case, Court has directed assessment of income from display of sign boards as income from Other sources ." 17. After going through above, Lordships arrived at following sum total of aforesaid decisions : 18. Their Lordships further applied above analogy to facts of case and concluded that income derived by assessee was to be treated as income from property. 19. It is to be noted that assessee being aggrieved from finding of Hon ble Calcutta High Court preferred appeal before Hon ble Supreme Court of India and his appeal has been dismissed as reported in Shambhu Investment (P) Ltd. vs. CIT (2003) 184 CTR (SC) 91 : (2003) 263 ITR 143 (SC). 20. If we apply above analogy of Hon ble Calcutta High Court to facts of case which ultimately stand approved by Hon ble Supreme Court of India as referred to above, then main intention of assessee and that of lessee was letting out property as evident from recital of lease deed extracted above. Even if we apply criteria laid down by apex Court in extracted above. Even if we apply criteria laid down by apex Court in case of Sultan Brothers (P) Ltd. (supra), then it is very clear that intention of assessee was to lease out building. Secondly, there was one set of letting out building along with lift, generator set and electric fittings and both criteria laid down in that case are fulfilled and obvious result will be that it was case of letting out building and income is to be assessed from house property. 21. No doubt, assessee started with concept of running hotel for which building was constructed and there may be plea, though not raised, that hotel building was let out and building was commercial asset to run hotel. This plea would have carried weight, in case, assessee had let out building to lessee to run business of hotel, but it is not case here as purpose for which M/s Deva Nursing Home (P) Ltd. has taken building is quite different to main object of assessee-company. 22. So far as case laws cited by learned counsel for assessee are concerned, in all those cases, commercial assets were let out and particular reference was to plant and machinery and not building as in case in hand. perusal of case of CEPT vs. Shri Lakshmi Silk Mills Ltd. (supra) will show that dyeing plant was let out. In case of CIT vs. Vikram Cotton Mills Ltd. (supra), plant and machinery were let out and same is not applicable to facts of case. 23. So far as last case relied upon by learned counsel for assessee in case of S.K. Sahana & Sons Ltd. & Ors. (supra) is concerned, assessee was getting profit out of agreement entered between assessee and managing contractor. There was no lease deed executed in favour of managing contractor as observed by apex Court. Here facts are entirely different as assessee is not getting any profit out of business being run by lessee and I have already given out details of lease deed which go to show that property alone in shape of building was let out to M/s Deva Nursing Home (P) Ltd. to run nursing home. 24. On basis of above discussion and on totality of facts and circumstances, I am of view that learned CIT(A) had taken correct view of issue and he rightly directed AO to assess rental income as income from business (house property). Ground Nos. 1 and 2 of assessee are rejected accordingly. REFERENCE UNDER S. 255(4) OF IT ACT, 1 96 1. 10th Dec., 2003 29th July, 2005 2. assessee-company constructed building complex with intention to carry on business of hotel, restaurant as per main object of company. However, building constructed was found to be far away from railway station and otherwise in remote area and it was felt that carrying on business of hotel was not feasible. Therefore, Board of Directors of company as per resolution dt. 12th March, 1989, unanimously decided that company will run hospital or nursing home either under its own supervision or may lease out building to any doctor or medical institution. memorandum and article of association of company at Sl. No. 28 also provides that company may acquire, establish and maintain one or more nursing homes, hospitals, clinics, dispensaries, etc. 3 . In light of above resolution, company entered into lease agreement with Deva Nursing Home (P) Ltd. on 2nd May, 1989 effective from 10th May, 1989 to lease out building premises at monthly rent of Rs. 25,000 per month. building let out/given on lease was fitted with lift, generator set, tubewell and electrical fittings. However, lessor maintained control over lift and generator set. 4 . In its return for asst. yr. 1990-91, assessee-company showed rental receipt from above building amounting to Rs. 3,23,000 as business income. However, AO held that above income was derived by giving building on hire and, therefore, same was to be assessed under head "Other sources". 5 . assessee challenged above assessment in appeal before CIT(A) and vehemently contended that lease rent received by assessee was CIT(A) and vehemently contended that lease rent received by assessee was liable to be assessed under head "Business". It was submitted that building simpliciter was not let out but said building also had lift, generator set and tubewell and, therefore, it was business asset let out for commercial exploitation. learned CIT(A) had noted contention of assessee in paras 2 and 3 of his order. These were analyzed in light of memorandum and articles of association of assessee-company and decision of Hon ble Supreme Court in case of Sultan Brothers (P) Ltd. vs. CIT (1 96 4) 51 ITR 353 (SC). learned CIT(A) noted that in above case their Lordships after examining relevant facts of case had held that letting out of building did not amount to carrying on of business and income under lease would not be assessed as "Income from business". learned CIT(A) further observed that facts in case under appeal were almost similar except that no furniture or fixture had been fitted to building that was leased out to Deva Nursing Home (P) Ltd. He accordingly held that claim of assessee that rental income should be assessed under head "Business" was not justified. 6 . learned CIT(A) held that income from lease was liable to be assessed under head "Income from house property". reasoning is contained in para 5 of his order which is to following effect : Dr. P.A. Varghese vs. CIT (1971) 80 ITR 180 (Ker). Thus, in view of above discussion, I hold that lease rent received by appellant-company is assessable as income under head Income from house property only and under no other head. AO is directed to recompute income from lease rent by assessing it under head Income from house property after allowing deductions permissible under s. 24 of IT Act, 1 96 1." 7 . assessee being aggrieved challenged order of CIT(A) in further appeal before Tribunal. learned Members of Bench who heard case were unable to agree on relief to be allowed to assessee. learned AM agreed with assessee that income from letting out was liable to be assessed as "business income". He held on facts that in present case building simpliciter was not let out but there was leasing of business premises from where business had actually been carried out and assets were conveniently put to use as nursing home even if said nursing home was not run by assessee. learned AM relied upon decisions in cases of New Savan Sugar & Gur Refining Co. Ltd. vs. CIT (1 96 9) 74 ITR 7 (SC), CIT vs. Vikram Cotton Mills Ltd. (1988) 67 CTR (SC) 169 : (1988) 169 ITR 597 (SC) and S.K. Sahana & Sons Ltd. & Ors. vs. CIT (1999) 156 CTR (SC) 90 : (1999) 236 ITR 432 (SC). 8. learned JM did not agree with learned AM. In his view, lease rent was liable to be assessed as income from house property. For reaching above conclusion, learned JM examined memorandum of association of assessee-company. He also referred to sub-cl. 28 under which assessee was authorized to acquire, establish and maintain one or more nursing homes, hospitals, clinics, dispensaries, etc. He also referred to resolution passed by Board of Directors dt. 12th March, 1989. learned JM noted submissions made before learned CIT(A) in appeal and finding recorded thereon. These are referred to in paras 8 and 9 of his order. Thereafter contentions of parties advanced before Tribunal, are taken note of in paras 10, 11 and 12 of order. Thereafter learned JM referred to lease agreement dt. 2nd May, 1989, between assessee and M/s Deva Nursing Home (P) Ltd. portion of same is reproduced by learned JM to emphasize that only building was leased out for purposes of running nursing home. following pertinent observations have been made by learned JM in para 15 of his order : 9 . Thereafter, learned JM extensively referred to decision of Hon ble Calcutta High Court in case of CIT vs. Shambhu Investment (P) Ltd. (2001) 168 CTR (Cal) 237 : (2001) 249 ITR 47 (Cal). He has further recorded that appeal against above decision has been dismissed by Hon ble Supreme Court as reported in Shambhu Investment (P) Ltd. vs. CIT (2003) 184 CTR (SC) 91 : (2003) 263 ITR 143 (SC). Applying test laid down by Hon ble Calcutta High Court and Hon ble apex Court, learned JM held that lease in question involved letting out of building. This intention of assessee was clear from document. tests laid down by their Lordships in case of Sultan Brothers (P) Ltd. (supra) were fully satisfied in this case. learned JM accordingly held "it was case of letting out building and income is to be assessed from house property". He further observed as under : CEPT vs. Shri Lakshmi Silk Mills Ltd. (supra) will show that dyeing plant was let out. In case of CIT vs. Vikram Cotton Mills Ltd. (supra), plant and machinery were let out and same is not applicable to facts of case. S.K. Sahana & Sons Ltd. & Ors. (supra) is concerned, assessee was getting profit out of agreement entered between assessee and managing contractor. There was no lessee deed executed in favour of managing contractor as observed by apex Court. Here facts are entirely different as assessee is not getting any profit out of business being run by lessee and I have already given out details of lease deed which go to show that property alone in shape of building was let out to M/s Deva Nursing Home (P) Ltd. to run nursing home." 10. In light of above, learned JM agreed with learned CIT(A). However, in last line of his order, he has wrongly written that AO was directed to assess rental income as income from business. directions of CIT(A) are that rental income be assessed as income from "house property". But above typing mistake does not make any difference and no reference to this error was made by rival parties appearing before me. 11. After receipt of reference from learned Members, case was fixed for hearing and both parties have been heard. Shri Garg appearing for assessee vehemently contended that assessee had intended to set up hotel and building was constructed for hotel purposes. However, running of hotel was not viable and therefore, assessee decided to start nursing home in building under reference. For first five years, premises was let out to M/s Deva Nursing Home (P) Ltd. as per resolution of Board of Directors. lease was for limited purpose as assessee was not in position to exploit commercial asset. Even while letting out commercial asset, assessee retained possession and control of lift and generator set. After expiry of lease property was resumed and assessee has continued to run nursing home in said premises. building of "nursing home" was plant as held by their Lordships in case of CIT vs. Dr. B. Venkata Rao (2000) 160 CTR (SC) 489 : (2000) 243 ITR 81 (SC). Shri Garg further submitted that intention of assessee right from very beginning was to construct hotel i.e., commercial asset and same was given for running nursing home. Shri Garg emphasized that building constructed for hotel can be used as nursing home as both business involved hospitality of kind and can provide facilities of same nature. Only for limited period and per force of circumstances exploitation of commercial asset was allowed to be carried through lessee. This would not convert business receipt into receipt from "house property". It is not exploitation of ownership of building rights. Shri Garg further submitted that all decisions cited by learned JM against assessee, in fact supported case of assessee. 1 2 . learned Departmental Representative, while opposing above submissions of Shri Garg, drew my attention to finding recorded by learned CIT(A) as approved by learned JM in his proposed order. He also submitted that observations of learned AM at p. 4 para 7 of his order were factually incorrect. There was no substituted use of any commercial asset in this case. Even in lease deed it was clearly mentioned that building was being leased out and not any commercial asset. learned Departmental Representative accordingly supported proposed order of learned JM. 13. I have given careful thought to rival submissions of parties. There is no dispute that assessee had constructed this building to run hotel but when it was found that running of hotel was not viable, assessee decided to let it out to nursing home. This was done in terms of resolution passed by board of directors dt. 12th March, 1989 which is to following effect : 14. factual situation narrated in aforesaid resolution is not in doubt. There is further no dispute that assessee-company is entitled to run nursing home as per its memorandum of association. controversy between parties in my view is whether building was let out and, therefore, receipt was derived by assessee on account of ownership of building or commercial asset was let out for commercial exploitation. For resolving this controversy, primary document to be taken into consideration is lease dt. 2nd May, 1989, between parties under which demised premises were leased. relevant portion of above lease is reproduced by learned JM in para 13 of his proposed order. preamble reflecting intention of parties relating to asset leased out is as follows : Dr. B. Venkata Rao (supra) to argue that building of nursing home is plant. It is true but for holding that it was plant and thus entitled to higher depreciation, their Lordships have observed as under (headnote) : 1 5 . other argument advanced on behalf of assessee was that building was let out for limited period and was resumed on expiry of lease of 5 years. This fact in my view would make no material difference to question whether rental income was business income or income to be assessed under head "house property". position as prevailing in April, 1989, is to be seen. At that relevant time, building simpliciter was let out by assessee and rent receipt was attributable to ownership rights of assessee only. No commercial asset existed at that relevant time which was let out to be exploited by lessee. After 5 years and when other amenities were available and when assessee actually carried on business of running nursing home in said building, same could be treated as plant as per decision of apex Court. On facts as prevailing in April, 1989, building was let out for receiving rent which was liable to be assessed under head "house property". 16. In my considered view, learned JM in his proposed order has rightly analyzed facts of case and applied correct law to hold that income in question was liable to be assessed under head "house property". For reasons given above, I agree with view expressed by learned JM. 17. matter should now be placed before regular Bench for passing appropriate order. *** HOTEL ARTI DELUX (P) LTD. v. ASSISTANT COMMISSIONER OF INCOME TAX