INCOME TAX OFFICER v. SKIPPER PROPERTIES (P) LTD
[Citation -2007-LL-0601-4]

Citation 2007-LL-0601-4
Appellant Name INCOME TAX OFFICER
Respondent Name SKIPPER PROPERTIES (P) LTD.
Court ITAT
Relevant Act Income-tax
Date of Order 01/06/2007
Assessment Year 2000-01
Judgment View Judgment
Keyword Tags income from house property • doctrine of res judicata • income from business • plant and machinery • commercial asset • rental income • wear and tear • hire charges • monthly rent • letting out
Bot Summary: The assessee is carrying on the business and it was held that Tribunal was right in holding that assessee was using the cinema as a commercial asset and thus income therefrom was assessable under the head 'Profit and gains of business or profession'. CIT v. Vikram Cotton Mills Ltd. 1988 169 ITR 597 to contend that where there is temporary suspension of the business for the purpose of reconstruction of the company the income earned by letting out the assets will be income from business. Universal Plast Ltd. v. CIT 1999 237 ITR 454 to contend that where all the assets of 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. There is no material on record to controvert the fact that for shorter period the assessee had leased out its theatre to two parties mentioned above and the reasons were stated to be the difficult market conditions and the poor health of Director who was looking after such business of the assessee, reference can be made to para 2.2 page 13 of the order of CIT(A). 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; If only or 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 f o r 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. The case of the assessee falls within the situation as envisaged at Sl. No. 3 as in the present case all the assets of the business owned by the assessee have been leased out. We are of the opinion that it was a part of the normal activities of the assessee's business to earn money by making use of its machinery by either employing it in its own manufacturing concern or temporarily letting it to others for making profit for that business when for the time being it could not itself run it.


Order:Per I.P. Bansal, Judicial Member. - This is appeal filed by revenue. It is directed against order of CIT(A) dated 30-1-2004 for assessment year 2000-01. Ground No. 1 reads as under:- ' On facts and in circumstances of case ld.CIT(A) has erred in directing Assessing Officer to treat receipt of Rs. 45,34,032 as business receipts and allow expenses claimed therein on merits and as per law as against receipts were charged under head 'Income from house property' by Assessing Officer.' 2. assessee is owner of Janak Theatre located at Janakpuri, New Delhi. During year under consideration it was given on hire for different periods to M/s. B.N. Gupta & Co. and M/s. National Timber Traders. hire charges so received were shown as business income. claim of assessee that these receipts are income from business and profession was denied by Assessing Officer. As such these receipts were assessed as income from house property subject to grant of deduction under section 24(i) for repairs which is 25 per cent of gross receipts of Rs. 45,34,032 thereby assessing net income in respect of these hire charges for sum of Rs. 34,00,524 being income from house property. action of Assessing Officer was challenged in appeal filed before ld. CIT(A). It was submitted that during accounting period relevant to assessment year 1998-99 in view of slump in exhibition of film at cinema hall on account of encouragement and public influence cable net work, assessee-company entered into agreement dated 23-3-1997 with M/s. B.N. Gupta & Co. and oral agreement with M/s. National Timber Traders for exhibition of films on fixed hire charges of Rs. 2,80,000 per month and said agreement continued during year under consideration. However, fixed charges were increased to Rs. 3,50,000 per month. Copies of agreements were filed according to which entire expenditure on running and maintenance of theatre was to be borne by assessee-company, however, entertainment tax was to be paid by lessee. It was submitted that Assessing Officer has arbitrarily assessed such receipts as income from house property which is against well settled law. It was pleaded that though Assessing Officer has accepted that assessee is engaged in business of exhibition of films but has not recorded any finding that no such business has been carried out by assessee during year under consideration. It was submitted that assessee- company had been engaged in business of exhibition of movies in Janak theatre at Janakpuri, New Delhi for last many years. Such income was being declared and assessed under head 'Profit and gains of business or profession'. Returns of income were being filed year after year and assessments have been made by department treating income from this source as 'business income'. During previous year relevant to assessment year 2000- 01 and in earlier two years, assessee could not take up business on its own due to difficult market conditions and poor health of Director who was looking after this business. Therefore, to continue business of exhibition of films it was let out to M/s. B.N. Gupta & Co. for some part of year and to M/s. National Timber Traders with effect from 20-1-2000 to 21-3-2000. It was submitted that assessee again started running business of its own with effect from 1-4-2000 and continued till 20-1-2002. letting out of cinema hall for limited purpose of exhibition of films during previous year subject to bearing of running and maintenance expenses of theatre by assessee- company was, hence, only temporary and had been resorted to under extreme compulsion and limitations Thus, it was pleaded that receipts of assessee should have been assessed under head 'Profit and gains of business or profession'. It was also submitted that Assessing Officer had obtained all relevant information from assessee to take totally different stand and treated said receipt as income from house property. Reference was made to various judicial pronouncements to contend that under these facts income should have been assessee as income from business or profession. Ld. CIT (A) after considering submissions has accepted claim of assessee and has directed Assessing Officer to treat these receipts as receipt of business and allow expenses claimed thereon on merits and as per law. It is against these observations of CIT(A) revenue is aggrieved hence in appeal. 3. Relying on order of Assessing Officer it was vehemently pleaded by ld. DR that income received by assessee from hire charges of Janak theatre is assessable under head 'Income from house property'. She contended that assessee was receiving hire charges in shape of rent only and thus claim of assessee that these receipts constituted business receipts has wrongly been accepted by ld. CIT(A). It was contended that order of Assessing Officer in this regard should be upheld and that of CIT(A) should be set aside. 4. On other hand, learned counsel appearing on behalf of assessee pleaded that in earlier years these hire charges have been assessed as business income. earlier assessments have attained finality. Unless there is material change in fact for year under consideration revenue cannot take different stand and on that ground itself claim of assessee is acceptable. For raising such contention he has relied on following decisions:-1. CIT v. Neo Poly Pack (P.) Ltd. [2000] 245 ITR 492 (Delhi) to contend that though it is true that doctrine of res judicata does not strictly apply to Income-tax proceedings, but where issue has been considered and decided consistently in number of earlier assessment years in particular manner, for sake of consistency, same view should continue to prevail in subsequent years unless there is some material change in facts. 2. CIT v. Narendra Doshi [2002] 254 ITR 606 (SC) to contend that where revenue has not challenged correctness of two decisions of High Court, they must, therefore, be bound by principle laid down therein. 3. Berger Paints India Ltd. v. CIT [2004] 266 ITR 99 (SC) to contend that if revenue has not challenged correctness of law laid down by High Court and has accepted it in case of one assessee, then it is not open to revenue to challenge its correctness in case of other assessee, without just cause. 4. Union of India v. Kaumudini Narayan Dalal [2001] 249 ITR 219 (SC) to contend that High Court having rendered its decision following earlier decision of same Court which was not challenged by revenue in appeal, it was not open to revenue to challenge before Supreme Court correctness of later decision of High Court. 5. Radhasoami Satsang v. CIT [1992] 193 ITR 321 (SC) to contend that in absence of any material change, different view than that taken in earlier years, could not be taken. 5. Coming to merits of case he pleaded that facts of present case falls within four corners of decision of jurisdictional High Court in case of CIT v. Northern India Theatres (P.) Ltd. [1981] 128 ITR 497 (Delhi) to contend that where under terms of lease, licence for running cinema is in name of assessee and it was assessee who has got permission to run cinema, it was for assessee to decide how to run cinema, whether by itself or through agency of another. But, nevertheless, legal position would be that cinema is being run by assessee. Then, it must not be forgotten that wear and tear of furniture, equipment, etc., is wear and tear of assessee. Under terms of lease, replacement is to be done by assessee and not by lessor except in exceptional cases. Therefore, assessee is carrying on business and it was held that Tribunal was right in holding that assessee was using cinema as commercial asset and thus income therefrom was assessable under head 'Profit and gains of business or profession'. 6. Reliance was placed on decision of Hon'ble Supreme Court in case of CEPT v. Shri Lakshmi Silk Mills Ltd. [1951] 20 ITR 451 to contend that where company was incorporated purely as manufacturing concern with object of making profit and plant and machinery was installed for purpose of its business and when it was found that same could not be advantageously employed for earning profit by company itself, to earn profit by leasing it to somebody else income is assessable under head 'Profit and gains of business or profession'. 7. Reference was made to following decisions to contend that such income was assessable under head 'Profit and gains of business or profession'.- 1. CIT v. Vikram Cotton Mills Ltd. [1988] 169 ITR 597 (SC) to contend that where there is temporary suspension of business for purpose of reconstruction of company income earned by letting out assets will be income from business. 2. Universal Plast Ltd. v. CIT [1999] 237 ITR 454 (SC) to contend that where all assets of business are let out, period for which assets are let out is relevant factor to find out whether intention of assessee is to go out of business altogether or to come back and restart same. 8. Thus, it was pleaded that ld. CIT(A) was right in holding that such receipts are assessable under head 'Profit and gains of business or profession'. 9. In rejoinder ld. DR referred to following decisions to contend that such receipts are only assessable under head 'Income from house property'. 10. CIT v. Chennai Properties & Investments Ltd. [2004] 266 ITR 685 (Mad.) to contend that assessee being owner of building was only exploiting property as owner by leasing out same and realising income by way of rent, and therefore, rental income was assessable under head 'Income from house property' and not as 'business income'. 11. Shambhu Investment (P.) Ltd. v. CIT [2003] 263 ITR 143 (SC) to contend that where assessee has let out portion of premises with furniture and fixtures and provided services to occupants, monthly rent inclusive of charges will be assessable as income from property. 12. Replying to rejoinder ld. Counsel pleaded that case law relied upon by ld. DR is distinguishable on facts and he reiterated submissions made earlier. 13. We have carefully considered rival submissions in light of material placed before us. There is no material on record to controvert fact that for shorter period assessee had leased out its theatre to two parties mentioned above and reasons were stated to be difficult market conditions and poor health of Director who was looking after such business of assessee, [reference can be made to para 2.2 page 13 of order of CIT(A)]. period for which such lease was given as can be seen from order of CIT(A) is from assessment year 1998-99 till 31-3-2000. Earlier to this assessee has been carrying out activity of exhibiting films in its theatre and such income of assessee was being declared and assessed under head 'Profit and gains of business or profession'. These facts also have not been controverted by revenue. Thus, contention of assessee that leasing out of theatre was for shorter period cannot be rejected. It is also contention of assessee that before leasing its income was being assessed under head 'Income from business' and after 1-4-2000 also it carried out similar activity and shown income under head 'Income from business'. For year under consideration these receipts have been assessed under head 'Income from house property' only on basis that assets were leased out. As pointed out earlier contention of assessee that such receipts are assessable under head 'Profit and gains of business or profession' are two fold. Firstly, on ground that consistent approach should be adopted by department and as this income has been assessed in earlier and subsequent years as income from business it should be assessed as income from business for year under consideration also. Secondly, on merits it is contention of assessee that looking into shorter period of leasing out that too for reasons of difficult market conditions and poor health of Director, activity of leasing out premises cannot be held to be non-business, activity in light of decisions referred to in earlier part of this order. 14. Looking into fact that leasing is for shorter period and it has not been shown that intention of assessee was to go out of business altogether, contention of assessee has to be accepted that it cannot be considered to be non-business activity. Reference can be made to decision of Hon'ble Supreme Court in case of Universal Plast Ltd. (supra) wherein their Lordships after considering various case laws have summarized position of law on this issue as follows:- ' In light of above discussion, propositions may be summarised as follows: (1) No precise test can be laid down to ascertain whether income (referred to by whatever nomenclature, lease amount, rents, licence fee) received by assessee from leasing or letting out of assets would fall under head 'Profits and gains of business or profession'. (2) It is mixed question of law and fact and has to be determined from point of view of businessman in that business on facts and in circumstances of each case including true interpretation of agreement under which assets are let out. (3) Where all assets of business are let out, period for which assets are let out is relevant factor to find out whether intention of assessee is to go out of business altogether or to come back and restart same; (4) If only or few of business assets are let out temporarily while assessee is carrying out his other business activities then it is case of exploiting business assets otherwise than employing them for his own use f o r making profit for that business; but if business never started or has started but ceased with no intention to be resumed, assets also will cease to be business assets and transaction will only be exploitation of property by owner thereof, but not exploitation of business assets.' 15. case of assessee falls within situation as envisaged at Sl. No. 3 as in present case all assets of business owned by assessee have been leased out. If such is situation then period for which assets are let out is relevant factor. It has already been pointed out that period of lease is short and thereafter intention of assessee is relevant to find out that whether assessee intents to get out of business altogether or he is intended to come back and restart same. From facts it is clear that after leasing out property assessee had come back to its business and had restarted same. Thus, assessee has fulfilled both these factors/tests and, therefore, applying ratio of aforementioned decision of Hon'ble Supreme Court in case of Universal Plast Ltd. (supra) it is to be held that such income was assessable as income from business. 16. Reference can also be made to decision of Hon'ble Supreme Court i n case of Shri Lakshmi Silk Mills Ltd. (supra) where company was incorporated purely as manufacturing concern with object of making profit. It had installed machinery for purpose of its business and it found that said installed machinery could not be advantageously employed for earning profit by company itself and to earn profit same was leased out and in circumstances it was observed by their Lordships as under:- ' 13. We are, therefore, of opinion that it was part of normal activities of assessee's business to earn money by making use of its machinery by either employing it in its own manufacturing concern or temporarily letting it to others for making profit for that business when for time being it could not itself run it. High Court, therefore, was in error in holding that dyeing plant had ceased to be commercial asset of assessee and income earned by it and received from lessee M/s. Parakh & Co. was not chargeable to excess profits tax. result, therefore, is that we hold that answer returned by High Court to question referred to it by Tribunal was wrong and that correct answer to question would be in affirmative and not in negative.' 17. Looking into facts of present case in light of above observations of Hon'ble Supreme Court, we are of opinion that it is not case where it can be held that letting out of theatre by assessee was not commercial utilization of assets particularly when assessee could not itself run it by compulsion of certain circumstances. 18. case law relied upon by ld. DR cannot be held applicable to facts of present case as in none of those cases assessee had let out commercial assets for short period. property was constructed and utilized for purpose of earning rent. Thus, case law relied upon by ld. DR is distinguishable on facts. 19. Thus, keeping in view case law relied upon by both parties and facts of present case, we are of opinion that ld. CIT(A) has rightly decided issue which is in accordance with law. We decline to interfere. This ground of revenue is dismissed. 20. to 28. [These paras are not reproduced here as they involved minor issues.]. *** INCOME TAX OFFICER v. SKIPPER PROPERTIES (P) LTD.
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