[1] AFR Court No. - 35 Case :- INCOME TAX APPEAL No. - 52 of 2014 Appellant :- M/S Meeraj Estate And Developers Respondent :- Commmissioner Of Income Tax Counsel for Appellant :- Rahul Agarwal Counsel for Respondent :- C.S.C. It,Gaurav Mahajan with Case :- INCOME TAX APPEAL No. - 55 of 2014 Appellant :- M/S Meeraj Estate And Developers Respondent :- Commmissioner Of Income Tax Counsel for Appellant :- Rahul Agarwal Counsel for Respondent :- C.S.C. It,Gaurav Mahajan Hon'ble Bharati Sapru,J. Hon'ble Rohit Ranjan Agarwal,J. (Per Hon'ble Rohit Ranjan Agarwal,J.) 1. These two appeals filed under Section 260A of Income Tax Act, 1961 arise out of judgment and order dated 14.08.2013 passed by Income Tax Appellate Tribunal, Agra Bench (hereinafter called as 'ITAT') in Income Tax Appeal No. 182 and 292/ Agra/ 2012 for assessment years 2006-07 and 2008-09. 2. As issues in question are same in both appeals, as such they are being heard and decided together by common order. 3. These appeals were admitted on 25.10.2017 on following question of law:- (a) Whether in view of facts of case particularly source of funding for acquiring property, inter-relationship between agreements entered into by appellant and [2] Constitution Bench of Hon'ble Supreme Court in Sultan Brothers Pvt. Ltd. Vs. C.I.T. (1964) 51 ITR 353 (S.C.) and Division Bench judgment of this Hon'ble Court passed in CIT v. Goel Builders 331 ITR 344 (All.), Tribunal below was justified in holding that receipts of appellant were income from house property/ other sources and not business income? (b) Whether, in view of decisions In Radhasaomi Satsang v. CIT 193 ITR 321 (SC) and in ACIT Vs. D.M. Brothers (2010) 44 DTR 13 (All.), decision of Tribunal below in discarding treatment of receipts of appellant as business income for Assessment Year 2005-06 and in all subsequent assessment year's till A.Y. 2013-2014 (except assessment year's under appeals) is legally justified? 4. assessee is partnership firm, which was constituted w.e.f. 01.07.2004, while deed forming partnership is dated 01.11.2004. According to deed, object of assessee firm is to venture into real estate business and allied activities such as leasing/ sub leasing, maintaining properties on maintenance contract etc. It was subsequent to formation of partnership firm, that assessee acquired leasehold rights over commercial property measuring 6925 square feet at third floor of Block No. G10/ 8, Padam Deep Tower, Sanjay Place, Agra. said rights were acquired by assessee from one M/s Pee Cee Soap and Chemicals Pvt. Ltd. through deed of assigning of lease executed on 17.11.2004. money for acquiring leasehold right by assessee was arranged by taking loan of Rs.1,31,04,107/- from Indian Overseas Bank and also loans of Rs.16,94,107/- from M/s Meeraj Industries and Rs.5,03,385 from M/s Accurate Ferro Casting. Thereafter, assessee entered into agreement with Gas Authority of India Ltd. (hereinafter called as 'GAIL') on 30.11.2004 to lease said property to GAIL for period of 10 years. Second agreement [3] was executed by assessee with GAIL on 14.12.2004 for furnishing of leased area of 6925 square feet to ensure furniture and fitting etc. and also to undertake major repairs. Thereafter, on 16.12.2004 third agreement was executed between assessee and GAIL for maintaining leased out area. 5. assessee filed return for assessment year 2005-06 at loss of Rs.20,13.100/-. said return was processed under Section 143(3) of Income Tax Act (hereinafter called as 'Act') and reply filed by assessee was accepted by assessing authority, which passed order under Section 143(3) of Act on 28.12.2007. 6. Return for assessment year 2006-07 was filed by assessee on 12.06.2006 showing loss of Rs.10,95,190/-. case was picked under scrutiny, and notice under Section 143(2) of Act was issued on 18.06.2007. As no compliance was made by assessee, again notice under Section 143(2) along with notice under Section 142(1) with questionnaires dated 08.07.2008 was sent to assessee. assessee appeared and replied to various queries. AO after considering three agreements as well as examining statement of one of partners of firm found that assessee was not involved in any kind of recurring activity to treat receipt as business receipt and income of assessee was calculated at Rs.10,94,460/- as against loss of Rs.10,95,190/- and setoff of brought forward loss of assessment year 2005-06 amounting to Rs.20,13,103/- was rejected on 14.11.2008. appeal was filed before [4] Commissioner of Income Tax (Appeals) challenging said order but said appeal was rejected by order dated 23.01.2012 by CIT (A), aggrieved by said order Second Appeal was preferred before ITAT which was also rejected by order dated 14.08.2013, which is impugned before this Court. Pursuant to order of this Court, assessee filed copies of partnership deed, as well as three agreements executed between assessee -appellant and GAIL. 7. Sri Rahul Agarwal, learned counsel appearing for assessee submitted that assessee firm is in business of real estate and allied activities such as leasing and sub- letting, maintaining properties on contracts. He further submitted that three agreements executed between appellant and GAIL indicates that they were supplemental/ incidental to each other and were part of one composite transaction and should not be read in isolation as done by taxing authorities. He further submitted that GAIL being Government organisation does not enter into tenancy agreement with private parties without protracted negotiations and usually does not conclude transaction within space of week or 10 days, as in present case property was obtained by assessee on 17.11.2004 and was let out on 30.11.2004, which indicates fact that property was acquired in view of ongoing discussions with GAIL to fulfill their office requirements. It was also contended that entire receipts received under three contracts with GAIL was claimed under head 'business income' and depreciation thereon was claimed and assessee for assessment [5] year 2005-06 filed return of loss of Rs.20,13,100/- which was accepted by Additional Commissioner of Income Tax on 28.12.2007, as such there was no occasion for assessing authority to treat entire receipts of appellant-assessee from three agreements executed with GAIL as income from house property and from other sources and not as business income for assessment year 2006-07. 8. Sri Rahul Agarwal, learned counsel for assessee also contended that even solitary instance/ transaction could constitute business so long as it was established that intention of assessee was to earn profit while undertaking transaction and not with object of making investment for keeping money safe or earning from that investment. He relied upon Division Bench judgment of this Court in Case of CIT vs. Goel Builders 331 ITR 334 (All.), and which had considered distinction between income from house property and income from business or profession. 9. It was also contended that assessee-appellant had acquired asset out of borrowed funds, which normally would indicate intention to carry on business and not profit from investment. Counsel for assessee relied upon decision of Constitution Bench of Supreme Court in case of Sultan Brothers Pvt. Ltd. Vs. CIT [1964] 51 ITR 353 (SC), and also judgments of Apex Court in Universal Plast Ltd. vs. Commissioner of Income Tax [1999] 237 ITR 454 (SC), Karnani Properties Ltd. vs. Commissioner of Income Tax [1971] 82 ITR 547 (SC), Karanpura Development Co. Ltd. vs. Commissioner of Income Tax [6] [1962] 44 ITR 362 (SC). 10. Counsel for assessee also relied upon decision of Supreme Court in Chennai Properties and Investment Ltd. Vs. CIT [2015] 373 ITR 673 (SC). Relevant Para 11 is extracted hereasunder:- 11. We are conscious of aforesaid dicta laid down in Constitution Bench judgment. It is for this reason, we have, at beginning of this judgment, stated circumstances of present case from which we arrive at irresistible conclusion that in this case, letting of properties is in fact is business of assessee. assessee, therefore, rightly disclosed income under head Income from business . It cannot be treated as Income from house property . We, accordingly, allow this appeal and set aside judgment of High Court and restore that of Income Tax Appellate Tribunal. No orders as to costs. 11. Reliance has also been placed on judgment of Division Bench of this Court in case of Hotel Arti Delux (Pvt.) Ltd. vs. Assistant Commissioner of Income Tax [2014] 227 Taxman 119 (All.) wherein this Court held as under:- 15. From recital of lease deed it is evident that only building was leased out along with lift, tubewell and electrical fittings. These cannot be treated as plant and machinery but would be treated as amenities, which are necessary for use of any building. We find that appellant had not placed any material on record to show that building had peculiar amenities with which building could be treated as "plant" and not building simplicitor. No material has been brought on record to indicate that building had peculiar amenities, which could be commercially exploited such as facilities of sterilization of surgical instruments and bandages or operation theatre. Tribunal has given categorical finding of fact that building which was leased out by appellant was nothing else but building simplicitor and was not building, which was equipped with specialized plant and machinery. This being finding [7] of fact, we are not inclined to interfere in such findings, especially when nothing has been brought on record to indicate that said finding was perverse. 16. We also find that appellant is not running business of hospital and has only let out building. We are of opinion that income derived by appellant was from ownership of building and not from personal exertion, which is necessary to treat income as business income. 12. Further, in case of Commissioner of Income Tax vs. Shambhu Investment (Pvt.) Ltd. [2001] 116 Taxman 795 (Calcutta) it was held as under:- 7. Let us approach problem from another angle by applying lest suggested by five judges' Bench in case of Sultan Brothers Pvt. Ltd. (supra). three questions framed by apex court are applied in instant case as follows: (A) Was it intention in making lease-and it matters not whether there is one lease or two, i.e., separate leases in respect of furniture and building-that two should be enjoyed together ? In instant case there is no separate agreement for furniture and fixtures or for providing security and other amenities. only intention, in our view, was to let out portion of premises to respective occupants. Hence, intention in making such agreement is to allow occupants to enjoy table space together with furniture and fixtures. Hence, this question should be answered in affirmative. (B) Was it intention to make letting of two practically one letting? From plain reading of agreement it appears that intention of parties to said agreement is clear and unambiguous by which first party has allowed second party to enjoy said table space upon payment of comprehensive monthly rent. Hence, this question should be answered in affirmative. [8] (C) Would one have been let alone, and lease of it accepted, without other ? As we have discussed hereinbefore that it is composite table space let out to various occupants, amenities granted to those occupants including user of furniture and fixtures are attached to such letting out and last question, in view of same, must be answered in negative. Applying said test we hold that by said agreement parties have intended that such letting out would be inseparable one. 8. Hence, we hold that prime object of assessee under said agreement was to let out portion of said property to various occupants by giving them additional right of using furniture and fixtures and other common facilities for which rent was being paid month by month in addition to security free advance covering entire cost of said immovable property. In view of facts and law discussed above we hold that income derived from said property is income from property and should be assessed as such. 13. In case of Raj Dadarkar and Associates Vs. Assistant Commissioner of Income Tax, [2017] 81 Taxmann.com 193 (SC), Supreme Court held that object clause contained in partnership deed would not be conclusive factor in determining whether assessee carried on business activity, and liable to be assessed under head 'income from business. 14. Per contra, Sri Gaurav Mahajan, learned counsel appearing for Department submitted that assessee had let out vacant floor to GAIL and receipts from same cannot be treated as business income, as business is continuous and systematic activity carried on by person with view to earn profit. As per first agreement assessee was not required to provide any day-to-day service or incur any day to [9] day expenses to receive leased rent receipt, which establishes fact that receipts are to be taxed income from 'house property' and not as income from business or profession. Second agreement was executed between assessee and GAIL to furnish third floor of building as per requirement of GAIL, meaning thereby that vacant floor which was leased out was furnished and finished and converted into office by assessee. This agreement was consequence of first agreement and was executed 14 days later. third agreement executed between assessee and GAIL was in regard to maintenance and upkeeping of building/ floor, furniture and fittings and other equipments installed and set up in said premises, and further, only one person was deputed to look after premises and income from said agreement should be treated as income under head 'income from other sources'. 15. He further submitted that in income tax, each year is independent year and in each year correct income is to be assessed under correct head, and any mistake if committed cannot be allowed to continue. Sri Mahajan vehemently argued that mere statement of each of deed would not be determinative factor to arrive at conclusion that income is to be treated from business and in present case as there was no business activity being carried out by assessee and having failed to produce any evidence, assessing authority as well as Tribunal rightly rejected claim treating income as income from house property and other sources and not from business or profession. [10] 16. We have heard learned counsel for parties and perused material on record. 17. question which arises for consideration is whether property acquired by assessee and subsequently entered into agreement with GAIL and receipts at hand of assessee pursuant to agreements is assessable under head 'income from business or income from house property or income from other sources'. 18. contention of assessee hinges around two facts, firstly that AO has already taken view while making assessment for assessment year 2005-06 that income is assessable under head 'income from business' and therefore maintaining consistency Assessing Officer should have not taken different view for subsequent assessment year, and second ground of attack being that assessee firm is in business of real estate and allied activities and three agreements executed were supplemental and incidental to each other and are part of one composite transaction and should not be read in isolation, further property acquired by assessee was for letting, as such same being income from business and cannot be assessed under heading 'income from house property or income from other sources'. 19. first question raised by appellant-assessee regarding maintenance of consistency by assessing authority, Tribunal had recorded categorical finding in view of judgment of Apex Court in case of Bhart Sanchar Nigam Nigam Ltd. and another vs. Union of India and [11] others [2006] 3 SCC 1, wherein Court held that res- judicata does not apply to tax matters for different assessment years, relevant Paragraphs 20, 21, 22 are extracted hereasunder:- 20. decisions cited have uniformly held that res judicata does not apply in matters pertaining to tax for different assessment years because res judicata applies to debar courts from entertaining issues on same cause of action whereas cause of action for each assessment year is distinct. courts will generally adopt earlier pronouncement of law or conclusion of fact unless there is new ground urged or material change in factual position. reason whey courts have held parties to opinion expressed in decision in one assessment year to same opinion in subsequent year is not because of any principle of res judicata but because of theory of precedent or precedential value of earlier pronouncement. Where facts and law in subsequent assessment year are same, no authority whether quasi-judicial or judicial can generally be permitted to take different view. This mandate is subject only to usual gateways of distinguishing earlier decision or where earlier decision is per incuriam. However, these are fetters only on coordinate Bench which, failing possibility of availing of either of these gateways, may yet differ with view expressed and refer matter to Bench of superior strength or in some cases to Bench of superior jurisdiction. 21. In our opinion, preliminary objection raised by State of U.P. therefore, rests on faulty premise. contention of appellant-petitioners in these matters is not that decision in State of U.P. v. Union of India, (2003) 3 SCC 239 for that assessment year should be set aside, but that it should be overruled as authority or precedent. Therefore, decisions in Devilal Modi v. STO, (1965) 1 SCR 686 and in Hurra v. Hurra (2002) 4 SCC 388 are not germane. 22. decision can be set aside in same lis on prayer for review or application for recall or under Article 32 in peculiar circumstances mentioned in Hurra v. Hurra. As we have said, overruling of decision takes place in subsequent lis where prcedential value of decision is called in question. [12] No one can dispute that in our judicial system it is open to court of superior jurisdiction or strength before which decision of Bench of lower strength is cited as authority, to overrule it. This overruling would not operate to upset binding nature of decision on parties to earlier lis in that lis, for whom principle of res judicata would continue to operate. But in tax cases relating to subsequent year involving same issue as earlier year, court can differ from view expressed if case is distinguishable or per incuriam. decision in State of U.P. v. Union of India related to year 1988. Admittedly, present dispute relates to subsequent period. Here coordinate Bench has referred matter to large Bench. This Bench being of superior strength, we can, if we so find, declare that that earlier decision does not represent law. None of decisions cited by State of U.P. are authorities for proposition that we cannot, in circumstances of this case, do so. This preliminary objection of State of U.P. is therefore rejected. 20. said decision was followed by Apex Court again in case of C.K. Gangadharan and another vs. Commissioner of Income Tax, Cochin [2008] SCC 739, while counsel for appellant placed reliance upon decision of Apex Court in case of Radhasaomi Satsang vs. Commissioner of Income Tax [1992] 1 SCC 659. Relevant Paras 13 and 16 are extracted hereasunder:- 13. One of contentions which learned senior counsel for assessee-appellant raised at hearing was that in absence of any change in circumstances, Revenue should have felt bound by previous decisions and no attempt should have been made to reopen question. He relied upon some authorities in support of his stand. full Bench of Madras High Court considered this question in T.M.M Sankaralinga Nadar & Bros. & Ors, v. CIT, 4 ITC 226 (Mad) (FB). After dealing with contention Full Bench expressed following opinion: "The principle to be deducted from these two cases is that where question relating to assessment does not vary with income every year but depends on nature of property or any other question on which [13] rights of parties to be taxed are based, e.g., whether certain property is trust property or not, it has nothing to do with fluctuations in income; such questions if decided by Court on reference made to it would be res judicata in that same question cannot be subsequentiy agitated." 16. We are aware of fact that strictly speaking res judicata does not apply to income-tax proceedings. Again, each assessment year being unit, what is decided in one year may not apply in following year but where fundamental aspect permeating through different assessment years has been found as fact one way or other and parties have allowed that position to be sustained by not challenging order, it would not be at all appropriate to allow position to be changed in subsequent year. 21. From reading of judgment of Apex Court, it is clear that judgment relied by assessee in case of Radhasaomi Satsang (supra) was dealt by Apex Court in case of BSNL (supra) and Supreme Court held that principal of res-judicata does not apply in matter pertaining to tax for different assessment years, because res-judicata applies to debar courts from entertaining issues on same cause of action, whereas cause of action for each assessment year is distinct. In case in hand, AO for assessment year 2005-06 had accepted claim of assessee without examining relevant records, as well as without recording any finding on issue in question. Thus, for subsequent year, claim of assessee cannot be accepted without examining records and material, and AO after examining records came to conclusion and took view that receipts at hand of assessee was to be assessed under income from house property and income from other sources and not business income. In Commissioner of Income Tax vs. British Paints [14] India Ltd., Supreme Court while interpreting Section 145 of Act held that even if assessee had adopted regular system of accounting, it was duty of Assessing Officer to consider whether correct profits and gains would be deduced from account so maintained. Relevant portion are extracted hereasunder:- Section 145 of Income Tax Act, 1961 confers sufficient power upon officer-nay it imposes duty upon him-to make such computation in such manner as he determines for deducing correct profits and gains. This means that where accounts are prepared without disclosing real cost of stock-in-trade, albeit on sound expert advice in interest of efficient administration of company, it is duty of Income Tax Officer to determine taxable income by making such computation as he thinks fit. Any system of accounting which excludes, for valuation of stock-in-trade, all costs other than cost of raw materials for goods-in-process and finished products, is likely to result in distorted picture of true state of business for purpose of computing chargeable income. Such system may produce comparatively lower valuation of opening stock and closing stock, thus showing comparatively low difference between two. In period of rising turnover and rising prices, system adopted by assessee, as found by Tribunal, is apt to diminish assessment of taxable profit of year. profit of one year is likely to be shifted to another year which is incorrect method of computing profits and gains for purpose of assessment. Each year being self-contained unit, and taxes of particular year being payable with reference to income of that year, as computed in terms of Act, method adopted by assessee has been found to be such that income cannot properly be deduced therefrom. It is, therefore, not only right but duty of Assessing Officer to act in exercise of his statutory power, as he has done in instant case, for determining what, in his opinion, is correct taxable income. 22. Thus, conspicuous glance of judgments of Apex Court in case of Radhasaomi Satsang (supra), BSNL (supra) [15] as well as British Paints India Ltd. (supra) it has been constant view that question of res-judicata does not apply in tax proceedings, while each assessment year being unit, what is decided in one year may not apply in following years, but where fundamental aspect permeating through different assessment years has been found as fact one way or other, and parties have allowed that position to be sustained by not challenging order, it would not be at all appropriate to allow position to be changed in subsequent year, unless there was material change justifying revenue to take different view. 23. In present case, AO found sufficient materials and changes in year under consideration, as he after examining relevant clauses of agreements formed opinion that property was taken on lease for giving it on rent to GAIL. Further, Section 2(13) defines business, which includes any trade, commerce or manufacture or adventure or concerned in nature of trade, commerce or manufacture. In present case no business activity was being carried out by assessee as business is continuous and systematic activity carried on with view to earn profit. 24. Further, records of assessee revealed that only one person was employed, which cannot go on to establish fact that any business activity was being carried out by appellant, and premises was only let out to GAIL pursuant to agreement and was thus rightly assessed by Assessing Officer under heading 'income from house property and income from other sources'. [16] 25. Now adverting to second question, whether assessing authority was justified in treating receipt of appellant-assessee as income from house property and income from other sources other than income from business on basis of partnership deed which defines object of firm as to business activity of real estate, letting and sub- letting of properties and further, upon agreement so entered by it with GAIL. 26. constitution Bench of Apex Court in case of Sultan Brothers Pvt. Ltd. vs. CIT, [1964] 51 ITR 353 (SC) had occasion to consider whether letting of building fitted with furniture and fixtures and income derived from lease, would be income from business or income from property as well as income from other sources. Apex Court held that merely by providing in object clause that any activity was in regard to acquiring land and building, as well as furnishing and maintaining it and also by leasing same, would not be assumed as carrying on business activity. Relevant portion are extracted hereasunder:- very large number of cases was referred to in support of this contention but it does not seem to us that much assistance can be derived from them. Whether particular letting is business has to be decided in circumstances of each case. We do not think that cases cited lay down test for deciding when letting amounts to business. We think each case has to be looked at from businessman's point of view to find out whether letting was doing of business or exploitation of his property by owner. We do not further think that thing can by its very nature be commercial asset. commercial asset is only asset used in business and nothing else, and business may be carried on with practically all things. Therefore it is not possible to say that particular activity is business because it is concerned with asset with which trade is commonly carried on. We find nothing in cases [17] referred, to support proposition that certain assets are commercial assets in their very nature. object of appellant company no doubt was to acquire land and buildings and to turn same into account by construction and reconstruction, decoration, furnishing and maintenance of them and by leasing and selling same. activity contemplated in aforesaid object of company, assuming it to be business activity, would not by itself turn lease in present case into business deal. That would follow from decision of this Court in East India Housing and Land Development Trust Ltd. v. Commissioner of Income-tax where it was observed that "the income derived by company from shops and stalls is income received from property and falls under specific head described in Section 9. character of that income is not altered because it is received by company formed with object of developing and setting up markets." Now cases on which learned counsel for appellant specially relied were cases of letting out of plant and machinery, in some instances along with factory buildings in which they had been housed. In all of them, except one, which we will presently mention, assessee had previously been operating factory or mill as business and had only temporarily let it out as it was not convenient for him at time to carry on business of running mill or factory. In these circumstances, it was held that by letting out plant, machinery and building assessee was still conducting business though not business of running mill or factory. Learned counsel for appellant also relied on certain clauses in lease and clause in memorandum of appellant company to show that lease amounted to carrying on of business. We shall now turn to these provisions. Clause 3(b) of memorandum gave power to appellant to manage land, buildings, and other property and to supply tenants and occupiers thereof refreshment, attendants, messengers, light, waiting-room, reading room, meeting, room, libraries, laundry convenience, electric conveniences, lifts, stables and other advantages. contention was that this cause in memorandum gave appellant power to carry on business of nature of running hotel. We do not think, it did. But in any case, by lease none of objects mentioned in this clause was sought to be achieved. We find nothing in lessor's covenants to some of which we were referred to bring matter within clause 3(b) of memorandum. None of these clauses support contention that by granting [18] lease, appellant did anything like carrying on business of running hotel. Thus clause (a) is covenant for quiet enjoyment. Clause (b) provides for renewal of lease of demised premises being granted to lessee for further term of six years at his request. Clause (c) deals with payment of municipal bills and similar charges and ground rent. Clause (d) provides that lessor shall during continuance of lease and on its renewal provide various things which included furniture, pillows, mattresses, gas-stoves, bottle coolers, refrigerators, lift, electric fittings and like and also paint outside of building with oil once in five years and keep building insured. These are ordinary covenants in lease of furnished building. These do not at all show that lessor was rendering any service in hotel business carried on by lessee or in fact doing any business at all. On facts of this case we are unable to agree that letting of building amounted to doing of business. income under lease cannot, therefore be assessed under section 10 of Act as income of business. 27. In case of Universal Plast Ltd. vs. Commissioner of Income Tax [1999] 237 ITR 454 (SC), Apex Court considering question of leasing out of asset of business would be income from business or not, Court held as under:- question whether amount earned by assessee by leasing out assets of business would be income from business carried on by it, has been subject-matter of consideration by this Court as well as by various High Courts and it would be useful to refer to judgments of this Court bearing on issue. In Commissioner of Excess Profits Tax v.. Shri Lakshmi Silk Mills Limited [1951] 20 ITR 451 (SC), assessee-company was carrying on business of manufacturing silk cloth and dyeing silk yarn. Due to lack of supply of silk yarn during relevant period while keeping idle other plant and machinery, it let out dyeing plant for five months. question which came up for consideration before this Court was whether rent received from letting out dyeing plant would fall under head "Income [19] from business" or "Income from other sources". If it was "Income from business", it would have been chargeable to excess profits tax; if not, liability would not arise. Mahajan,J., speaking for Court, observed that no general principle could be laid down which was applicable to all cases and each case had to be decided on its own circumstances. It was held 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 and for that reason dyeing plant had not ceased to be commercial asset of assessee, so sum representing rent for five months received from lessee by assessee was income from business and was chargeable to excess profits tax. In Narain Swadeshi Weaving Mills CEPT [1954] 26 ITR 765, Constitution Bench of this Court considered similar question which also arose under Excess Profits Tax Act, 1940. In that case, assessee-firm was carrying on manufacturing business. Public Limited Company was incorporated to take over business from assessee-firm. company purchased building of assessee-firm and took over from it plant and machinery on lease at annual rent. One of questions that fell for consideration there was whether lease money obtained by assessee from company could be legally treated as business profit liable to excess profit tax. Distinguishing Shri Lakshmi Silk Mills' case [1951] 20 ITR 451 (SC), it was pointed out that only part of business of assessee therein, namely dyeing silk yarn, was temporarily stopped owing to difficulty in obtaining silk yarn on account of war so that part of assets did not cease to be commercial asset of that business and accordingly, income from assets would be profit of business irrespective of manner in which that asset was exploited by company. Noticing facts in case before Court that assessee had already sold land and building to Company; it was not having any manufacturing, trading or commercial activity; and let out plant and machinery on annual rent of Rupees forty thousand and applying common sense principle to facts, this Court found that transaction of lease was quite apart from ordinary business activity of company, so it was impossible to hold that letting out of plant and machinery etc. was at all [20] business operation when its normal business activity had come to close. In CIT v. Calcutta National Bank Limited [1959] 37 ITR 171 (SC), case arose under Excess Profits Tax Act. assessee was banking company. It owned six-storeyed building of which only part was under its occupation and rest was let out to tenants. question was whether rent received from tenants of building was business income of company. majority opinion was that realisation of rental income of assessee was in course of its business being in prosecution of one of its objects in its memorandum and was liable to be included in its business profits and was assessable to excess profits tax. That conclusion was reached on premise that term `business' as defined in that Act was wider than definition of that term under Income Tax Act. minority, however, took contrary view. In Sultan Brothers Private Ltd. vs. CIT, [1964] 51 ITR 353 (SC), assessee constructed building, fitted it up with furniture and fixtures and let it out on lease fully equipped and furnished for purpose of running hotel. lease amount provided separately for running of building and hire charges for furniture and fixtures. question that fell for consideration was whether rent income was business income taxable under Income Tax Act, 1922? It was held that as assessee never carried on any business of hotel in premises let out or otherwise at all and there was nothing to show that it intended to carry on hotel business itself in same building, letting of building did not amount to carrying on of business, so income under lease could not be assessed as income from business. Constitution Bench formulated principle thus (headnote) : "Whether particular letting is business, has to be decided in circumstances of each case. Each case has to be looked at from businessman's point of view to find out whether letting was doing of business or exploitation of his property by owner....". In New Sevan Sugar and Gur Refining Co. Ltd. v. CIT [1969] 74 ITR 7 (SC), appellant-company was carrying on business of crushing sugarcane and gur refining. building, machinery and plant of factory mill were leased out initially for period of five years with three options to renew for similar periods on [21] part of lessee. assessee had, however, option to terminate lease after first two years which option was not exercised. question was whether income which arose to assessee for Assessment Year 1955-56 from lease was assessable as income from business or income from other sources? It was held, on interpretation of terms of lease deed, that intention of appellant-assessee was to part with machinery of factory and premises with obvious purpose of earning rental income and not to treat factory and machinery as commercial asset during subsistence of lease; intention of appellant was found to go out of business altogether, therefore income was not assessable as business income. CIT v. Vikram Cotton Mills Ltd. [1988] 169 ITR 597 (SC) is again case arising under Income Tax Act, 1922. One of creditors filed petition in High Court for winding up. Industrial Financial Corporation took possession of fixed assets under English mortgage of those assets. assessee company had gone into losses and had stopped its manufacturing activity. Under scheme evolved by High Court under Companies Act, business assets were let out for ten years with option for renewal for another ten years. management of company was transferred to Board of Trustees approved by High Court. question which fell for determination was whether rental income was assessable in relevant assessment years as business income? findings of Tribunal were that on account of financial crisis, company found it advantageous to let out machinery on hire for temporary period and company was able to liquidate its liability at end of lease period and regained possession of its assets; company did not sell or otherwise dispose of its assets; there was nothing on record to show that company was formed to let out plant and machinery on hire. Tribunal came to conclusion that maintenance of assets meant that Company had intention to re-start business and that intention of Company in letting out its assets was to exploit commercial assets for purpose of its business and therefore rental income was assessable as business income. On reference, that conclusion was upheld by High Court. On appeal to this Court, while affirming decision of High Court, it was noted that all relevant facts were correctly considered from standpoint of ordinary prudent [22] businessman by Tribunal and it was also pointed out that stoppage of business by company was temporary suspension of business for temporary period with object of tiding over crisis condition and there was never any act indicating that company intended to carry on business in future. 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 for 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. Now adverting to facts of UPL case, High Court referred to findings of Tribunal that leasing out of factory was not sequel to assesee's decision to go out of business in respect of subject factory and that it was just make-shift transient alternative means of commercial exploitation of commercial assets, so income from such letting could not be treated as fruits of ownership simplicitor of asset. High Court also referred to various clauses in Agreement, particularly Clauses 1, 2, 4, 7, 19, 20, 21 and 22 and concluded that "licensee exercising its vested right of option to purchase licenced premises, assessee stands [23] completely out in cold". High Court recorded following findings (page 11): "Therefore, it can very well be presumed that at time licence agreement was entered into, intention of ultimate outright sell out was already there. assessee was already committed to licensee for such sell-out at licensee's pleasure and there is no means of assessee falling back from that commitment. Therefore, it can very reasonably be inferred that assessee in case decided to go out of business as far as this particular factory was concerned.. lease agreement is in fact veiled agreement for lease-cum-sale....We are of opinion that licensing is not meant to be temporary stop gap exploitation of commercial assets. It could not be in contemplation of assessee at time it entered into licence agreement, to retain assets any more as commercial asset." 28. Thus, after having close glance of law laid down by Apex Court in relation to receipts at hands of assessee from letting out of any property pursuant to agreement, whether amount to income from business or income from house property and income from other sources, in case of Sultan Brothers (supra), Universal Plast Ltd. (supra), Shambhu Investment Pvt. Ltd. (supra) and Hotel Arti Delux (Pvt.) Ltd. (supra) Court was of view that mere incorporation of company or firm with object of carrying on business of real estate, letting and sub-letting of property would not automatically mean that assessee was having business income from property let out through agreement, but only upon qualifying certain test as laid down that any conclusion can be reached. 29. Business as defined in Section 2(13) of Act postulates expenses of certain elements in activity of [24] assessee which would invest it with character of business. In each case question whether or not assessee carried on business must necessarily be approached in light of intention of assessee, having regard to legal requirements which are associated with concept of business. Word 'business' is used in sense of occupation, or profession which occupies time, attention and labour of person, normally with object of making profit. To record activity as business there must be course of dealing, which is continued or contemplated to be continued with profit motive and not for sport or pleasure. In present case, assessee had deposed and also from perusal of his records it is reflected that only one staff was engaged in upkeeping and maintenance of premises let out to GAIL, meaning thereby that no regular or continuous activity was carried out for deeming it to be business activity for being assessed under heading income from business. 30. In case of State of Gujarat v. Raipur Manufacturing Company Ltd. [1967] 19 HTC 1 (SC) Apex Court observed that in taxing statutes, word business is used in sense of occupation, or profession which occupies time, attention and labour of person, normally with object of making profit. Whether or not person carries on business in particular commodity must depend upon volume, frequency, continuity and regularity of transaction, or purchase and sale in class of goods and transaction must necessarily be entered into with profit motive. said decision was rendered in context of sales tax law, and was relied upon and referred in context of Income Tax law in judgment of [25] Apex Court in case of Sole Trustee, Loka Shikshana Trust vs. Commissioner of Income Tax [1975] 101 ITR 234. 31. As in case of hiring out of property along with other articles, rights asserts etc. question which arises is whether income derived is from house property, business or other sources. This was exclusively dealt by Bombay High Court in case of CIT vs. National Storage Pvt. Ltd. [1963] 48 ITR 577 (Bom.). This case was confirmed in 1967, 66 ITR 596 (SC). 32. For purpose of income to be revenue in nature it must arise from various sources as envisaged under Act. One of such sources is business income, but to be business income, volume, frequency, continuity, regularity and intention of assessee to carry on has to be seen, and where business itself has not come into existence, it cannot be considered to be business income and therefore, cannot be revenue receipt, as in present case agreement executed between assessee and GAIL was for leasing out premises, secondly for furnishing of area leased out and thirdly for maintaining leased out area. 33. Only one staff was kept for said purpose by assessee, meaning thereby that no business activity as mandated was carried out by assessee so as to bring said exercise within ambit of business income, and taxing authorities rightly assessing assessee under head 'income from house property and income from other sources'. 34. guidelines laid down by Apex Court in case of [26] Universal Plast Ltd. (supra) considering Constitution Bench judgment in case of Sultan Brothers Pvt. Ltd. (supra), leasing out of assets by assessee simplicitor would not constitute business income. Further, partner of assessee firm had admitted that property was purchased to let out on rent to GAIL. assessing authority had also come to conclusion that no systematic set up was established for doing business activity and assessee having failed to point out volume, frequency, continuity and regularity of transactions. 35. In similar set of fact, Bombay High Court in case of Mangla Homes Pvt. Ltd. vs. Income Tax Officer, 325 ITR 281 (Bom.) following decision of Apex Court in case of East India Housing and Land Development Trust Ltd. v. CIT [1961] 42 ITR 49 (SC) held that income derived by company from shops and stalls is income received from property and falls under specific head described in Section 9 being income from property. 36. Thus, finding recorded by Assessing Officer after examining all three agreements found that assessee did not indulge in any kind of recurring, systematic and in organized manner, business activity and having only one employee rightly assessed receipts under heading 'income from house property and income from other sources'. 37. Having considered case in depth and findings recorded by authorities below, we are of considered opinion that as appellant-assessee did not carry out any systematic, recurring and in organised manner, any business [27] activity nor there was any volume, frequency, continuity and regularity of transactions, and only one person was employed by him for management and look after of leased property, taxing authorities had rightly held receipts to be income from house property and income from other sources and not business income. 38. In our considered view appeal lacks merit and is hereby dismissed. 39. question of law as framed are hereby answered in favour of Revenue and against assessee. Order Date :- 18.9.2019 V.S.Singh Meeraj Estate and Developers v. Commissioner of Income-tax