Calcutta High Court
M/S. Oberoi Building & Investment (P) ... vs Commissioner Of Income Tax - Ii on 15 December, 2023
Author: Rajarshi Bharadwaj
Bench: Rajarshi Bharadwaj
A.F.R
IN THE HIGH COURT AT CALCUTTA
SPECIAL JURISDICTION (INCOME TAX)
ORIGINAL SIDE
Present :- The Hon'ble Justice SURYA PRAKASH KESARWANI
The Hon'ble Justice RAJARSHI BHARADWAJ
ITA/168/2010
M/S. OBEROI BUILDING & INVESTMENT (P) LIMITED
Vs.
COMMISSIONER OF INCOME TAX - II, KOLKATA & ANR.
For the Petitioner :- Mr. Akhilesh Kr. Gupta, Adv.
Ms. Akshara Shukla, Adv.
For the Respondent :- Mr. Smarajit Roychowdhury, Adv.
Lastly heard On :- 28.11.2023
Judgement On :- 15.12.2023
SURYA PRAKASH KESARWANI, J.
1. Heard Shri Akhilesh Kumar Gupta, learned counsel for the
appellant and Shri Smarajit Roychowdhury learned counsel for the
Income Tax Department/respondents.
2. This appeal arises from the order dated 23.07.2010 in ITA
No.330 (Kol) of 2008 [assessment year 2005-06]: Income Tax Officer /
Ward-6(3), Kolkata v. M/s. Oberoi Building & Investment (P) Ltd.,
Kolkata passed by the Income Tax Appellate Tribunal, 'C' Bench,
Kolkata.
Vide order dated 04.10.2010, this Court framed the following
substantial questions of law:-
I. Whether on the facts and circumstances of the case and on a
true and proper interpretation of the agreement, the income arising
from sub-licensing of shops and establishment along with the various
services which are rendered to the sub-licensed shopkeepers can be
treated as income liable to be assessed under Section 22 of the Act or
the said income being composite income arising from part
exploitation of shops and establishment which are sub-leased as
commercial assets and the services which are rendered to the
shopkeepers can be treated as income arising from business falling
under Section 28 of the Act?
II. Whether on the facts and in the circumstances of the case, the
licence agreement dated 25th April 1972 could be construed so as to
constitute transfer within the meaning of Section 269UA(f) and the
assessee could be treated as deemed owner under Section 27(iiib) of
the Income Tax Act?
Facts:
3. Briefly stated facts of the present case are that the assessee is
a Private Limited Company incorporated on 14.03.1972. It is a
subsidiary of M/s East India Hotels Limited, now renamed as EIH
Limited (hereinafter referred to in short EIH) The assessee-company
entered into a leave and lisence agreement with EIH dated
25.04.1972 for 5665 sft. of Office space for a period of 50 years in
Oberoi Sheraton Hotel at Bombay, on certain terms and conditions
as mentioned in the said agreement. As per the said agreement, the
assesse-company is to pay compensation for each month on or before
the 10th day of the month following the month for which it is due. As
per clause 2(xiv) of the said agreement, the leave & licence granted to
the assessee company is irrevocable for the period mentioned. The
assessee-company had sub-let/sub licenced the said space to
different persons on certain terms and conditions. As per sub-
lisencing agreement, the assesse-company has given the space from
28.09.1991 till 31.12.2022 for carrying on the business of jems,
jewellery and gift articles on a fixed fee. The assesse-company has
shown the total contribution received from letting out shops of Rs.
13,90,260/- against which it has claimed expenses of Rs.
10,60,560/- towards contribution for licence fee and other charges.
The assesse-company has shown receipts and the expenses under
the head "business income". The Assessing Officer has observed that
the assesse is having irrevocable right for 50 years over the shopping
space and considering the decision of the Apex Court in the case of
CIT vs. Poddar Cements Ltd. (1997) 226 ITR 625 (SC) and Section
27(iiib) of the Income Tax Act, the income derived by the assesse from
letting out shopping space is to be assessed under the head "income
from house property" and not as "income from business".
4. Aggrieved with the assessment order, the appellant assessee
had filed an appeal before the Commissioner of Income Tax (Appeal)
which was allowed, holding that the income derived by the appellant
assessee from letting out of shopping space to different persons is
business income. Aggrieved with the order of CIT (A) the Income Tax
Department had filed an appeal being ITA No. 330 (KOL)/2008 :
Assessment Year 2005-06, before the Income Tax Appellate Tribunal
"C" Bench Kolkata which has been allowed by the Income Tax
Appellate Tribunal by the impugned order dated 03.07.2010.
Aggrieved, the appellant assessee has filed the present appeal which
has been admitted by this Court on the substantial questions of law
quoted in Para (2) above.
Submissions:
5. Learned counsel for the appellant submits that leave and
license agreement dated 25.04.1972 was entered by the appellant
assessee with M/s. East India Hotels Limited [now renamed as EIH
Limited). The assessee was incorporated with the object in the
Memorandum of Association to acquire on license or by purchase,
lease, exchange, hire or otherwise lands and property of any nature
or premises in any part of India and to license or sub-license or lease
or sub-lease or let, such lands or property or premises or any part
thereof. Thus, the main business of the assessee is the business of
letting out / licensing property. He submits that under the agreement
in question, the assessee obtained a leave and license of 5,665
square feet office space for a period of 50 years in Oberoi Sheraton
Hotel at Bombay. This office space was sub-licensed / sub-let to
some persons along with various facilities and a composite sum was
charged as consideration. The income derived from the aforesaid
business was always disclosed by the assessee in its income tax
returns as income from business, since 1972. The Income Tax
Department always accepted the aforesaid income as business
income. It is only in the assessment year 2005-06 that the assessing
officer assessed the income from sub-licensing/ sub-letting as
income from house property and not as income from business. The
assessee filed an appeal before the CIT (Appeal) which was allowed by
the CIT (Appeal) vide order dated 07.01.2008. Aggrieved, the Income
Tax Department preferred an appeal before the Income Tax Appellate
Tribunal, which was allowed by the impugned order passed in ITA
No.330 (Kol) of 2008. Aggrieved, the assessee appellant has filed the
present appeal. In the assessment year 2006-07, the assessing officer
again assessed the income from sub-licensing / sub-letting as
income from house property. The assessment order was carried in
statutory proceedings and by order dated 26.07.2017 in ITA
1640/Kol/2014 (Assessment Year 2006-07), the ITAT, after taking
into consideration its earlier order as impugned in the present
appeal, allowed the appeal of the assessee and held the income to be
income from business. To come to the aforesaid finding, the ITAT has
referred to several judgments of Hon'ble Supreme Court as well as
the order of the ITAT passed in the case of Bombay Plaza. He further
submits that even in assessment years subsequent to the assessment
year 2006-07, the assessing officer has always assessed the similar
income as income of the assessee from business. He, therefore,
submits that under the facts and circumstances of the case, the
present appeal deserves to be allowed and both substantial questions
of law deserved to be answered in favour of the assessee and against
the Revenue and any amount deposited by the assessee or recovered
by the department against the demand raised by the assessing
officer, deserves to be refunded with interest in accordance with law.
Judgment relied upon by the assessing officer while passing the
assessment order, is clearly distinguishable on facts of the present
case and has no application. He submits that relevant judgments
interpreting the law have been referred in paragraph 6 of the order in
ITAT/16/Kol/2014 dated 26th July, 2017 relating to assessment
year 2006-07 which the appellant also relies in support of its
contention. Learned counsel for the appellant further submits that on
bare perusal of the deed of license under which the assessee had
obtained leave and license of the property in question from M/s. East
India Hotels Limited, the transaction is in the nature of license. This
sub-letting has been done by the assessee to several persons not only
for accommodation but as a composite transaction coupled with
several facilities and in view thereof received consideration which the
assessee has disclosed as business income, whereas the assessing
officer has incorrectly, baselessly and against settled law treated as
income from house property.
6. Learned counsel for the respondents submits that there is no
res judicata in revenue matters and therefore, even if in one
assessment year, the assessing officer has assessed the income in
question as income from house property, rejecting the claim of the
assessee by treating it as income from business; but that cannot be
disturbed by this Court and the order of the Income Tax Appellate
Tribunal deserves to be upheld. Referring to the assessment order
learned counsel for the respondent submits that the assessee is a
deemed owner of the property in question under Section 27(iiib) of
the Income Tax Act, 1961 and the transaction in question and leave
and licence is transfer within the meaning of Section 269UA(f)(i) of
the Act. Therefore, the income is question is correctly assessed
assessing officer and upheld by the tribunal treating it as income
from house property.
Discussion and finding:
7. We have carefully considered the submissions of learned
counsels for the parties and perused the record of the appeal.
8. Undisputedly the appellant assessee obtained an area
approximately 5,60,065 sqft. from EIH under a leave and licence
agreement dated 25.04.1972 for a period of 50 years on certain terms
and conditions including certain facilities. As per Memorandum of
Association of the appellant assesse, as reproduced in paragraph 2.6
of the order of the CIT appeal dated 07.01.2008; Clause III Part B
(objects anciliary to the main objects) provides as under:-
"to acquire on a licence, premises suitable for housing and
accommodating shops, boutiques, stores, offices, showrooms for the
purpose of making the same available on the basis of lease and
licence or sub-licence (and not for leasing or renting the same out) to
any person, firm or company."
9. The afore quoted objects has been reproduced by the CIT
(Appeal) in Paragraph 2.6 of its order. The appellant assessee, after
obtaining the space under the leave and licence agreement dated
25.04.1972, had entered into a sub-licensing agreements with
different persons. Along with the space provided to the sub-licensee,
the appellant assessee also provided them number of services and
charged a composite amount as consideration for sub-licensing and
services. The services provided by the appellant assessee to sub-
licensees are mentioned in paragraph 27 of the Sub-lisence
Agreement which are reproduced below:-
"27. Subject to the Provisions of the next clause, the Company
hereby agrees to provide or cause to be provided the following
services with regard to the Stipulated Space.
(a) Central airconditioning facilities during business hours;
(b) Central telephone operating service for incoming calls;
(c) Central piped music in the passages;
(d) Cleaning and keeping in neat and tidy conditions, common
passages, lobbies and entrances around the Stipulated Space;
(e) Looking after and attending to the electricity, water and
sanitary fittings and plumbing requirements in the common
passages, lobbies and entrances around the Stipulated Space;
(f) Providing a few Watch and Ward services for the shopping
area, provided that the Company shall not in any way be
responsible in case of any theft, pilferage or loss.
(g) Providing advertising and sales promotional facilities by
various means and media for the goods and services available
in the Shopping Area."
10. From the facts as noted above it is evident that the appellant
assessee has obtained 5665 sqft. of space under a leave and
licence5agreement dated 25.04.1972 from EIH Limited and has sub-
licensed the space to several persons under a sub-licence agreement,
along with certain services as aforementioned and for that received a
composite amount as consideration on monthly basis.
11. The assessee claimed that the sum received by it for sub-
licensing, is business income but the assessing officer has not
accepted it and taxed the receipts as income from house property.
The CIT (Appeal) allowed the appeal of the assessee and held the
income to be income from business. The ITAT, after referring to
section 27 (iiib) of the Income Tax Act defining the term "deemed
owner" and Section 269UA(f) of the Act defining the word "transfer";
held that the income derived by the assessee is "Income from House
Property."
12. While coming to the aforesaid conclusion, the ITAT has
committed a manifest error of law to ignore the object and business
activity of the appellant assessee company, and misunderstood the
nature of transaction of sub-license.
13. As per assessment order of the appellant assesse, the total
income disclosed as per income tax return was Rs. 1,32,710/-. It was
disclosed to be from business. The Assessing Officer has treated the
total contribution received from shops Rs. 13,90,260/- (against
which the assessee booked expenses amounting to Rs. 10,60,561/-)
towards compensation for licence fees (as per profit and loss
accounts) amounting to Rs. 13,90,260/-) to be rental income under
the head "income from house property" and after allowing deduction
under Section 24 (a) computed the income from house property at
Rs. 9,73,182/-.
14. As per objects in the Memorandum of Association and also as
per assessment order, the assessee is engaged in business of
licensing the space in question. In this regard the findings recorded
by the Assessing Officer in the Assessment Order is reproduced
below:-
"During the relevant previous year the assesse engaged in
dealing in real estate and investment in shares. The income mainly
consisted of 'contribution from shops.'
15. In the of Rajdadarkar and Associates versus ACIT, CC-46
(2017) 14 SCC 476 (17) Hon'ble Supreme Court has observed that
wherever there is an income from leasing out of the premises and
collecting rent, normally such an income is to be treated as income
from house property but under certain circumstances, It can stated
be treated as business income if letting out of the premises itself
is the business of the assessee.
16. In Chennai Properties and Investments Limited Versus
Commissioner of Income Tax (2015) 373 ITR 673 SC : 2015 14
SCC 793 Hon'ble Supreme Court quoted with approval the judgment
of privy council ( reported in 44 ITR page 377) and applying the law
laid down in Sultan Brothers (P) Limited Versus CIT (1964) 51 ITR
353 (SC) and Karanpura Development Company Limited Versus CIT
(1962) 44 ITR 362 (SC): AIR 1962 SC 429, held as under.
"Before we refer to the Constitution Bench judgment in the
case of Sultan Brothers (P.) Ltd., we would be well
advised to discuss the law laid down authoritatively and
succinctly by this court in Karanpura Development Co.
Ltd. v. CIT [1962] 44 ITR 362 (SC). That was also a case
where the company, which was the assessee, was formed
with the object, inter alia, of acquiring and disposing of the
underground coal mining rights in certain coal fields and it
had restricted its activities to acquiring coal mining leases
over large areas, developing them as coal fields and then
sub-leasing them to collieries and other companies. Thus,
in the said case, the leasing out of the coal fields to
the collieries and other companies was the business
of the assessee. The income which was received from
letting out of those mining leases was shown as business
income. Department took the position that it is to be
treated as income from the house property. It would be
thus, clear that in similar circumstances, identical issue
arose before the court. This court first discussed the
scheme of the Income-tax Act and particularly six heads
under which income can be categorised/classified. It was
pointed out that before income, profits or gains can be
brought to computation, they have to be assigned to one or
the other head. These heads are in a sense exclusive of
one another and income which falls within one head
cannot be assigned to, or taxed under another head.
Thereafter, the court pointed out that the deciding factor
is not the ownership of land or leases but the nature
of the activity of the assessee and the nature of the
operations in relation to them. It was highlighted and
stressed that the objects of the company must also be
kept in view to interpret the activities. In support of
the aforesaid proposition, a number of judgments of other
jurisdictions, i.e., Privy Council, House of Lords in England
and the US Courts were taken note of. The position in
law, ultimately, is summed up in the following
words (page 377 of 44 ITR):
"As has been already pointed out in connection with the
other two cases where there is a letting out of
premises and collection of rents the assessment on
property basis may be correct but not so, where
the letting or sub-letting is part of a trading
operation. The dividing line is difficult to find; but in the
case of a company with its professed objects and the
manner of its activities and the nature of its dealings with
its property, it is possible to say on which side the
operations fall and to what head the income is to be
assigned."
After applying the aforesaid principle to the facts, which
were there before the court, it came to the conclusion that
income had to be treated as income from business and not
as income from house property. We are of the opinion that
the aforesaid judgment in Karanpura Development Co.
Ltd.'s case squarely applies to the facts of the present
case.
No doubt in Sultan Brothers (P.) Ltd.'s case, a Constitution
Bench judgment of this court has clarified that merely an
entry in the objects clause showing a particular object
would not be the determinative factor to arrive at an
conclusion whether the income is to be treated as income
from business and such a question would depend upon
the circumstances of each case, viz., whether a particular
business is letting or not. This is so stated in the following
words:
"We think each case has to be looked at from a
businessman's point of view to find out whether the
letting was the doing of a business or the
exploitation of his property by an owner. We do not
further think that a thing can by its very nature be a
commercial asset. A commercial asset is only an asset
used in a business and nothing else, and business may
be carried on with practically all things. Therefore, it is not
possible to say that a particular activity is business
because it is concerned with an asset with which trade is
commonly carried on. We find nothing in the cases
referred to support the proposition that certain assets are
commercial assets in their very nature."
We are conscious of the aforesaid dicta laid down in the
Constitution Bench judgment. It is for this reason, we
have, at the beginning of this judgment, stated the
circumstances of the present case from which we arrive at
irresistible conclusion that in this case, letting of the
properties is in fact is the business of the assessee. The
assessee, therefore, rightly disclosed the income under the
head "Income from business". It cannot be treated as
"Income from the house property". We, accordingly, allow
this appeal and set aside the judgment of the High Court
and restore that of the Income-tax Appellate Tribunal. No
orders as to costs.
17. In Royla Corporation Private Limited Versus Assistant
Commissioner of Income Tax (2016) 386 ITR 500 (SC) Hon'ble
Supreme Court considered the question as to whether the income
received by way of renting by the assessee engaged in business of
renting its properties and receiving rent is business income or income
from house property when the assessee company is engaged in
business of renting of its properties. The Hon'ble Supreme Court
found that the business of the assessee was of renting its property
and earning rent therefrom and therefore the income so earned
should be treated as its business income.
18. Thus, as per Memorandum of Association the object of the
assesse company anciliary to the main object is to acquire on licence
premises suitable for housing, accommodating shops, boutiques,
stores, offices, showrooms for the purpose of making available on the
basis of lease or licence and sub-lisence. The Assessing Officer
himself recorded a specific finding in the Assessment Order that
during the previous year relevant to the assessment year in question
the assesse was engaged in the business of real estate and its income
mainly consisted from contribution from shops. Since the object of
the assesse company and its activity is the business of
renting/lisencing/sub-lisencing shops etc. and it derived income
mainly from the aforesaid business activity, therefore, the income
from contribution/sub-lisencing derived by the assesse is business
income and not income from house property. The law laid down by
Hon'ble Supreme Court in Chennai Properties and Investment
Ltd.(supra) and Royla Corporation Private Limited (supra) are
applicable on facts of the present case. Hence, we hold that the
income in question of the appellant assesse is business income and
not income from house property.
19. Apart from above, we find that the appellant assessee is
engaged in business of sub-licensing/sub-letting the space in
question since the year 1972. The revenue has not disputed the fact
that except for the assessment year 2005-06, income of the appellant
assessee for all the years has been accepted as income from
business. For the assessment year 2006-07, the assessing officer
again held the income from letting/sub-licensing of space in question
to be income from house property. The matter was carried by the
appellant assessee up to appeal before the Income Tax Appellate
Tribunal 'B' Bench Kolkata in ITA No. 1640/KOL/2014 and the
Tribunal, after referring to its earlier order from which the present
appeal arose, held that the income of the appellant assessee from
sub-licensing/letting of the space is a business income. The aforesaid
order of the Income Tax Appellate Tribunal dated 26.07.2017 in ITA
No. 1640/KOL/2014 (AY) 2006-07 is stated to have been accepted by
the respondent Income Tax Department, which fact has not been
disputed by the learned counsel for the respondent before us.
Therefore, except for the assessment order in question, the appellant
assessee's income from sub-letting/sub-licensing the space in
question, has always been accepted by the respondent Income Tax
Department as, income from business. Under the circumstances
when the respondent Income Tax Department has always accepted
the income of the appellant assessee from sub-licensing/sub-letting
of the space in question, to be income from business, then the
respondent cannot take a contrary stand in the present appeal.
20. For all the reasons aforestated the appeal is allowed. The
substantial questions of law are answered in favour of the assessee
and against the revenue. The impugned order dated 23.07.2010 in
ITA No. 330 (KOL) of 2008: Assessment year 2005-06, passed by the
Income Tax Appellate Tribunal 'C' Bench Kolkata, is hereby set aside
and the order of the CIT (A) - 6 Kolkata dated 07.01.2008 is affirmed.
Any amount already deposited by the assesse towards the demand in
question, shall be refunded to the assesse forthwith by the concerned
authority.
21. Urgent certified photocopy of this order, if applied for, be
supplied to the parties upon compliance with all requisite formalities.
(SURYA PRAKASH KESARWANI, J.)
I agree
(RAJARSHI BHARADWAJ, J)
AFR
