Maharaja Manabendra Shah (HUF), New Delhi v. ITO, New Delhi

ITA 4592/DEL/2009 | 2004-2005
Pronouncement Date: 23-04-2010 | Result: Allowed

Appeal Details

RSA Number 459220114 RSA 2009
Assessee PAN OFTHE1922A
Bench Delhi
Appeal Number ITA 4592/DEL/2009
Duration Of Justice 4 month(s) 19 day(s)
Appellant Maharaja Manabendra Shah (HUF), New Delhi
Respondent ITO, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 23-04-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted E
Tribunal Order Date 23-04-2010
Date Of Final Hearing 12-04-2010
Next Hearing Date 12-04-2010
Assessment Year 2004-2005
Appeal Filed On 04-12-2009
Judgment Text
ITA NO. 4592/D/09 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E NEW DELHI BEFORE SHRI VIMAL GANDHI HONBLE PRESIDENT AND SHRI K.G. BANSAL ACCOUNTANT MEMBER ITA NO. 4592/DEL/2009 ASSTT. YEAR: 2004-05 MAHARAJA MANBENDRA SHAH (HUF) VS INCOME TAX O FFICER 5 BHAGWAN DASS ROAD WARD 31(1) NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY: S/SHRI P.N. MONGA & MANU MONGA RESPONDENT BY: SHRI G.S. SAHOTA SR. DR O R D E R PER VIMAL GANDHI PRESIDENT THIS APPEAL BY THE ASSESSEE FOR AY 2004-05 IS DIRE CTED AGAINST ORDER OF CIT(A) ASSESSING RENTAL INCOME OF PROPERTY UNDER THE HEAD OTHER SOURCES AND NOT HOUSE PROPERTY INCOME AS CLAIMED BY THE ASSESSEE. THE ASSESSEE (HUF) IS OWNER OF ROYAL PALACE CALLED THE RIDGE HOUSE WHICH WAS GIFTED BY LATE MAHARAJA OF TEHRI GARHWAL IN 194 8. THE AFORESAID BUILDING WITH LAND APPURTENANT WAS LEASED OUT TO M/ S INDIAN HOTELS & RESTAURANT ASSOCIATES PVT. LTD. (BRIEFLY IHHR) ON 3 .7.1997 FOR A PERIOD OF 36 YEARS. VIDE THE ABOVE LEASE DEED THE IHHR WAS AUTHORIZED TO MAKE ADDITION AND ALTERATION IN IT AND USE IT AS A HOTEL HEALTH RESORT AND SPA. THE PAYMENT OF ITA NO. 4592/D/09 2 THE RENT WAS TO COMMENCE FROM THE DATE ON WHICH THE LESSEE WAS TO RECEIVE FIRST GUEST. FOR DIFFERENT YEARS PAYMENT WAS AGRE ED TO BE MADE AS UNDER:- A) YEAR 1 TO YEAR 5 = RS.50 000/- PER ANNUM OR 3% OF T OTAL SALES PER YEAR WHICHEVER SUM IS HIGHER; B) YEAR 6 YEAR 30 = RS.75 000/- PER ANNU M OR 4% OF THE TOTAL SALES PER YEAR WHICHEVER SUM IS HIGHER; C) YEAR 31 TO THE END OF THE TERM OF THIS AGREEMEN T = RS.1 00 000/- PER ANNUM (ONE LAKH ONLY PER ANNUM) OR 5% OF TOTAL SALE S AS PER YEAR WHICHEVER SUM IS HIGHER. 2. 3% OF THE TOTAL ANNUAL RECEIPT BEING MORE THAN R S.50 000 THE ASSESSEE RECEIVED RS.29 72 246 UNDER THE LEASE AGREEMENT. T HE AO ASSESSED RS.50 000 UNDER THE HEAD HOUSE PROPERTY INCOME AN D BALANCE AMOUNT AS INCOME FROM OTHER SOURCES. THE AO ALSO RAISED F EW OTHER OBJECTIONS BUT THOSE NO MORE SURVIVE FOR OUR CONSIDERATION AS LD. CIT(A) AGREED WITH THE ASSESSEE AND HIS ORDER HAS BEEN ACCEPTED BY THE REV ENUE. 3. ON THE QUESTION WHETHER RENTAL INCOME WAS ASSESS ABLE UNDER THE HEAD HOUSE PROPERTY OR INCOME FROM OTHER SOURCES TH E LD. CIT(A) HELD THAT ENTIRE INCOME WAS LIABLE TO BE ASSESSED UNDER THE H EAD OTHER SOURCES. LD. CIT(A) FIRST NOTED THE FACTUAL POSITION EMERGING FR OM THE LEASE AS UNDER:- (I) THERE IS NO DISPUTE ABOUT THE OWNERSHIP OF T HE PROPERTIES LEASED OUT BY THE LESSEE IN PURSUANCE OF LEASE DEED DATED 3.7.1998. THE LESSER HUF IS CLEARLY THE OWNER OF THE ANNEXEE NARANGI BAGH AND THE LAND APPURTENA NT THERETO. TIKA MAJUJENDRA SHAH WHO SIGNED THE LEAS E DEED AS A CONFIRMING PARTY IN RESPECT OF THE GIFTED PRO PERTY ITA NO. 4592/D/09 3 TITLED THE RIDGE HOUSE HAS BEEN TREATED BY ME OWN ER THEREOF VIDE PARA 6 ABOVE. (II) LESSEE IS NOT THE OWNER OF THE ABOVE BUILDINGS AND LAND APPURTENANT THERETO BUT HAS CONSTRUCTED THE SUPERS TRUCTURE ON THE LANDS APPURTENANT TO BUILDINGS AND HAS CLAIM ED DEPRECIATION ON SUCH SUPERSTRUCTURES. THE TERM OF THE LEASE DEED REQUIRES THAT THE LESSEE WILL RETURN THE SUPER STRUCTURE TO THE LESSORS ON CONCLUSION OF THE LEASE. THE LES SEE M/S IHHR ENTERED INTO THE LEASE TO SET UP THE HOTEL/HEA LTH RESORT AFTER DEVELOPING THE LEASE PROPERTIES AND UPON CONS TRUCTION OF SUPERSTRUCTURE AND OTHER AMENITIES ON THE LAND APPURTENANT TO THESE PROPERTIES. (III) M/S IHHR HAS NECESSARY EXPERTISE IN THE HOSPITALITY AND TRAVEL/TOURIST AND IN DEVELOPING RENOVATING OPERA TING AND MANAGING HEALTH RESORT/HOTEL PROJECTS THAT IS WHY THE LESSOR HAS ENTERED INTO THE LEASE DEED WITH THE LESSEE FOR DEVELOPING THE PROPERTY AS A HOTEL-CUM-SPA. (IV) THE LEASE AGREEMENT DOES NOT STIPULATE THE LESSOR T O BE INVOLVED IN THE DAY TO DAY OPERATION OF THE BUSINES S OF HOTEL. (V) THE LESSOR IS ENTITLED FOR FIXED RECEIPT OF RS.50 0 00/- FROM THE DATE OF ARRIVAL OF FIRST GUEST. HOWEVER SHARE OF APPELLANT MAY GO UPTO 3% OF SALES. 4. HE GAVE THE FOLLOWING REASONS FOR HOLDING THAT R ENTAL WAS ASSESSED UNDER THE HEAD HOUSE PROPERTY:- I) WHETHER A PARTICULAR INCOME IS TO BE ASSESSED AS BU SINESS OR AS INCOME FROM HOUSE PROPERTY. THE QUESTION MUST B E DECIDED ACCORDING TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND CONDUCT OF THE PARTIES. IT IS PRIMARILY A MATTE R OF INTENTION. ITA NO. 4592/D/09 4 II) TO FIND THE INTENTION THE PURPOSE FOR WHICH LEASE WAS EXECUTED AS PER LD. CIT(A) WAS TO BE FOUND AS UNDER :- 8.4 IT WILL BE THEREFORE ESSENTIAL TO DETERMINE T HE TRUE INTENTION OF THE LESSOR BEHIND THIS LEASE DATE D 3.7.1997 WHETHER THE APPELLANT INTENDED COMMERCIAL EXPLOITATION OF THE PROPERTY THROUGH THE LEASE OR OTHERWISE. IN ORDER TO ASCERTAIN THE REAL INTENTIO N BEHIND THE LETTING OUT OF PROPERTY BY THE APPELLANT HUF AND TIKA MANUJENDRA SHAH TO M/S IHHR IT WILL BE IMPORTANT TO TAKE INTO ACCOUNT THE NATURE OF PROPERTY ARRANGEMENT BETWEEN LESSOR AND LESSEE AND TO APPRECIATE WHETHER THE LESSOR HAD ENTERED IN TO THIS LEASE AGREEMENT FOR A PROFIT MAXIMIZING MOTIVE S OR IT WAS A PURE RENTAL OF THE HOUSE PROPERTY FOR ENJOYMENT OF BUNDLE OF RIGHTS ATTACHED THEREWITH III) THE NATURE OF THE PROPERTY I.E. HUGE ROYAL PALACE L OCATED AT HILL TOP OVERSEEING RANGES WITH ITS HISTORICAL IMPO RTANCE HAD GREAT POTENTIAL TO BE USED AS A HEALTH RESORT AND F OR PURPOSES OF THE HOTEL. IV) THE CIT(A) WAS ALSO INFLUENCED BY NATURE OF ARRANGE MENT WHICH PROVIDED FOR OPERATIONS TO BE CARRIED BY THE LESSEE ALONE. CLAUSE 3(I) OF THE LEASE DEED HAS BEEN NOTE D BY LD. CIT(A) AND REPRODUCED IN THE IMPUGNED ORDER AS UNDE R:- THE LESSEE SHALL HAVE THE RIGHT TO DEVELOP A HEALT H RESORT/HOTEL AT ITS OWN COST AND RISK UPON THE LEAS ED PROPERTY AND ADAPT SUBSTITUTE OR BUILD UPON THE LEASED PROPERTY SUCH NEW BUILDINGS AND STRUCTURES INCLUDING STAFF QUARTERS RESIDENTIAL QUARTERS GUE ST ROOMS PUBLIC AREAS RESTAURANTS SWIMMING POOLS SERVICE AREAS SPORTS HEALTH TRAINING FACILITIES FOR END USE OF THE HEALTH RESORT/HOTEL GARDENS PATHWAYS LANDSCAPES VIEWING TOWERS CAR PARKS HELIPADS ITA NO. 4592/D/09 5 FENCES BOUNDARIES AND OTHER STRUCTURES AS IT MAY FROM TIME TO TIME DEEM FIT. 5. HAVING REGARD TO ABOVE FACTS AND CIRCUMSTANCES THE LD. CIT(A) WAS OF THE VIEW THAT IT WAS NOT A PURE RENTAL AGREEMENT FOR ENJOYING OF HOUSE PROPERTY BUT PROVIDED FOR CONSTRUCTION OF SUPERSTRU CTURE AND EXPLOITATION OF PROPERTY IN A FREE MANNER. 5.1 IT WAS NOT SIMPLE LEASE OF HOUSE PROPERTY FOR E NJOYMENT OF FIXED RENT BUT WAS AN AGREEMENT UNDER WHICH RENT COULD BE VARI ED ON THE HAPPENING OF SUBSEQUENT EVENTS. IT PROVIDED THAT LESSOR WOULD R ECEIVE AMOUNT OF RENT NOT ON THE COMMENCEMENT OF THE LEASE BUT ON THE DATE OF ARRIVAL OF FIRST GUEST IN THE HOTEL AFTER DEVELOPMENT OF LEASE PROPERTY. 5.2 AS PER CLAUSE 4(2) OF THE LEASE DEED THE LESSE E HAD UNDERTAKEN TO CREATE 150 FULLY EQUIPPED ROOMS IN A HOTEL IN 36 MO NTHS. 5.3 IN THE LIGHT OF ABOVE CONDITIONS THE LD. CIT(A ) HELD THAT IT WAS NOT A CASE OF A TYPICAL LEASE OF PROPERTY FOR ENJOYMENT O F THE SAME FOR NON- COMMERCIAL PURPOSES. AT THE END OF PAGE 21 THE LD . CIT(A) MADE THE FOLLOWING PERTINENT OBSERVATIONS:- NO PRUDENT LESSOR WOULD LET OUT THE PROPERTY WITHOUT ANY GUARANTEE OF RECEIPT OF LEASE RENTAL PARTICULARLY WHEN HE HAS NO ROLE IN THE OPERATION I N THE USE OF THE LET OUT PROPERTY UNTIL AND UNLESS HE IS WILLING TO TAKE THE RISK ASSOCIATED WITH A BUSINESS VENTURE IN WHICH HE HAS HIS OWN STAKE. ITA NO. 4592/D/09 6 5.4. AFTER TAKING INTO CONSIDERATION ALL THE RELEVA NT FACTS NOTED ABOVE THE LD. CIT(A) HELD THAT IT WAS A VENTURE BETWEEN THE L ESSOR AND THE LESSEE TO MAKE MAXIMUM PROFIT IN WHICH THE LESSOR CONTRIBUTED UNIQUELY PLACED COMPLEX ON HILL TOP AND THE LESSEE CONTRIBUTED ITS EXPERTISE OF DEVELOPING OPERATING AND CREATING A HOTEL/SPA. THE VENTURE WA S ENTERED TO MAKE A PROFIT AND BOTH THE PARTIES TOOK THEIR SHARE OF RISK. IN THE ABOVE CIRCUMSTANCES LD. CIT(A) WAS OF THE VIEW THAT RENTAL INCOME COULD NOT BE INCOME FROM HOUSE PROPERTY. IT COULD EITHER BE TAXED AS INCOME FROM BUSINESS OR PROFESSION OR INCOME FROM OTHER SOURCES. LD. CIT(A) IN THE ULTIMATE ANALYSIS HELD THE INCOME TO BE TAXABLE UNDER THE HEAD OTHER SOUR CES WITH THE FOLLOWING REMARKS:- 10. IN THE INSTANT CASE THE LESSOR INTENDS TO MA XIMIZE THE RETURNS ON COMMERCIAL EXPLOITATION OF THE LEASE D OUT PROPERTY AS PER THE DISCUSSION MADE IN THE ABOVE PARAGRAPH AND HENCE THE LEASING OF THE PROPERTY BY THE APPELLANT TO M/S IHHR HAS BEEN TREATED AS A SYSTEMA TIC WELL-ORGANIZED BUSINESS VENTURE. HOWEVER THE LEAS E AGREEMENT DOES NOT STIPULATE A SITUATION WHERE THE LESSEE COULD INCUR ANY MONETARY LOSSES. AT THE WORST THE LESSOR WILL RECEIVE NO MONEY TILL THE DATE OF ARRIV AL OF THE FIRST GUEST AND ONCE THE FIRST PAYING GUEST ARRIVES THE APPELLANT WOULD BE ENTITLED TO RECEIVE AT LEAST A F IXED GUARANTEED SUM OF RS.50 000/- IN THE INITIAL FIVE Y EARS BUT UNDER NO CASE THE APPELLANT WILL HAVE TO SHARE THE LOSSES IF ANY INCURRED IN THE BUSINESS OF HOTEL WITH THE L ESSEE. THEREFORE WHILE I FIND THAT THE APPELLANT HAS A DEF INITE UNDERLYING COMMERCIAL MOTIVE BEHIND THE LEASE THE DESIGN OF THE LEASE DEED DOES NOT POSE ANY RISK OF MONETARY LOSSES TO THE LESSOR IN THE VENTURE EVEN THOUGH ITA NO. 4592/D/09 7 HE HAS BIGGER RISKS INCLUDING THE DIMINUTION OF HIS TORICAL AND ROYAL VIRTUES OF THE PROPERTIES LEASED OUT. IN VIEW OF THIS I HOLD TO TAX IT UNDER THE RESIDUARY HEAD IN COME FROM OTHER SOURCES. IN VIEW OF THIS THE ENTIRE R ENTAL INCOME OF THE APPELLANT HUF IS BEING TAXED AS INCO ME FROM OTHER SOURCES. THE AO IS DIRECTED TO WORK OUT THE INCOME OF THE APPELLANT ACCORDINGLY. 6. THE ASSESSEE IS AGGRIEVED AND HAS BROUGHT THE IS SUE IN APPEAL. WE HAVE HEARD BOTH THE PARTIES AND EXAMINED THE FACTS AND CIRCUMSTANCES OF THE CASE. THERE IS NO DISPUTE ABOUT QUANTUM OF INCOME TAXED. THE ONLY DISPUTE IS THE HEAD UNDER WHICH THE INCOME IS TO BE TAXED. IT IS SETTLED LAW THAT INCOME WOULD BE TAXABLE UNDER THE HEAD OTHER SOURC ES IF IT DOES NOT FALL UNDER ANY OF THE HEADS SPECIFIED IN SECTION 14 OF T HE ACT. THE ASSESSEE CLAIMED THAT INCOME IS ASSESSABLE UNDER THE HEAD H OUSE PROPERTY. FOR DETERMINING WHETHER INCOME IS ASSESSABLE UNDER THE ABOVE HEAD WE HAVE TO LOOK INTO PROVISION OF SECTION 22 AND 23. SECTION 22 PROVIDES AS UNDER:- THE ANNUAL VALUE OF PROPERTY CONSISTING OF ANY BUILDINGS OR LANDS APPURTENANT THERETO OF WHICH THE ASSESSEE IS THE OWNER OTHER THAN SUCH PORTIONS OF SUCH PROPERTY AS HE MAY OCCUPY FOR THE PURPOSES OF ANY BUSINESS OR PROFESSION CARRIED ON BY HIM THE PROFIT S OF WHICH ARE CHARGEABLE TO INCOME TAX SHALL BE CHARGE ABLE TO INCOME TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY. 6.1 IT IS CLEAR FROM ABOVE THAT ANNUAL VALUE OF PRO PERTY CONSISTING OF ANY BUILDING OR LAND APPURTENANT WHICH IS OWNED BY THE ASSESSEE OTHER THAN SUCH ITA NO. 4592/D/09 8 PORTIONS OF THE PROPERTY AS HE MAY OCCUPY FOR THE P URPOSES OF ANY BUSINESS OR PROFESSION CARRIED ON BY HIM THE PROFITS OF WHIC H ARE CHARGEABLE TO INCOME TAX IS TO BE ASSESSED UNDER THE HEAD INCOM E FROM HOUSE PROPERTY. 6.2 IN THE PRESENT CASE THERE IS NO DISPUTE THAT A SSESSEE HUF IS THE OWNER OF BUILDING AND ALSO OF LAND APPURTENANT THERETO AN D THEREFORE ANNUAL LETTING VALUE (ALV) HAS TO BE ASSESSED. ALV IS DEFINED AN D TO BE DETERMINED AS PER SUB-SECTION (1) OF SECTION 23:- (A) THE SUM FOR WHICH THE PROPERTY MIGHT REASONAB LY BE EXPECTED TO LET FROM YEAR TO YEAR; OR (B) WHERE THE PROPERTY OR ANY PART OF THE PROPERTY IS L ET AND THE ACTUAL RENT RECEIVED OR RECEIVABLE BY THE OWNER IN RESPECT THEREOF IS IN EXCESS OF THE SUM REFERRED TO IN CLAUSE (A) THE AMOUNT SO RECEIVED OR RECEIVABLE; O R (C) WHERE THE PROPERTY OR ANY PART OF THE PROPERTY IS L ET AND WAS VACANT DURING THE WHOLE OR ANY PART OF THE PREV IOUS YEAR AND OWNING TO SUCH VACANCY THE ACTUAL RENT REC EIVED OR RECEIVABLE BY THE OWNER IN RESPECT THEREOF IS LE SS THAN THE SUM REFERRED TO IN CLAUSE(A) THE AMOUNT SO REC EIVED OR RECEIVABLE. (OTHER PORTION OF THE SECTION IS NOT RELEVANT) 6.3 IT IS CLEAR FROM THE TERMS OF THE LEASE AGREEME NT THAT THE ASSESSEE HAS LET OUT THE PROPERTY TO THE LESSEE. THE ASSESSEE O FFERED AND THE DEPARTMENT HAS ALSO ACCEPTED THAT ACTUAL RENT RECEIVED OR RECE IVABLE IS IN EXCESS OF THE SUM REFERRED TO IN CLAUSE (A) AND THEREFORE THE A CTUAL SUM RECEIVABLE UNDER THE AGREEMENT HAS BEEN BROUGHT TO TAX. IT IS THER EFORE CLEAR ON FACTS THAT ITA NO. 4592/D/09 9 INCOME IN DISPUTE IS INCOME FROM BUILDING AND LAN D APPURTENANT THERETO WHICH IS OWNED BY THE ASSESSEE AND HAS BEEN LET O UT FOR A SUM RECEIVABLE AS PROVIDED IN THE LEASE DEED. IN OUR HUMBLE OPINI ON ALL THE INGREDIENTS OF SECTION 22/23 OF THE INCOME TAX ACT ARE SATISFIED A ND THEREFORE RENTAL INCOME WAS RIGHTLY OFFERED UNDER THE HEAD HOUSE PR OPERTY AND SHOULD HAVE BEEN SUBJECTED TO TAX ACCORDINGLY. WE SEE NO LEGAL JUSTIFICATION TO HOLDING THAT RENTAL INCOME IS ASSESSABLE AS BUSINESS INCO ME OR INCOME FROM OTHER SOURCES. IN THE FOLLOWING PARAS WE PROCEED TO CO NSIDER REASONS OF THE LD. CIT(A) TO TAKE RENTAL INCOME AS INCOME FROM OTHER SOURCES. 6.4 FIRST REASON GIVEN TO REFUSE TO TAX RENTAL INCO ME UNDER THE HEAD HOUSE PROPERTY IS THAT LEASE AGREEMENT HAS PROVIDED THAT THE ASSESSEE CAN RECEIVE RS.50 000 OR 3% OF GROSS ANNUAL TURNOVER. (GREATER SUM AND GREATER SHARE IN THE SUBSEQUENT YEARS). SUCH AN ARRANGEMENT WAS TAK EN AS AN AGREEMENT TO CARRY A JOINT VENTURE OR BUSINESS. 6.5 HOWEVER IN OUR OPINION ABOVE TERM HAS BEEN MI SCONSTRUED. THE MERE FACT THAT ASSESSEE IS TO RECEIVE A SPECIFIED S HARE OF GROSS TURNOVER DOES NOT CHANGE THE CHARACTER OF THE RECEIPT. IT CANNOT BE DISPUTED THAT RS.50 000 SPECIFIED IS THE RENT PROVIDED IN THE AGREEMENT OF LEASE AND NOT TO CARRY ON A JOINT VENTURE. THE LESSOR WANTED A HIGHER AMOUNT IN CASE THE RECEIPT OF THE LESSEE FROM THE HOTEL WAS MUCH HIGHER AMOUNT. SUCH STIPULATION CAN NOT ITA NO. 4592/D/09 10 ALTER THE CHARACTER OF THE RECEIPT WHICH WAS COMPEN SATION FOR THE RIGHT TO ENJOY HOUSE PROPERTY I.E. RENT. IT IS WELL SETTLED LAW THAT RENT CAN ALSO BE FIXED ON CERTAIN PERCENTAGE OF TOTAL RECEIPT OR PRO FIT. IN SUCH CIRCUMSTANCES THE CHARACTER OF THE RENT IS NOT CHANGED. THE WORD RENT IS NOT DEFINED IN THE INCOME TAX AND THEREFORE COMMON PARLANCE MEANING OF THE WORD HAS TO BE CONSIDERED. WE MAY USEFULLY REFER TO SECTION 105 O F THE TRANSFER OF PROPERTY ACT WHERE LESSOR LESSEE PREMIUM AND RENT ARE DEFINED AS UNDER: 105. LEASES DEFINED A LEASE OF IMMOVEABLE PROPERTY IS A TRANSFER OF A RIGHT TO ENJOY SUCH PROPERTY MADE FO R A CERTAIN TIME EXPRESS OR IMPLIED OR IN PERPETUITY IN CONS IDERATION OF A PRICE PAID OR PROMISED OR OF MONEY A SHARE OF CRO PS SERVICE OR ANY OTHER THING OF VALUE TO BE RENDERED PERIODI CALLY OR ON SPECIFIED OCCASIONS TO THE TRANSFEROR BY THE TRANSF EREE WHO ACCEPTS THE TRANSFER ON SUCH TERMS. LESSOR LESSEE PREMIUM AND RENT DEFINED THE TRANSFEROR IS CALLED THE LESSOR THE TRANSFEREE IS CALLED THE LES SEE THE PRICE IS CALLED THE PREMIUM AND THE MONEY SHARE SERVICE O R OTHER THING TO BE SO RENDERED IS CALLED THE RENT. THUS RENT CAN BE IN THE SHAPE OF A SHARE OF CROP OR IT MAY BE IN THE SHAPE OF A SERVICE PROMISED TO BE RENDERED. MERELY BECAUSE IT IS A PART OF THE TURNOVER IT CANNOT BE HELD THAT IT IS SOMETHING OTHER THAN T HE RENT. THE SHARE OR THE FIXED AMOUNT STIPULATED IS BEING PAID AS A COMPENSA TION FOR THE USE OR ENJOYMENT OF BUILDING AND THE APPURTENANT LAND. IN THAT POSITION THE AMOUNT RECEIVED WAS RENT AND RENT ONLY AND NOT WHAT COULD BE TERMED AS SHARE FOR AN ITA NO. 4592/D/09 11 AGREEMENT TO CARRY ON A BUSINESS VENTURE. WE FURTH ER DO NOT FIND ANY SUPPORT FOR THE LEGAL INFERENCE THAT PROPERTY IN QU ESTION WAS A COMMERCIAL ASSET. IT IS ADMITTEDLY AN OLD PALACE WHICH WAS TR EATED AS A HOUSE PROPERTY ALL ALONG AND WAS NEVER USED AS A COMMERCIAL ASSET. 6.6 THE LEARNED DEPARTMENTAL REPRESENTATIVE DURING THE COURSE OF HEARING HAD VEHEMENTLY ARGUED THAT RENTAL INCOME CO ULD NOT BE ASSESSED UNDER THE HEAD HOUSE PROPERTY AS RENT AS IT WAS O F VOLATILE NATURE AND WAS A FLUCTUATING FIGURE. HOWEVER IN OUR OPINION ABOVE ARGUMENTS DO NOT HAVE ANY FORCE AND THE FACT THAT IT WAS FIXED AT PERCENT AGE OF TURNOVER DID NOT CHANGE ITS CHARACTER NOR CONVERTED LEASE AGREEMENT INTO AN AGREEMENT TO CARRY ON BUSINESS FOR THE REASONS STATED ABOVE. 6.7 SIMILARLY THE FACT THAT COMMENCEMENT OF THE LE ASE WOULD START ON THE ARRIVAL OF THE FIRST GUEST IN THE HOTEL OR THE LESS EE AT ITS OWN EXPENSES IS ENTITLED TO DEVELOP CERTAIN PART OF THE PROPERTY TO USE IT AS HOTEL AND A HEALTH CLUB/SPA COULD NOT CHANGE THE NATURE OF THE LEASE A GREEMENT. OTHER FACTORS LIKE ASSESSEE HAD AN OLD ROYAL PALACE LOCATED AT HI LL-TOP OVERSEEING RANGES WITH ITS HISTORICAL IMPORTANCE AND THE LESSEE HAD E XPERTISE OF DEVELOPING THE PROPERTY AND CREATING AND OPERATING OR ITS SPA COUL D NOT MAKE ANY DIFFERENCE. SUCH TERMS ARE USUALLY FOUND IN LEASE FOR A HOTEL. IT IS ABUNDANTLY CLEAR FROM THE TERMS OF THE LEASE AGREEMENT THAT BUSINESS OF H OTEL IS TO BE CARRIED ITA NO. 4592/D/09 12 EXCLUSIVELY BY THE LESSEE AND FOR USE AND ENJOYMENT OF PROPERTY HE AGREED TO PAY CONSIDERATION TO THE LESSOR. THE LESSOR WAS NOT TO PARTICIPATE IN THE BUSINESS OF THE LESSEE. TERMS OF THE LEASE CLEARLY PROVIDE THAT AMOUNT IN DISPUTE WAS AGREED TO BE PAID AS A COMPENSATION TO THE ASSESSEE FOR USE OF THE PROPERTY WHICH IS OWNED BY THE ASSESSEE. IT IS AN INCOME ASSESSABLE UNDER THE HEAD HOUSE PROPERTY. 6.8 WE DO NOT DISPUTE THAT INTENTION OF THE PARTIES IS TO BE GATHERED FROM THE TERMS OF THE AGREEMENT BETWEEN THE PARTIES AND ALSO OTHER SURROUNDING CIRCUMSTANCES. HAVING CONSIDERED THE RELEVANT MATER IAL IN THE SHAPE OF AGREEMENT AND OTHER CIRCUMSTANCES WE ARE OF CLEAR VIEW THAT INTENTION OF THE ASSESSEE IS CLEAR TO LEASE OUT THE PROPERTY FOR A C ONSIDERATION WHICH IS RENT ONLY. THERE IS NO INTENTION TO CARRY ON ANY JOINT V ENTURE OR BUSINESS WITH THE LESSEE. AS THE RENTAL INCOME CLEARLY FALLS UNDER TH E HEAD HOUSE PROPERTY INCOME THE QUESTION OF ASSESSING IT UNDER THE HEA D OTHER SOURCES CANNOT ARISE. THERE IS NO AGREEMENT TO CARRY JOINT VENTURE . PROVISIONS OF SECTIONS 22/23 OF THE INCOME-TAX ACT ARE CLEARLY APPLICABLE TO THE RENT RECEIVED. WE FIND THAT FACTS IN THE CASE OF EAST INDIA HOUSING AND LAND DEVELOPMENT TRUST LTD. VS. CIT 42 ITR 49 WERE SOMEWHAT SIMILAR TO FACTS INVOLVED IN THIS CASE. AS PER THE HEAD NOTE THEIR LORDSHIP OF THE SUPREME COURT HELD AS UNDER: ITA NO. 4592/D/09 13 THE APPELLANT COMPANY WHICH WAS INCORPORATED WITH THE OBJECTS OF BUYING AND DEVELOPING LANDED PROPERTIES AND PROMOTING AND DEVELOPING MARKETS PURCHASED 10 BIGH AS OF LAND IN THE TOWN OF CALCUTTA AND SET UP A MARKET TH EREIN. THE QUESTION WAS WHETHER THE INCOME REALIZED FROM THE T ENANTS OF THE SHOPS AND STALLS WAS LIABLE TO BE TAXED AS BUS INESS INCOME UNDER SECTION 10 OF THE INCOME-TAX ACT OR A S INCOME FROM PROPERTY UNDER SECTION 9: HELD THAT THE INCOME DERIVED BY THE COMPANY FROM S HOPS AND STALLS WAS INCOME RECEIVED FROM PROPERTY AND FELL UNDER THE SPECIFIC HEAD DESCRIBED IN SECTION 9. THE CHARACTER OF THAT INCOME WAS NOT ALTERED BECAUSE IT WAS RECEIVED BY A COMPANY FORMED WITH THE OBJECT OF DEVELOPING AND SETTING UP MARKETS. NOR BECAUSE OF THE FACT THAT THE COMPANY WAS REQUIR ED TO OBTAIN A LICENCE FROM THE CALCUTTA MUNICIPALITY TO MAINTAIN SANITARY AND OTHER SERVICES AND FOR THAT PURPOSE HA D TO MAINTAIN A STAFF AND TO INCUR EXPENDITURE DID THE I NCOME BECOME PROFITS OR GAINS FROM BUSINESS WITHIN THE MEANING OF SECTION 10. NOR WAS THE CHARACTER OF THE INCOME ALTERED MERELY BECAUSE SOME STALLS WERE OCCUPIED BY THE SAM E OCCUPANTS AND THE REMAINING STALLS WERE OCCUPIED BY A SHIFTING CLASS OF OCCUPANTS. THE PRIMARY SOURCE OF INCOME FROM THE STALLS WAS THE OCCUPATION OF THE STALLS A ND IT WAS A MATTER OF LITTLE MOMENT THAT THE OCCUPATION WHICH W AS THE SOURCE OF THE INCOME WAS TEMPORARY. INCOME-TAX IS UNDOUBTEDLY LEVIED ON THE TOTAL TAXAB LE INCOME OF THE TAXPAYER AND THE TAX LEVIED IS A SINGLE TAX ON THE AGGREGATE TAXABLE RECEIPTS FROM ALL THE SOURCES; IT IS NOT A COLLECTION OF TAXES SEPARATELY LEVIED ON DISTINCT H EADS OF INCOME. BUT THE DISTINCT HEADS SPECIFIED IN SECTION 6 OF THE INCOME-TAX ACT INDICATING THE SOURCES ARE MUTUALLY EXCLUSIVE AND INCOME DERIVED FROM DIFFERENT SOURCES FALLING U NDER SPECIFIC HEADS HAS TO BE COMPUTED FOR THE PURPOSE O F TAXATION IN THE MANNER PROVIDED BY THE APPROPRIATE SECTION. IF THE INCOME FROM A SOURCE FALLS WITHIN A SPECIFIC HEAD S ET OUT IN SECTION 6 THE FACT THAT IT MAY INDIRECTLY BE COVER ED BY ANOTHER HEAD WILL NOT MAKE THE INCOME TAXABLE UNDER THE LAT TER HEAD. ITA NO. 4592/D/09 14 6.9 IN THE CASE OF P.V.G.RAJU RAJAH OF VIZIANAGARAM VS. CIT 66 ITR 122 (AP) THEIR LORDSHIP HELD AS UNDER: HELD THAT THE LETTING OUT OF THE MARKET PROPERTY WAS ONLY A NORMAL FEATURE OF EXPLOITATION OF THE PROPERTY AS O WNER AND WAS IN NO SENSE A BUSINESS ACTIVITY EVEN THOUGH TH E TENANTS WERE DOING BUSINESS THEREIN. HENCE THE INCOME FROM THE MARKET PROPERTY WAS ASSESSABLE UNDER SECTION 9 INC OME-TAX ACT AND NOT AS BUSINESS INCOME. 6.10 IN THE CASE OF CIT VS. PODAR CEMENT PVT.LTD. 226 ITR 625 (SC) THEIR LORDSHIP OF SUPREME COURT AFTER REVIEW OF SE VERAL DECISIONS OF HIGH COURTS AND SUPREME COURT HELD THAT HOUSE PROPERTY INCOME IS TO BE ASSESSED IN THE HANDS OF THE OWNER OF THE PROPERTY. IT HAS B EEN OBSERVED AS UNDER: SECTION 9(I) OF THE INDIAN INCOME-TAX ACT 1922 W AS SUBSTANTIALLY THE SAME AS SECTION 22 OF THE INCOME- TAX ACT 1961. THE WHOLE OF SECTION 9 OF THE OLD ACT HA S BEEN SPLIT UP AND REDRAFTED INTO SEVERAL SEPARATE SECTIO NS NAMELY SECTIONS 22 TO 27 UNDER THE NEW ACT. IN JOD HA MAL KUTHIALA VS. CIT (1971) 82 ITR 570 (SC) IT WAS HELD THAT SECTION 9 OF THE 1922 ACT BRINGS TO TAX THE IN COME FROM PROPERTY AND NOT THE INTEREST OF A PERSON IN T HE PROPERTY. A PROPERTY CANNOT BE OWNED BY TWO PERSONS EACH ONE HAVING INDEPENDENT AND EXCLUSIVE RIGHT OVE R IT. HENCE FOR THE PURPOSE OF SECTION 9 OF THE 1922 ACT THE OWNER MUST BE THAT PERSON WHO CAN EXERCISE THE RIG HTS OF THE OWNER NOT ON BEHALF OF THE OWNER BUT IN HIS OWN RIGHT. THE ABOVE OBSERVATIONS OF THE SUPREME COURT CLEARLY FIX THE LIABILITY ON THE PERSON WHO RECEIVE S OR IS ENTITLED TO RECEIVE THE INCOME FROM THE PROPERTY IN HIS OWN RIGHT. ITA NO. 4592/D/09 15 IT IS CLEAR FROM ABOVE THAT HOUSE PROPERTY IS TO BE ASSESSED IN THE HANDS OF ITS OWNER. THERE IS NO DISPUTE THAT ASSESSEE HUF IS THE OWNER OF THE HOUSE PROPERTY I.E. OF BUILDING AND LAND APPURTENANT THER ETO. IT IS ENTITLED TO COMPENSATION FOR USE OF PROPERTY AS STIPULATED IN T HE LEASE DEED WHICH IS NOTHING BUT RENT WHICH HAS BEEN OFFERED AND SHOULD BE ASSESSED IN THE LIGHT OF SECTIONS 22 TO 24 OF THE INCOME-TAX ACT. IT COUL D NOT BE ASSESSED UNDER THE RESIDUARY SECTION AND AS INCOME FROM OTHER SOURCES. 7. IN THE IMPUGNED ORDER LEARNED CIT (APPEALS) HAS RELIED UPON DECISION OF SUPREME COURT IN THE CASE OF SULTAN BROTHERS PVT.LTD. VS. CIT 51 ITR 353. THE SAID DECISION IS NOT APPLICABLE TO THIS CASE AS FACTS IN THAT CASE WERE QUITE DIFFERENT. IN THAT CASE THERE WAS COMPOSITE LETTING OF BUILDING FITTED WITH FURNITURE AND FIXTURE AND QUES TION AROSE OF ASSESSMENT U/S 12(4) OF THE INCOME-TAX ACT 1922 WHICH PROVIDE D AS UNDER: 12(1) THE TAX SHALL BE PAYABLE BY AN ASSESSEE UNDE R THE HEAD INCOME FROM OTHER SOURCES IN RESPECT OF INCO ME PROFITS AND GAINS OF EVERY KIND WHICH MAY BE INCLUD ED IN HIS TOTAL INCOME (IF NOT INCLUDED UNDER ANY OF THE PRECEDING HEADS). .. (4) WHERE AN ASSESSEE LETS ON HIRE MACHINERY PLANT OR FURNITURE BELONGING TO HIM AND ALSO BUILDINGS AND THE LETTING OF THE BUILDINGS IS INSEPARABLE FROM THE LE TTING OF THE SAID MACHINERY PLANT OR FURNITURE HE SHALL BE ITA NO. 4592/D/09 16 ENTITLED TO ALLOWANCES IN ACCORDANCE WITH THE PROVI SIONS OF CLAUSES (IV) (V) (VI) AND (VII) OF SUB-SECTION (2) OF SECTION 10 IN RESPECT OF SUCH BUILDINGS. 7.1 IN THE PRESENT CASE THERE IS NEITHER ANY COMPO SITE LEASE OF BUILDING MACHINERY OR PLANT NOR ANY SECTION LIKE 12(4) OF OL D ACT IS UNDER CONSIDERATION. FACTS INVOLVED ARE TOTALLY DIFFERENT . THEREFORE ABOVE CASE IS DISTINGUISHABLE. 7.2 IN THE LIGHT OF ABOVE DISCUSSION WE SET ASIDE IMPUGNED ORDER OF CIT (APPEALS) AND DIRECT THE ASSESSING OFFICER TO ASSES S RENTAL INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND ALLOW CONSEQU ENTIAL BENEFITS TO THE ASSESSEE. 8. IN THE RESULT ASSESSEES APPEAL IS ALLOWED IN T ERMS STATED ABOVE. PRONOUNCED IN OPEN COURT ON 23.4.2010. SD/- SD/- (K.G.BANSAL) (VIMAL GANDHI) ACCOUNTANT MEMBER PRESIDENT DATED: APRIL 23 RD 2010. GS/DRS COPY TO: 1. MAHARAJA MANABENDRA SHAH (HUF) 5 BHAGWAN DAS ROAD NEW DELHI. 2. ITO WARD 31(1) NEW DELHI. 3. CIT 4.CIT(A) XXVI NEW DELHI. 5. DR BY ORDER DY.REGISTRAR ITAT ITA NO. 4592/D/09 17