* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ITA No.654/2008
# CIT, DELHI-IV, NEW DELHI ..... Appellant
Through: Ms. P.L. Bansal with
Mr. M.P. Gupta &
Mr. Sanjeev Rajpal,
Advs.
versus
$ D.S. PROMOTERS & DEVELOPERS PVT. LTD..... Respondent
^ Through: Mr. Kaanan Kapur, Adv.
Date of Hearing : April 22, 2009
% Date of Decision : May 01, 2009
CORAM:
* HON'BLE MR. JUSTICE VIKRAMAJIT SEN
HON'BLE MR. JUSTICE RAJIV SHAKDHER
1. Whether reporters of local papers may be
allowed to see the Judgment? Yes
2. To be referred to the Reporter or not? Yes
3. Whether the Judgment should be reported
in the Digest? Yes
VIKRAMAJIT SEN, J.
1. Admit. The following questions, as have been proposed on
behalf of the Revenue in this Appeal, are framed:-
a) Whether ITAT was correct in law in treating the
amount of Rs.15,07,644/- received by the assessee from
J&K Bank Ltd. as “Business Income” and not “Income
from Other Sources”?
(b) Whether ITAT was correct in law in treating the
amount of Rs.52,80,000/- received by the assessee from
Total Care(India) Pvt. Ltd. as “Business Income” and not
“Income From Other Sources”?
ITA No.654/2008 Page 1 of 9
(c) Whether ITAT was justified in law in treating the
receipt of Rs.51,00,000/- from Shivalik Tyres Limited as
“Business Income” and not “Income from Other Sources”?
2. This Appeal under Section 260A of the Income Tax Act, 1961
(Act for short) assails the concurrent findings of the CIT(A) and the
ITAT to the effect that the rental income received by the Assessee
from J&K Bank Limited in respect of its property at Lajpat Nagar,
New Delhi was business income; that the income received by the
Assessee from Total Care (India) Pvt. Ltd. as well as Shivalik Tyres
Ltd. in respect of the building in South Extension, New Delhi was
also business income. The Lajpat Nagar property is directly owned
by the Assessee, whereas the South Extension property has been
leased out to the Assessee. Section 22 of the Act prescribes that
the annual value of property, of which the Assessee is the owner,
other than such portions of such property as he may occupy for the
purposes of any business shall be chargeable to Income Tax under
the head “Income from house property”. If the property is
exploited as a business, the profits and gains derived from the
business are chargeable to Income Tax under the head “Profit and
Gains of business or profession” in terms of Section 28 of the Act.
Incomes, which do not fall in heads of income carved out under the
Act, viz. Salaries, or Income from House Property, or Profits and
gains of business or profession, or Capital gains are subject to
Income Tax under the head “Income from any other sources”.
ITA No.654/2008 Page 2 of 9
3. The case of the Revenue argued before us, as was
unsuccessfully done before the CIT(A) as well as the ITAT, is that
the income derived by the Assessee from the two properties is
taxable as “Income from other sources”. Deductions available to
the Assessee under the head “Profits and gains of business” are
wider and more beneficial than what is available under the head
“Income from other sources”.
4. It is always salutary to keep in sight the enunciation of the
law in K.Ravindranathan Nair -vs- CIT, [2001] 247 ITR 178(SC) :
2001(1) SCC 135 to the effect that the Tribunal is the final fact
finding Authority and its decision can be successfully assailed
before the High Court only if it is palpably perverse. Perversity has
been defined as indicative of an action, opinion or conclusion
which could not reasonably be arrived at. Even an incorrect
conclusion would be perverse or mala fide only if it is patently
deliberate. Very recently, this view finds reiteration in CIT -vs-
Mukundray K. Shah, [2007] 290 ITR 433(SC) where their
Lordships have observed that the High Court ought not to have
interfered with a finding of fact which was not perverse. In CIT -vs-
P. Mohanakala, (2007) 6 SCC 21 the Supreme Court has held that
the concurrent findings of fact, predicated on material available on
the record, cannot constitute questions of law much less
substantial questions of law. A similar appreciation of law is to be
found in Commissioner of Agricultural Income Tax -vs- M.N. Moni,
ITA No.654/2008 Page 3 of 9
(2007) 10 SCC 584 decided by a Three-Judge Bench. In T.Ashok Pai
-vs- CIT, Bangalore, (2007) 7 SCC 162 their Lordships have held
that the High Court should not ordinarily disturb the finding by the
ITAT on questions of fact and a question of law would arise, if at
all, only after accepting the findings of fact to be correct. In Sir
Shadi Lal Sugar and General Mills Ltd. -vs- CIT, Delhi, (1987) 4
SCC 722 it has been opined that the High Court on a Reference
was not justified in interfering with findings of fact arrived at by
the Tribunal which had been rendered only after duly considering
the entire evidence. In CIT, Gujarat -vs- Cellulose Products of India
Ltd., (1991) 4 SCC 467 a Three-Judge Bench observed that once
“the tribunal after considering the evidence produced before it on
a question of fact records its finding, it cannot be interfered with in
a reference by the High Court unless such finding was not
supported by the evidence, was perverse or patently
unreasonable”.
5. The leading case pertaining to the head under which
“income from property” is to be assessed to Income Tax is Sultan
Brothers Private Ltd. -vs- CIT, Bombay City II, [1964] 51 ITR 353.
The Assessee had constructed a building which it had fitted with
fixtures and furnishings and had let it out on lease fully equipped
and furnished for the purposes of running a hotel at a monthly rent
of Rupees 5,950/- and monthly hire of Rupees 5,000/-. Their
Lordships noted that the object of the Assessee was to acquire land
ITA No.654/2008 Page 4 of 9
and buildings and after investments either sell or let them out. It
was laid down that whether a particular letting is business activity
or otherwise has to be decided in the circumstances of the each
case; the determination would be from the perspective of the
businessman; a commercial asset is only an asset used in a
business and nothing else. In East India Housing and Land
Development Trust Ltd. -vs- CIT, West Bengal, [1961] 42 ITR 49 it
has been held that income derived from the shops and stalls
constructed by the Assessee was income received from property
and did not partake of the nature of income from profits and gains
from business. Karanpur Development Co. Ltd. -vs- CIT, West
Bengal, [1962] 44 ITR 362 lays down that the transactions of
acquiring leases and granting sub-leases are in the nature of
trading within the objects of the company and not enjoyment of
property as land owner. Ownership of property and leasing it out
could either be as business or as a land owner and the
arrangement determines in which of the two categories it falls. It is
the substance and not the form of the matter that must be
ascertained. S.G. Mercantile Corporation P. Ltd. -vs- CIT, Calcutta,
[1972] 83 ITR 700 is a precedent for the proposition that dealing
with any real property, as also the activity of taking a property on
lease, setting up a market thereon and letting out shops and stalls
in the market can constitute business activity. Our attention has
been drawn to CIT -vs- Chennai Properties and Investments Ltd.,
ITA No.654/2008 Page 5 of 9
[2004] 266 ITR 685 where the Division Bench of the Madras High
Court had come to the conclusion that the assessee, as owner of
the building, intended only to realize rent by leasing out the
property and consequently the income could not have been
assessed to tax as profits and gains from business. This was also
the verdict in CIT -vs- Superfine Cables P. Ltd., [1985] 154 ITR
532(Del).
6. This distillation of precedents must now be applied by us to
the facts of the case. As has already been noted, the Assessee was
the owner of property in Lajpat Nagar. Specially noted was the fact
that the prominent object of the Assessee is “to purchase develop,
take in exchange or on lease or otherwise acquire lands, houses,
farm house, buildings, sheds industrial or otherwise and other
fixtures on land and buildings and to let them out on lease, rent,
contract or any other agreements as may be deemed fit to or but,
construct improve, sell ,exchange mortgage lands, houses, flats,
sheds, factories sheds and buildings apartments to any person on
terms and conditions as may be deemed fit or to hold, maintain
sell, allot, houses apartments, sheds or buildings thereof to the
shareholders or to any other person”. Even after scrutiny carried
out for Assessment Year 1997-1998 to 2000-2001 the receipts were
accepted as business income, which was indubitably a plausible
view. Since no fresh facts had been brought to light, the
consistency rules had been applied. We find no error in this
ITA No.654/2008 Page 6 of 9
conclusion. Question (a) is answered in the affirmative and in
favour of the Assessee.
7. On the second question, the Assessing Officer had arrived at
the conclusion that the transaction between the Assessee and Total
Care (India) Pvt. Ltd. was not a business arrangement and on the
understanding of the various clauses of the Franchise Agreement
dated 1.5.2000 concluded that it was essentially a letting of
property. However, since the Assessee was not an owner thereof, it
could obviously not have been taxed under the head of “Income
from house property” and, therefore, would have to be assessed
under the head “Income from other sources”. The CIT(A) has also
discussed the various clauses in the Franchise Agreement in great
depth and detail, but has held that the income/commission
received by the Assessee from Total Care(India) Pvt. Ltd. was
business income. He observed that the premises were chosen by
Total Care(India) Pvt. Ltd. firstly because of the location and
secondly because of the large number of walk-ins since a
restaurant, as well as a Bar, was being run within the same
building; the businesses were complimentary to each other; the
appellant had covenanted not to open a competing business; Total
Care(India) Pvt. Ltd. relied on the expertise of the Assessee with
respect to display of goods; the appellant exercised control over
the opening and closing of the showroom by Total Care(India) Pvt.
Ltd.; since Total Care(India) Pvt. Ltd. could not achieve desirable
ITA No.654/2008 Page 7 of 9
levels of sales, the Agreement had been terminated. In its place a
restaurant by the name of Gourmet Gallery had been opened. The
Tribunal had also made an in-depth study of the agreements as
also the user to which the entire building in South Extension had
been put. It noted that the business of the Assessee, apart from
dealing in properties, was also the running of restaurants; that the
assessee’s purpose was to commercially exploit the business asset,
that is, building in South Extension in respect of which it had
invested a sum of approximately Rupees 1.3 crores for renovations;
that the premises have been earlier utilized to run a store selling
garments under the trade name Golden Arch. The thinking of the
Tribunal was largely influenced by the manner in which the entire
building had been utilised. We find no reason to dislodge the
concurrent findings of fact, as there is no perversity in the
conclusion arrived at. Question (b) is accordingly answered in the
affirmative and in favour of the Assessee.
8. So far as the third question is concerned, the CIT(A), as well
as the ITAT, had taken note of the fact that the Assessee had also
been in the restaurant business. All throughout the Assessee was
also running its own Bar and had even offered the use of its Bar
Licence to Shivalik Tyres Ltd., in the event that the latter had
failed to obtain its own. Shivalik Tyres Ltd. was already engaged
in the business of restaurant in the name of Orlando at Noida,
whilst the Assessee was running Gourmet Gallery. The Assessee
ITA No.654/2008 Page 8 of 9
had taken a decision to exploit its business assets by entering into
an arrangement with Shivalik Tyres Ltd. related to the restaurant
business. The fact that the minimum guarantee amount was
stipulated in the agreement to ensure the minimum returns of the
investment made by the Assessee could as well be a business
decision as it could be a lease agreement. Nothing turns on it.
Since these concurrent findings of fact are not perverse and to the
contrary are relevant, Question (c) is answered in the affirmative
and in favour of the Assessee.
9. The Appeal is dismissed but with no orders as to costs.
( VIKRAMAJIT SEN )
JUDGE
May 01, 2009 ( RAJIV SHAKDHER )
tp JUDGE
ITA No.654/2008 Page 9 of 9