Kenton Leisure ServicesLtd, Trivandrum V. ACIT, Trivandrum

ITA 291/COCH/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52334 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 10-10-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 30-04-2010
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA
• Assessee Lawyers: T M SREEDHARAN SR ADV
• Keywords: Business income; Search and seizure; Source of fund
• Section: 143(3); 56; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND SANJAY AROR A, AM I.T.A NOS. 171/COCH/2009 & 291/COCH/2010 ASSESSMENT YEARS:2004-05 & 2006-07 M/S. KENTON LEISURE SERVICES, P. LTD., TCS EXECUTIVE HOSTEL, ATTINKUZHY, KAZHAKUTTOM, TRIVANDRUM. [PAN:AABCK 1608G] VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(1), TRIVANDRUM. (ASSESSEE-APPELLANT) (REVENUE- RESPONDENT) ASSESSEE BY SHRI T.M.SREEDHARAN, SR. ADV.-AR REVENUE BY MS. S. VIJAYAPRABHA, JR. DR DATE OF HEARING 10/10/2011 DATE OF PRONOUNCEMENT 30/12/2011 O R D E R PER SANJAY ARORA, AM: THESE ARE A SET OF TWO APPEALS BY THE ASSESSEE CO NTESTING THE SEPARATE ORDERS BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, TRIVAND RUM (THE CIT(A) FOR SHORT), I.E., DATED 16/12/2008 AND 25.2.2010, IN ITS CASE FOR THE ASSESSMENT YEARS (A.Y.) 2004-05 AND 2006-07, CONFIRMING THE ASSESSMENTS AS FRAMED U/S. 143(3) OF THE INCOME-TAX ACT, 1961 ('THE ACT', HEREINAFTER) VIDE ORDERS DATED 7.12.200 6 AND 19.12.2008 FOR THE SUCCESSIVE YEARS RESPECTIVELY. THE SUBJECT MATTER OF THE APPEA LS BEING THE SAME, THE SAME WERE TAKEN FOR HEARING TOGETHER, AND ARE BEING DISPOSED OF VID E A COMMON, CONSOLIDATED ORDER. 2. AT THE VERY OUTSET, THE LD. AR CLARIFIED TH AT THE ABSENCE OF ANY APPEAL BY THE ASSESSEE FOR THE INTERVENING PERIOD, I.E., 2005-06, IS FOR THE REASON THAT THE RETURN FOR THAT I.T.A. NOS.171/COCH/2009 & 291/COCH/2010 KENTON LEISURE SERVICES (P.) LTD. V. DY. CIT, TRIVA NDRUM 2 YEAR WAS ACCEPTED BY THE REVENUE AS SUCH U/S. 143(1 ), AND NOT SUBJECT TO SCRUTINY ASSESSMENT. 3.1 THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY IN THE HOSPITALITY BUSINESS. IT ENTERED INTO THREE SEPARATE AGREEMENTS OF EVEN D ATE, I.E., 03.8.1999, WITH M/S. TATA SONS LIMITED (ACTING THROUGH ITS DIVISION `TATA CON SULTANCY SERVICES, MUMBAI (`TCS FOR SHORT)). THE FIRST AGREEMENT WAS FOR CONSTRUCTI ON OF HOSTEL/TRANSIT FACILITY, SO AS TO PROVIDE RESIDENTIAL ACCOMMODATION FOR ITS (THE LAT TERS) TRAINEES/NEW RECRUITS, BEING TRAINED AT TRIVANDRUM FOR THE TIME BEING. THE ASSES SEE, STATED TO BE ENGAGED IN PROVIDING HOSTEL FACILITIES AND OTHER RELATED SERVICES, WAS T O CONSTRUCT THE SAID HOSTEL AT ITS COST (ON A LAND ALREADY ACQUIRED BY IT, I.E., DULY IDENTIFIED IN THE AGREEMENT), CONSISTING OF 150 ROOMS (AND LATER EXTENDED TO 175 ROOMS) AND OTHER F ACILITIES, WITHIN A PERIOD OF 18 MONTHS FROM THE DAY THE CONSTRUCTION ACTIVITY IS CO MMENCED. THE DESIGN OF THE BUILDING WAS TO BE MADE BY AN ARCHITECT, AS APPROVED BY TCS. THE HOSTEL WAS CONTEMPLATED TO CONTAIN ALL AMENITIES, SUITABLY WELL-FURNISHED AND EQUIPPED IN ACCORDANCE WITH SCHEDULE III TO THE AGREEMENT. THE ASSESSEE-PROMOTER IS FURT HER OBLIGED TO GIVE THE HOSTEL PREMISES ON LEASE TO TCS PER A SEPARATE AGREEMENT. IT IS ALS O REQUIRED TO PROVIDE AND MAINTAIN THE NECESSARY AMENITIES AND FACILITIES, THE TERMS AND C ONDITIONS OF WHICH STAND AGREED TO PER A SEPARATE AGREEMENT. THE CONSIDERATION FOR THE SAID CONSTRUCTION AGREEMENT IS AN INTEREST- FREE DEPOSIT FOR A SUM OF ` 99 LAKHS BY TCS WITH THE ASSESSEE AT THE TIME OF EX ECUTION OF THE AGREEMENT FOR THE TERM OF THE LEASE. THE SAME W OULD BE HOWEVER REFUNDABLE (ALONG WITH INTEREST AT 18% PER ANNUM) UNDER CERTAIN SPECI FIC CIRCUMSTANCES SET OUT IN SCHEDULE II OF THE AGREEMENT, BEING PRINCIPALLY THE FAILURE ON THE PART OF THE ASSESSEE-LESSOR TO FULFIL ITS OBLIGATIONS UNDER THE CONTRACT AND, IN ANY CASE , UPON EXPIRY OF THE LEASE. THE ASSESSEE, NEVERTHELESS, HAS TO FURNISH A BANK GUARANTEE (FROM A REPUTED BANK AS APPROVED BY THE TCS) FOR AN AMOUNT NO LESS THAN THE AMOUNT PLACED A S DEPOSIT BY IT WITH THE ASSESSEE. THE ASSESSEE WAS FURTHER REQUIRED TO MAINTAIN THE HOSTE L FACILITIES AS WELL AS SUFFICIENTLY INSURE IT AGAINST ALL RISKS WHATSOEVER. THE SECOND AGREEME NT IS A LEASE AGREEMENT, WHICH IS TO COMMENCE WITHIN 30 DAYS OF THE COMPLETION OF THE HO STEL FACILITIES, PER WHICH THE SAID HOSTEL IS LEASED TO THE TCS-LESSEE FOR TERM OF 10 Y EARS, RESERVING A RENT FOR THE ENTIRE I.T.A. NOS.171/COCH/2009 & 291/COCH/2010 KENTON LEISURE SERVICES (P.) LTD. V. DY. CIT, TRIVA NDRUM 3 PERIOD OF THE LEASE. THE LESSOR IS TO PAY ALL THE T AXES IN RELATION TO THE BUILDING, I.E., AS MAY BE LEVIED BY THE MUNICIPALITY OR ANY OTHER AUTH ORITY, AS WELL AS TO KEEP THE PREMISES IN GOOD AND TENABLE REPAIRS. THE THIRD AGREEMENT IS AGAIN AN AGREEMENT FOR PROVISION AND MAINTENANCE OF AMENITIES AND FACILITIES DURING THE PERIOD OF THE LEASE. THE SAME DETAILS THE VARIOUS AMENITIES AND FACILITIES, VIZ., LAUNDRY FACILITIES, HEALTH CLUB, MULTI-CUISINE RESTAURANT, RECREATION/SPORTS ROOMS, ETC. TO BE PRO VIDED BY THE LESSOR FOR THE HOSTEL. 3.2 WHILE THE ASSESSEE RETURNED THE ENTIRE RECEIPTS , I.E., FROM THE SAID THREE AGREEMENTS, AS A PART OF ITS BUSINESS RECEIPTS FOR THE YEAR, THE REVENUE HAS SEGREGATED THE LEASE RENT OF HOSTEL BUILDING AND, ACCORDINGLY, ASS ESSED IT AS INCOME FROM HOUSE PROPERTY. THE ASSESSEES CASE IS THAT THE THREE AGREEMENTS CO NSTITUTE A PART OF A COMPOSITE ARRANGEMENT ENTERED INTO BY IT WITH THE TCS, I.E., FOR PROVISION OF HOSTEL FACILITIES. ACCORDINGLY, THE SAME CONSTITUTES A PART OF THE SAM E INDIVISIBLE `BUSINESS, AND THERE IS THEREFORE NO SCOPE FOR ARTIFICIALLY SEGREGATING THE TWO, I.E., ONE QUA HOUSE PROPERTY, AND THE OTHER QUA BUSINESS. THE REVENUES CASE IS THAT THE THREE AGR EEMENTS, THOUGH RUNNING CONCURRENTLY, RESERVES SEPARATE RIGHTS AND DUTIES F OR THE PARTIES THERE-TO. AS SUCH, WHERE THE CONSIDERATION FOR THE LEASE HAS BEEN SEPARATELY DEFINED AND ENUMERATED, THE SAME WOULD ONLY CONSTITUTE INCOME FROM HOUSE PROPERTY. IN FACT, EVEN WHERE THERE IS A COMPOSITE AGREEMENT, SO THAT AN INDIVISIBLE CONSIDE RATION IS PROVIDED THEREFOR, I.E., THE RENT RECEIVED/RECEIVABLE FROM THE HOUSE PROPERTY, A S WELL AS THE PROVISION OF AMENITIES/FACILITIES, THE HIGHER COURTS OF LAW HAVE APPROVED THE PRINCIPLE OF ALLOCATION OF SUCH CONSIDERATION REASONABLY INTO THAT FOR THE TWO IDENTIFIABLE SOURCES OF INCOME, SO THAT THE RENT IS ASSESSED UNDER CHAPTER IV-C OF THE ACT, I.E., AS INCOME FROM HOUSE PROPERTY (REFER: ATTUKAL SHOPPING COMPLEX VS. CIT , 259 ITR 567 (KER.). RELIANCE IS ALSO PLACED BY IT IN THE CASE OF SHAMBHU INVESTMENTS VS. CIT (2003) 263 ITR 143(SC). 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 4.1 THE RESPECTIVE CASES OF BOTH THE PARTIES HA VE BEEN SET OUT EVEN IN THE EARLIER PART OF THE ORDER, SO THAT WE MAY DWELL ON THE SAME HERE. T HE QUESTION BEFORE US IS THE HEAD OF I.T.A. NOS.171/COCH/2009 & 291/COCH/2010 KENTON LEISURE SERVICES (P.) LTD. V. DY. CIT, TRIVA NDRUM 4 INCOME UNDER WHICH THE INCOME FROM THE LETTING OF T HE BUILDING, USED AS A HOSTEL PREMISES/TRANSIT FACILITY, EARNED PER A LEASE AGREE MENT, IS TAXABLE; THE ACT PROVIDING FOR HEADS OF INCOME WHICH ARE MUTUALLY EXCLUSIVE. THE M ATTER, CLEARLY, IS A MIXED QUESTION OF FACT AND LAW. WE SHALL ADDRESS THE LEGAL ASPECT FI RST. INCOME IS TAXABLE AS `INCOME FROM HOUSE PROPERTY WHERE IT IS DERIVED FROM THE EXERCI SE OF PROPERTY RIGHTS, SO CALLED. THAT IS, WHICH THE PROPRIETOR OF THOSE RIGHTS DERIVES EITHER BY ENJOYING THE POSSESSION OR BY PARTING WITH IT BY LETTING THE PROPERTY TO TENANTS. BUSINESS INCOME, ON THE OTHER HAND, ARISES OUT OF ACTIVITIES WHICH CAN BE PROPERLY CALL ED AS CONSTITUTING A `BUSINESS. LEASING ACTIVITY, IT IS AGAIN WELL-SETTLED, WOULD NOT BY IT SELF QUALIFY TO BE A BUSINESS, IN THE SENSE THAT THE INCOME THEREFROM IS ASSESSABLE AS BUSINESS INCOME, IN VIEW OF THE FACT THAT INCOME RECEIVED FROM HOUSE PROPERTY HAS BEEN MADE S PECIFICALLY ASSESSABLE UNDER A SEPARATE HEAD OF INCOME UNDER THE ACT. THE CHARACTE R OF THE INCOME WOULD NOT ALTER JUST BECAUSE IT IS RECEIVED BY A COMPANY FORMED WITH THE OBJECT OF DEVELOPING PROPERTY AND TURNING IT INTO ACCOUNT. THE QUESTION, THUS, THAT ARISES IS, WHETHER THE FACTS AS DETERMINED SHOW THE INCOME AS ARISING OUT OF A SINGLE SOURCE O R TWO SOURCES. THAT IS, WHETHER THE SERVICES RENDERED WERE MERELY INCIDENTAL TO THE LET TING OF HOUSE PROPERTY, OR COULD BE PROPERTY CATEGORISED AS A SEPARATE SOURCE OF INCOME . THIS CAPSULES THE CONTROVERSY ATTENDING THIS CASE, THE RELEVANT FACTS IN RESPECT OF WHICH HAVE AGAIN BEEN SET OUT HEREINBEFORE. 4.2 IN OUR VIEW THE ANSWER TO THE QUESTION AFORE-RE FERRED LIES IN ANSWERING THE QUESTION AS TO WHETHER IT IS A CASE OF INSEPARABLE LETTING, OR NOT SO. WE SAY SO AS THE THIRD AGREEMENT, I.E., FOR THE PROVISION AND MAINTENANCE OF AMENITIES AND FACILITIES, IS ALSO NOTHING BUT A LEASE AGREEMENT; ITS CLAUSE (1)(A) RE ADING AS UNDER:- 1(A) THE LESSOR HEREBY AGREES TO PROVIDE THE LESSE E AND MAINTAIN IN THE PREMISES DEMISED THE AMENITIES AND FACILITIES SPEC IFIED HEREIN FOR THE DURATION OF THE LEASE UPON THE LESSEE PAYING THE MONTHLY CHARG ES HEREUNDER RESERVED. THE LAW, PER S. 56 (2)(III), REPRODUCED HEREUNDER, PROVIDES AN EXCEPTION TO INCOME FROM LETTING OF HOUSE PROPERTY BEING ASSESSABLE AS `BUSINESS INCOME OR AS `INCOME FROM I.T.A. NOS.171/COCH/2009 & 291/COCH/2010 KENTON LEISURE SERVICES (P.) LTD. V. DY. CIT, TRIVA NDRUM 5 OTHER SOURCES, WHERE THE SAME ARISES INTEGRALLY TO THE LETTING OF A PLANT, MACHINERY, OR FURNITURE. THIS IS AS, EVEN AS EXPLAINED BY THE AP EX COURT PER ITS FIVE-MEMBER CONSTITUTION BENCH DECISION IN THE CASE OF SULTAN BROS. PVT. LTD. VS. CIT (1964) 51 ITR 353 (SC), IS FOR THE REASON THAT IT THEN BECOMES A NEW KIND OF I NCOME, NOT COVERED U/S. 9 (OF THE 1922 ACT, CORRESPONDING TO S. 22 OF THE 1961 ACT). THAT IS, INCOME, NOT FROM THE OWNERSHIP OF THE BUILDING ALONE, BUT AN INCOME WHICH THOUGH ARIS ING FROM BUILDING, WOULD NOT HAVE ARISEN IF THE PLANT, MACHINERY, OR FURNITURE HAD N OT BEEN LET ALONG WITH I T: INCOME FROM OTHER SOURCES. `56(1) INCOME OF EVERY KIND WHICH IS NOT TO BE EXCL UDED FROM THE TOTAL INCOME UNDER THIS ACT SHALL BE CHARGEABLE TO INCOME-TAX UNDER THE HEA D INCOME FROM OTHER SOURCES, IF IT IS NOT CHARGEABLE TO INCOME-TAX UNDER ANY OF THE HE ADS SPECIFIED IN S. 14, ITEMS A TO E. (2) IN PARTICULAR, AND WITHOUT PREJUDICE TO THE GEN ERALITY OF THE PROVISIONS OF SUB-SECTION (1), THE FOLLOWING INCOMES, SHALL BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD INCOME FROM OTHER SOURCES, NAMELY:- (I).. (IA) (II).. (III) WHERE AN ASSESSEE LETS ON HIRE MAC HINERY, PLANT OR FURNITURE BELONGING TO HIM AND ALSO BUILDINGS, AND THE LETTING OF THE BUIL DINGS IS INSEPARABLE FROM THE LETTING OF THE SAID MACHINERY, PLANT OR FURNITU RE, THE INCOME FROM SUCH LETTING, IF IT IS NOT CHARGEABLE TO INCOME-TAX UNDE R THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION; (IV) IT FURTHER GOES ON TO EXPLAIN THE CONCEPT OF INSEP ARABLE LETTING AS NOT ONE WHERE THE TWO, I.E., THE BUILDING AND PLANT, MACHINERY OR FURNITURE, ARE INSEPARABLY CON NECTED WHEN LET OUT, BUT THAT THE LETTING OF ONE IS INSEPARABLE FRO M THAT OF THE OTHER. THAT IS, THE INSEPARABILITY REFERRED TO IN SEC. 56(2)(III) IS ON E ARISING FROM THE INTENTION OF THE PARTIES TO THE ARRANGEMENT. 4.3 THE QUESTION, THUS, BOILS DOWN TO THE INTENT ION OF THE PARTIES. THE SAME HAS NECESSARILY TO BE INFERRED FROM THE AGREEMENTS ENTE RED INTO BETWEEN THEM, AND OF COURSE, THE SUBSEQUENT CONDUCT IN PURSUANCE THERETO. THE HO NBLE APEX COURT HAS TOWARD THIS I.T.A. NOS.171/COCH/2009 & 291/COCH/2010 KENTON LEISURE SERVICES (P.) LTD. V. DY. CIT, TRIVA NDRUM 6 FRAMED THE FOLLOWING QUESTIONS IN THE CASE OF SULTAN BROS. PVT. LTD. VS. CIT (SUPRA) (PG. 363,364), AS:- A) WAS IT THE INTENTION IN MAKING THE LEASE - AND IT MATTERS NOT WHETHER THERE IS ONE LEASE OR TWO, THAT IS, SEPARATE LEASES IN RESPECT OF FURNITURE AND BUILDING - THAT THE TWO SHOULD BE ENJOYED TOGETHER? B) WAS IT THE INTENTION TO MAKE LETTING OF THE TWO PRACTICALLY ONE LETTING? C) WOULD ONE HAVE BEEN LET ALONE AND A L EASE OF IT ACCEPTED WITHOUT THE OTHER? IF THE ANSWER TO THE FIRST TWO QUESTIONS IS IN THE AFFIRMATIVE, AND THE LAST IN THE NEGATIVE, IT WAS HELD BY IT THAT THEN IT HAS TO BE SAID THAT THE LETTINGS ARE INSEPARABLE. 4.4 WE MAY NOW EXAMINE THE FACTS OF THE CASE. SIMPLY PUT, WOULD THE ASSESSEE- COMPANY UNDERTAKE THE CONSTRUCTION OF THE HOSTEL PR EMISES, IF NOT ACCOMPANIED BY THE LEASE AGREEMENT IN ITS RESPECT, AS WELL AS FOR THE PROVISION OF FACILITIES TO THE LESSEE- COMPANY. IN OUR VIEW, THE ANSWER, AS BORNE OUT OF THE AGREEMENTS BETWEEN THE PARTIES AND THEIR CONDUCT, IS CLEARLY IN THE NEGATIVE. IN F ACT, IN OUR VIEW, THERE IS ESSENTIALLY ONLY ONE AND NOT THREE , AGREEMENTS. THE `AGREEMENT FOR LEASE AND THE `A GREEMENT FOR PROVISION OF FACILITIES FORM PART OF THE CONSTRUCT ION AGREEMENT, THE PARENT AGREEMENT, AS ABUNDANTLY CLARIFIED VIDE CLAUSE (6) THEREOF. THE PREAMBLE TO THE LEAS AGREEMENTS, AS WELL AS THE CLAUSES THEREOF, WHICH WE MAY ADVERT TO FOR THE PURPOSE, WOULD CLARIFY THIS BEYOND DOUBT: AGREEMENT TO LEASE ` AND WHEREAS IT WAS ONE OF THE CONDITIONS OF THE AG REEMENT OF CONSTRUCTION THAT UPON THE HOSTEL FACILITIES BEIN G COMPLETED THE LESSOR WILL GRANT UNTO THE LESSEE A LEASE OF THE HOSTEL FACILITIES ( HEREINAFTER CALLED THE PREMISES) SUBJECT TO THE PERIOD OF LEASE AND PAYMENT OF RENT HEREINAFTER RESERVED AND SHALL PROVIDE IN THE PREMISES THE AMENITIES AND FACILITI ES AND MAINTAIN THE SAID AMENITIES AND FACILITIES DURING THE PERIOD OF THE LEASE IN THE MANNER SPECIFIED IN THE AGREEMENT FOR PROVISION AND MAINTENANCE OF AM ENITIES AND FACILITIES. I.T.A. NOS.171/COCH/2009 & 291/COCH/2010 KENTON LEISURE SERVICES (P.) LTD. V. DY. CIT, TRIVA NDRUM 7 NOW THESE PRESENTS WITHNESSTH AND IT IS HEREBY AGR EED BY AND BETWEEN THE PARTIES HERETO AS FOLLOWS: 1A. THE LESSOR HEREBY AGREES TO DEMISE UN TO THE LEASE THE PREMISES TOGETHER WITH ALL FIXTURES, FITTINGS, APPURTENANCES THERE-TO AND STAIRS, LIFTS AND COMMON AREAS TO HOLD UNTO THE LESSEE UPON PAYING THE MONTHLY RENT HERE- UNDER RESERVED. (PB PG. 44) AGREEMENT FOR PROVISION AND MAINTENANCE OF AMENITIE S AND FACILITIES `WHEREAS UNDER AN AGREEMENT TO LEASE MADE BETWEEN THE LESSOR AND THE LESSEE HERETO, THE LESSOR AGREED TO GRANT ON LEASE THE HO STEL FACILITIES CONSISTING OF 150 ROOMS TOGETHER WITH OTHER AMENITIES AS DESCRIBED I N THE SAID AGREEMENT DATED - AND WHEREAS IT WAS ONE OF THE CONDITIONS OF THE S AID AGREEMENTS THAT UPON THE HOSTEL FACILITIES BEING COMPLETED AND THE LESSOR G RANTING UNTO THE LESSEE A LEASE OF THE HOSTEL FACILITIES (HEREINAFTER CALLED THE PREMISES) FOR A TERM OF 10 YEARS AND SUBJECT TO THE PAYMENT OF RENT RESERVED, THE L ESSOR SHALL PROVIDE THE AMENITIES AND FACILITIES SPECIFIED HEREUNDER AND SHALL MAINT AIN THE SAID AMENITIES AND FACILITIES IN THE MANNER SPECIFIED HEREUNDER: NOW THESE PRESENTS WITNESETH AND IT IS HEREBY AGRE ED BY AND BETWEEN THE PARTIES HERETO AS FOLLOWS: 1. (A) THE LESSOR HEREBY AGREES TO PROVIDE THE L ESSEE AND MAINTAIN IN THE PREMISES DEMISED THE AMENITIES AND FACILITIES SPEC IFIED HEREIN FOR THE DURATION OF THE LEASE UPON THE LESSEE PAYING THE MONTHLY CHARG ES HEREUNDER RESERVED. (B) THE DURATION OF THIS AGREEMENT SHALL BE COTERM INUS WITH THAT OF THE AFORESAID AGREEMENT TO LEASE ENTERED INTO BETWEEN THE PARTIES . THE THREE AGREEMENTS ARE, WITHOUT DOUBT, COMPLEMENT ARY AND SUPPLEMENTARY, BEARING CROSS REFERENCES TO EACH OTHER, AND CONTEMPLATE THE PROVISION OF HOSTEL FACILITIES BY THE ASSESSEE TO THE TCS, THE LESSEE, FOR ITS USE. NO DO UBT, THE LEASE AGREEMENT RESERVES A SEPARATE CONSIDERATION FOR LEASE OF THE HOSTEL PREM ISES, BUT THE QUESTION, IN OUR VIEW, THAT NEEDS TO BE CONSIDERED IS WHETHER THE SAID LEASE AG REEMENT COULD BE CONSIDERED IN ISOLATION, I.E., AS INDEPENDENT AND APART FROM THE OTHER TWO AGREEMENTS, ALL OF WHICH ARE I.T.A. NOS.171/COCH/2009 & 291/COCH/2010 KENTON LEISURE SERVICES (P.) LTD. V. DY. CIT, TRIVA NDRUM 8 QUA AND TOWARD A SINGLE ARRANGEMENT FOR THE PROVISION OF HOSTEL FACILITIES TO TCS, THE LESSEE, OVER A TEN YEAR PERIOD. THE THREE AGREEMENT S HAVE TO BE CONSIDERED AS A PART OF ONE COMPOSITE ARRANGEMENT, AND ONLY FOR THE PROVISI ON OF HOSTEL FACILITIES BY THE ASSESSEE TO THE TCS FOR A PERIOD OF 10 YEARS. MAINTAINING A ND OPERATING OF A HOSTEL AS IN THE CASE OF A LODGE, AND WHICH THE LD. AR WAS AT PAINS TO EM PHASIZE BEFORE US, WITH REFERENCE TO THE DECISION IN THE CASE OF JOSEPH GEORGE & CO. V. ITO , 328 ITR 161 (KER), IS ONLY A BUSINESS, EVEN AS WE MAY CLARIFY THAT THE SAID DECI SION DOES NOT HAVE A DIRECT APPLICATION IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. IN THE INSTANT CASE, THEREFORE, IT IS DEFINITELY A CASE OF THE ANSWERS TO THE FIRST TWO Q UESTIONS (STATED AT PARA 4.3 ABOVE) BEING DECIDEDLY IN THE AFFIRMATIVE, AND OF THE THIRD, IN THE NEGATIVE. TRUE, WHERE THERE IS A LONG TERM UNDE RSTANDING AS IN THE INSTANT CASE, BEING FOR A PERIOD OF 10 YEARS, IT WOULD GIVE RISE TO A PRESUMP TION OF BEING ONLY A RENTAL INCOME. SO, HOWEVER, THE LEASE PERIOD MATCHES WITH THE PERIOD F OR WHICH THE HOSTEL FACILITIES ARE TO BE OPERATED AND PROVIDED BY THE ASSESSEE. AS SUCH, TH E REGULARITY OF INCOME, WHICH THE LD. DR WOULD EMPHASIZE, WOULD BEAR NO SPECIAL SIGNIFICA NCE IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE SO AS TO ALTER THE CHARACTER OF THE INCOME. 4.5 THE NEXT QUESTION THAT ARISES IS WHETHER THE INCOME BY WAY OF LEASE RENTAL OF THE BUILDING IS TO BE ASSESSED U/S. 28 (I.E., AS BUSINE SS INCOME) OR U/S. 56 (I.E., INCOME FROM OTHER SOURCES). THERE CAN HARDLY BE ANY DOUBT WITH REGARD TO THIS, EVEN AS THERE IS NO MATERIAL TO EXHIBIT THAT THE ASSESSEE-COMPANY IS IN THIS TRADE, AS CONTENDED BY IT. A TRADE IN ANY CASE CAN ALWAYS BE COMMENCED AT ANY TIME. WE EXPRESS ABSENCE OF ANY DOUBT IN THIS REGARD, BECAUSE THIS INCOME, WHICH WE HAVE HEL D AS FORMING AN INTEGRAL PART OF THE LEASE INCOME ON LETTING OF AMENITIES AND FACILITIES , STANDS ALREADY ASSESSED AND ACCEPTED AS BUSINESS INCOME BY THE REVENUE. AS SUCH, THIS IN COME HAS TO BE ASSESSED ONLY U/S. 28. WE DECIDE ACCORDINGLY. 5.1 UNDER THE CIRCUMSTANCE, IN OUR CONSIDERED VIEW, THE CONSIDERATION ARISING OUT OF THE THREE AGREEMENTS FORM PART OF ONE ARRANGEMENT U NDERTAKEN BY THE ASSESSEE WITH THE TCS FOR PROVISION OF HOSTEL FACILITIES TO THE LATTE R. THERE IS NO SCOPE OF ANY SEGREGATION OF I.T.A. NOS.171/COCH/2009 & 291/COCH/2010 KENTON LEISURE SERVICES (P.) LTD. V. DY. CIT, TRIVA NDRUM 9 THE CONSIDERATION INTO SEPARATE STREAMS. THE ENTIRE INCOME, THE NET OF EXPENSES, WHICH THE ASSESSEE UNDERTAKES AS A BUSINESS ORGANISATION, HAS TO BE TREATED AS BUSINESS INCOME. 5.2 THE ASSESSEE, HOWEVER, WE FIND, HAS CLAIMED INT EREST IN THE PRE-CONSTRUCTION PERIOD. DEDUCTION IN RESPECT OF INTEREST FOR THE SA ID PERIOD IS ONLY AVAILABLE U/S. 24, I.E., IN THE COMPUTATION OF INCOME OF HOUSE PROPERTY. THE A SSESSEES CLAIM IS, THUS, CONTRARY, AND WE ARE AFRAID THAT THE LD. AR FAILED TO DRAW OUR AT TENTION TO THIS MATERIAL FACT. SUBJECT TO THESE CONDITIONS, WE DECIDE THE ISSUE, IN PRINCIPLE , IN FAVOUR OF THE ASSESSEE. WE DECIDE ACCORDINGLY. 6. IN THE RESULT, THE ASSESSEES APPEALS FOR BOT H THE YEARS ARE ALLOWED. SD/- SD/- (N.R.S.GANESAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 30 TH DECEMBER, 2011 GJ COPY TO: 1. M/S. KENTON LEISURE SERVICES, P. LTD., TCS EXECU TIVE HOSTEL, ATTINKUZHY, KAZHAKUTTOM, TRIVANDRUM. 2. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1( 1), TRIVANDRUM. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, TRIV ANDRUM 4. THE COMMISSIONER OF INCOME-TAX, TRIVANDRUM. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE .