The ITO, Ward-4(1), Visakhapatnam V. M/s Pujya Sujatha Agro Farms Pvt. Ltd., Visakhapatnam

ITA 490/VIZ/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 2695 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-11-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 18-10-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 14-10-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D S SUNDER SINGH
• Keywords: Business income; Depreciation; Additional evidence; Question of law; Set aside
• Section: 37

Judgement Text

ITA 490/VIZ/2009 PUJYA SUJATHA AGRO FARMS P LTD, VSKP IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO. 490 /VIZAG/ 20 09 ASSESSMENT YEAR : 2006 - 07 ITO WARD - 4(1) VIS AKHAPATNAM M/S. PUJYA SUJATHA AGRO FARMS PVT. LTD. VISAKHAPATNAM (APPELLANT) VS. (RESPONDENT) PAN NO.AACCP 1391A APPELLANT BY: SHRI D.S. SUNDER SINGH, DR RESPONDENT BY: SHRI G.V.N. HARI, CA ORDER PER SHRI S.K. YADAV, JUDICIAL MEMBER : - THIS APP EAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A) ON VARIOUS GROUNDS BUT THEY ALL RELATE TO THE NATURE OF RENTAL RECEIPT ON LEASING OF POULTRIES. 2. THE BRIEF FACTS EMERGE FROM THE ORDER OF THE LOWER AUTHORITIES ARE THAT THE ASSESSEE COMPANY HAD STARTED ITS POULTRY BUSINESS IN FEBRUARY, 1997 AND DISCONTINUED THE SAME IN OCTOBER, 2000. THEREAFTER, THE POULTRY COMPLEX WAS LEASED OUT FOR 4 YEARS FOR A MONTHLY RENT OF RS.1,10,500/ - WHICH WAS RENEWED FROM TIME TO TIME FOR 11 MONTHS. DURING THE Y EAR UNDER CONSIDERATION, THE ASSESSEE HAD OFFERED ITS RENTAL INCOME EARNED FROM LEASING OUT POULTRY COMPLEX TO M/S. PAPAREDDY POULTRIES, KOMMARIPALEM AS `BUSINESS INCOME AS AGAINST `INCOME FROM OTHER SOURCES HELD BY THE A.O. THE A.O. IS OF THE OPINION T HAT THERE WAS NO INTENTION OF THE ASSESSEE TO CARRY OUT THE BUSINESS, THEREFORE, RENTAL INCOME IS TO BE ASSESSED ONLY AS `INCOME FROM OTHER SOURCES. WHILE COMPUTING THE INCOME UNDER THE HEAD `OTHER SOURCES, THE A.O. HAS ALLOWED ONLY DEDUCTIONS FOR DEPRE CIATION ON BUILDING AND EQUIPMENTS AND INSURANCE U/S 57 (III) OF THE INCOME TAX ACT, 1961. THE A.O. IS OF THE OPINION THAT SINCE THE ASSESSEE HAS NOT INCURRED ANY MAJOR EXPENSES ON REPAIRS, THEREFORE, THEY ARE NOT ALLOWABLE DEDUCTIONS U/S 57(III) OF THE I NCOME TAX ACT. WITH REGARD TO THE MISCELLANEOUS INCOME REPRESENTING THE ITA 490/VIZ/2009 PUJYA SUJATHA AGRO FARMS P LTD, VSKP 2 CREDIT BEING MORE THAN THREE YEARS OLD WRITTEN OFF AGGREGATING TO RS.1,84,215/ - THE A.O. HELD THAT THE EXPENDITURE RELEVANT TO SUCH CESSATION OF LIABILITY WAS NOT AT ALL RELEVANT FOR DERIVING THE INCOME . M ERELY BECAUSE SUCH MISCELLANEOUS INCOME IS ADMITTED UNDER THE HEAD `BUSINESS IT DOES NOT MEAN THAT IT IS ENTITLED TO DEDUCTION OF EXPENDITURE OF ALL KINDS. THEREFORE, THE EXPENDITURE OTHER THAN THE DEPRECIATION ALLOWANCE AND THE IN SURANCE WAS NOT ALLOWED AS DEDUCTION U/S 37 OF THE INCOME TAX ACT. 3. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) WITH THE SUBMISSION THAT IT HAD LEASED OUT THE POULTRY FOR A TEMPORARY PERIOD WITH THE INTENTION TO EXPLOIT ITS COMMERCIAL ASSET. IT WAS ALSO EXPLAINED THAT THE LEASE OF THE PROPERTY WOULD BE REVERTED BACK TO THE ASSESSEE AFTER THE EXPIRY OF LEASE PERIOD. THEREFORE, THERE WAS NO INTENTION TO DISCONTINUE ITS COMMERCIAL ACTIVITY. IN SUPPORT OF HIS CONTENTIONS HE HAS RELIED UPON THE VARI OUS JUDGEMENTS IN THE CASE OF CIT VS. VIKRAM COTTON MILLS LTD. 169 ITR 597, CIT VS. G.V. RATTAIAH & CO. 256 ITR 351 (AP) AND CIT VS. ARYAN INDIA PVT. LTD. 138 ITR 718. WITH REGARD TO THE DISALLOWANCE OF FURTHER EXPENDITURE, IT WAS CONTENDED THAT THE EXPEN SES ARE LAID OUT AND EX P ENDED FULLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING INCOME AND ARE FULLY SUPPORTED BY BILLS AND VOUCHERS. ALL THE EXPENSES ARE DEBITED TO THE P&L ACCOUNT AND ARE ALLOWABLE EXPENDITURE UNDER THE ACT. THE CIT(A) RE - EXAMINED THE I SSUE AND HAVING CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEES DIRECTED THE A.O. TO ASSESS THE RENTAL INCOME FROM LEASING OF POULTRIES UNDER THE HEAD `INCOME FROM BUSINESS ONLY. THE A.O. WAS ALSO DIRECTED TO ALLOW ALL EXPENSES INCURRED FOR THE BUSINESS PURPOSE U/S 37 OF THE I.T. ACT. 4. AGGRIEVED, THE REVENUE HAS PREFERRED AN APPEAL BEFORE US WITH THE SUBMISSION THAT ASSESSEE HAS STARTED ITS POULTRY BUSINESS IN FEBRUARY, 1997 AND DISCONTINUED IT IN OCTOBER, 2000. THEREAFTER, THE ENTIRE POULTRY COMPLEX WAS LEASED OUT TO M/S. PARAREDDY POULTRIES AT A MONTHLY RENT OF RS.1,10,500/ - THEREAFTER, THE LEASE WAS FURTHER RENEWED FROM TIME TO TIME FOR 11 MONTHS. EVEN TILL DATE THE ASSESSEE HAS NOT RESTARTED ITS POULTRY BUSINESS AND IS EARNING ONLY THE RENTAL IN COME FROM THIS POULTRY COMPLEX. HE HAS ALSO INVITED OUR ATTENTION TO THE FACT THAT DURING THE ASSESSMENT YEAR 2010 - 11, THE ASSESSEE ITSELF HAS OFFERED THE RENTAL INCOME AS AN INCOME FROM OTHER ITA 490/VIZ/2009 PUJYA SUJATHA AGRO FARMS P LTD, VSKP 3 SOURCES. SINCE THE ASSESSEE NEVER HAD AN INTENTION TO RESTART ITS POULTRY BUSINESS , LEASING OUT OF THE POULTRY COMPLEX CANNOT BE CALLED TO BE THE EXPLOITATION OF THE COMMERCIAL ASSET. HE HAS ALSO INVITED OUR ATTENTION TO ALL THE JUDGEMENTS OF WHICH HEAVY RELIANCE WAS PLACED BY THE ASSESSEE WITH THE SUBMISSION THAT IN ALL THESE CASES THE ASSESSEE HAD AN INTENTION TO REVIVE ITS COMMERCIAL BUSINESS. THE INTENTION OF THE ASSESSEE IS A PREDOMINANT FACTOR TO DECIDE THE NATURE OF ACTIVITIES UNDERTAKEN BY THE ASSESSEES. HE HAS ALSO INVITED OUR ATTENTION TO THE LETTER FILE D BY THE ASSESSEES FOR OBTAINING LOAN FROM THE BANK FOR THE REVIVAL OF ITS BUSINESS WITH THE SUBMISSION THAT THIS LETTER WAS FILED ON 10 TH AUGU ST, 2009 AFTER THE ASSESSMENT IS OVER AND THE APPEAL WAS PENDING BEFORE THE CIT(A). THE ASSESSEE HAS APPLIED THE BANK FOR FINANCIAL ASSISTANCE ONLY TO CREATE AN EVIDENCE THAT HE HAD AN INTENTION TO REVIVE ITS POULTRY BUSINESS. NOTHING IS PLACED ON RECORD IN SUPPORT OF THE CONTENTION THAT THE ASSESSEE WAS EVER SERIOUS IN REVIVING ITS BUSINESS. HE HAS CLOSED DOWN HI S BUSINESS IN OCTOBER, 2000 AND MOVED THIS LETTER TO THE BANK IN AUGUST, 2009 AFTER A PERIOD OF 9 YEARS. NOTHING IS PLACED ON RECORD AS TO HOW MUCH EFFORTS WERE MADE BY THE ASSESSEE DURING THE PERIOD OF 9 YEARS FOR THE REVIVAL OF ITS BUSINESS. AFTER THE CLOSURE OF THE BUSINESS, ASSESSEE IS NOT AT ALL ENGAGED IN THE POULTRY BUSINESS. THEREFORE, HE HAS NO INTENTION TO REVIVE ITS POULTRY BUSINESS AND THE A.O. HAS RIGHTLY TREATED THE RENTAL INCOME AS AN INCOME FROM OTHER SOURCES. 5. THE LD. COUNSEL FOR TH E ASSESSEE BES I DES PLACING HEAVY RELIANCE UPON THE ORDER OF THE CIT(A) AND THE JUDGEMENTS REFERRED THEREIN HAS CONTENDED THAT DUE TO ITS FINANCIAL CRISIS THE ASSESSEE COULD NOT CONTINUE TO RUN ITS POULTR IES AND IN ORDER TO OVERCOME THE FINANCIAL REPULSE TH E ASSESSEE HAS LEASED OUT ITS POULTRY COMPLEX FOR A TEMPORARY PERIOD AS A PART OF EXPLOITATION OF ITS COMMERCIAL ASSET. THEREFORE, THE LEASED RENTALS DERIVED WAS RIGHTLY TREATED TO BE AN INCOME FROM BUSINESS. THE ASSESSEE HAS ALSO APPROACHED THE BANK FOR THE FINANCIAL ASSISTANCE BUT THE ASSESSEE COULD NOT SUCCEED. IN SUPPORT OF THIS CONTENTIONS HE HAS PLACED THE COPY OF THE LETTER ADDRESSED TO THE BANKER AND THEIR REPLY WITH THE SUBMISSIONS FOR ITS ADMISSION AS AN ADDITIONAL EVIDENCE. ITA 490/VIZ/2009 PUJYA SUJATHA AGRO FARMS P LTD, VSKP 4 6 . H EAVY RELIANCE IS ALSO PLACED UPON THE JUDGEMENTS IN THE CASE OF CIT VS. G.V. RATTAIAH A ND CO. (SUPRA) CIT VS. VIKRAM COTTON MILLS LTD. 169 ITR 597 (SC) AND CIT VS. ARYAN INDUSTRIES (P) LTD. 138 ITR 718 . 7 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE J UDGEMENTS REFERRED TO BY THE PARTIES AND THE ORDERS OF LOWER AUTHORITIES AND WE FIND THAT UNDISPUTEDLY THE ASSESSEE HAD CARRIED ON ITS BUSINESS ONLY FOR A PERIOD OF 2 YEARS I.E. FEB97 TO OCT2000. THE POULTRY BUSINESS WAS DISCONTINUED AND A POULTRY COM PLEX WAS LEASED OUT INITIALLY FOR 4 YEARS FOR A MONTHLY RENT OF RS.1,10,500/ - AND LATER ON THE LEASING WAS RENEWED FROM TIME TO TIME FOR 11 MONTHS AND TILL DATE THE ASSESSEE IS ONLY EARNING THE RENTAL INCOME. AFTER THE DISCONTINUANCE OF THE POUNTRY BUSINE SS, THE ASSESSEE WAS NEVER ENGAGED IN POULTRY BUSINESS EITHER DIRECTLY OR INDIRECTLY. THE ONLY DOCUMENTS AVAILABLE ON RECORD ON WHICH HEAVY RELIANCE IS PLACED BY THE ASSESSEE TO DISCLOSE THE INTENTION OF THE ASSESSEE FOR THE REVIVAL OF THE BUSINESS IS A L ETTER WRITTEN TO THE ANDHRA BANK LIMITED ON 10.8.2009 FOR FINANCIAL ASSISTANCE. THE REQUEST OF FINANCIAL ASSISTANCE WAS TURNED DOWN BY THE ANDHRA BANK VIDE THEIR LETTER DATED 9.9.2009. IT IS ALSO EVIDENT FROM THE RECORD THAT THE ASSESSMENT ORDER WAS PASS ED ON 29.12.2008 AND THE APPEAL BEFORE THE CIT(A) WAS FILED ON 22.1.2009. THIS APPEAL WAS DISPOSED ON 26.8.2009. THIS LETTER WAS FILED IN THE BANK ON 10.8.2009 DURING THE PENDENCY OF THE APPEAL BEFORE THE CIT(A) BUT THE REQUEST OF THE ASSESSEE WAS REJECT ED AFTER THE DISPOSAL OF THE APPEAL. EXCEPT THIS DOCUMENT NO OTHER DOCUMENT IS AVAILABLE ON RECORD TO INDICATE OR SUGGEST THE INTENTION OF THE ASSESSEE FOR THE REVIVAL OF ITS BUSINESS. UNDISPUTEDLY BUSINESS WAS DISCONTINUED IN OCTOBER, 2000 AND TILL 10 TH AUGUST, 2009 NO EFFORT WAS MADE BY THE ASSESSEE FOR ITS REVIVAL. AFTER THE REFUSAL OF FINANCIAL ASSISTANCE BY THE BANK NO EFFORTS WERE MADE BY THE ASSESSEE WITH ANY OTHER FINANCIAL INSTITUTION FOR THE REVIVAL OF ITS BUSINESS. MEANING THEREBY THAT EXCEP T THIS DOCUMENT NOTHING IS ON RECORD TO SUGGEST THAT ASSESSEE EVER HAD AN INTENTION TO REVIVE OR RESTART ITS BUSINESS. 8 . WE HAVE ALSO CAREFULLY PERUSED THE VARIOUS JUDGEMENTS REFERRED TO BY THE PARTIES AND WE FIND THAT PERIOD OF DISCONTINUANCE OF BUSINES S ACTIVITIES IS NOT A SOLE FACTOR TO DETERMINE THE NATURE OF THE RENTAL INCOME EARNED FROM ITA 490/VIZ/2009 PUJYA SUJATHA AGRO FARMS P LTD, VSKP 5 LEASING OUT OF ITS ASSET. THE PREDOMINANT FACTOR IS INTENTION OF ASSESSEE WITH WHICH THE ASSET W AS LEASED OUT. PERIOD OF DISCONTINUANCE IS ONE OF THE IMPORTANT FAC TOR TO D RAW AN INFERENCE ABOUT THE INTENTION OF THE ASSESSEE. IN THE CASE OF CIT VS. VIKRAM COTTON MILLS LTD. (SUPRA), THE HONBLE APEX COURT HAS CATEGORICALLY HELD THAT IT IS PREDOMINANTLY MATTER OF INTENTION. INTENTION IS AN INFERENCE TO BE DRAWN FROM THE RELEVANT FACTS. IN EACH CASE IT HAS TO BE GATHERED AS TO WHETHER THE COMMERCIAL ASSETS WAS INTENDED TO BE EXPLOITED BY THE ASSESSEE OR WHETHER IT WAS INTENDED TO BE USED BY LETTING IT OUT FOR A TEMPORARY PERIOD. IT DEPENDS UPON THE FACTS AND CIRCUMST ANCES OF EACH CASE. IN THAT CASE LEASING WAS GIVEN FOR 10 YEARS AND THE INTENTION OF THE ASSESSEES WAS CONSIDERED TO BE THE EXPLOITATION OF THE ASSETS. THE FACTS OF THAT CASE ARE THAT THE ASSESSEE COMPANY CARRIED ON BUSINESS OF MANUFACTURE OF TEXTILE. F ROM 1949, THE ASSESSEE COMPANY STARTED RUNNING INTO LOSSES. AT THE END OF DECEMBER, 1953 THE POSITION WAS THAT AS AGAINST THE CAPITAL OF RS.11 LAKHS, THE ACCUMULATED LIABILITIES OF THE ASSESSEE COMPANY AMOUNTED TO RS.26 LAKHS BECAUSE OF THIS THE ASSESSEE COMPANY STOPPED ITS MANUFACTURING ACTIVITY FROM DECEMBER, 1953. THIS STATE OF AFFAIRS CONTINUED TILL 21 ST MAY, 1956, WHEN ONE OF THE CREDITORS OF THE COMPANY FILED A WINDING UP PETITION IN THE HIGH COURT . M/S. INDUSTRIAL FINANCE CORPORATION, ONE OF THE M AJOR CREDITORS OF THE COMPANY, HAD, IN EXERCISE OF ITS POWERS UNDER AN ENGLISH MORTGAGE OF THE FIXED ASSETS OF THE COMPANY, TAKEN ACTUAL PHYSICAL POSSESSION OF THE IMMOVABLE PROPERTIES HYPOTHECATED TO THEM . U NDER SECTION 153 OF THE INDIAN COMPANIES ACT, 1 913, THE HIGH COURT WITH THE APPROVAL OF THE ASSESSEE COMPANY AND THE CREDITORS EVOLVED A SCHEME WHEREUNDER THE BUSINESS ASSETS OF THE ASSESSEE COMPANY WERE LET OUT TO M/S. GENERAL FIBRES DEALERS (P) LTD., CALCUTTA ON RS.2,50,000/ - PER YEAR RENT. IN THIS CASE THE ASSESSEE COMPANY WAS EN TIRELY INVOLVED IN THE COMMERCIAL ACTIVITY. THEREFORE, THE HONBLE APEX COURT HAVE HELD THAT IT WAS A POSSIBLE CONCLUSION THAT THE ASSESSEE INTENDED THAT THERE SHOULD BE A TEMPORARY SUSPENSION OF THE BUSINESS FOR THE PURPO SE OF RECONSTRUCTION OF THE COMPANY AND FILED MATTER THERE MUST BE A STOPPAGE OF THE USER OF THE MACHINERY BY THE ASSESSEE. IT WAS A TEMPORARY LEASE THOUGH FOR 10 YEARS OR 19 YEARS ON RENEWAL AND AFTER EXPIRY OF THE PERIOD THE PROPERTY REVERTED BACK TO TH E ASSESSEE. ACCORDINGLY, THE APEX COURT HAVE APPROVED FINDING OF THE TRIBUNAL THAT THE INTENTION OF THE ASSESSEE WAS NOT TO PART WITH THE MACHINERY BUT TO ITA 490/VIZ/2009 PUJYA SUJATHA AGRO FARMS P LTD, VSKP 6 LEASE IT OUT FOR A TEMPORARY PERIOD AS A PART OF EXPLOITATION. IN SUCH CIRCUMSTANCES, IT CANNOT BE SAID THAT NO BUSINESS WAS CARRIED ON AND THE IR INCOME DERIVED FROM THE MACHINES LETTING WAS ONLY ON A RENTAL INCOME. THERE WAS A TEMPORARY SUSPENSION OF THE BUSINESS FOR A TEMPORARY PERIOD WITH THE OBJECT OF TIDING OVER THE CRISIS CONDITION. THERE WAS NE VER ANY ACT INDICATING THAT ASSESSEE NEVER INTENDED TO CARRY ON THE BUSINESS. 9 . SIMILARLY, IN THE CASE OF CIT VS. G.V. RATTAIAH AND CO. THE ASSESSEE LEASED OUT ITS BUSINESS ASSETS TO TWO COMPANIES WHO WERE TRADER IN VIRGINIA TOBACCO. THE ASSESSEE DID NOT STOP ITS TRADING ACTIVITIES IN TOBACCO. IT WAS PURCHASING TOBACCO AND SELLING IT , OF COURSE WITHOUT GRADING AND PROCESSING IT IN A SMALL WAY . IT WAS ALSO EARNING HUGE COMMISSION AMOUNTS BY PURCHASING TOBACCO FOR OTHERS. IT WAS ALSO GETTING COMMISSI ON BY FINDING EXPORT MARKET TO OTHER TOBACCO DEALERS AND EXPORTERS , T HUS , IT WAS MAINTAINING CONTACTS WITH MANY OF THE IMPORTERS OF TOBACCO IN USSR AND CHINA. WITH THESE FACTS THE HONBLE JURISDICTIONAL HIGH COURT HAVE HELD THAT THE INTENTION OF THE ASSES SEE TO TR EAT THE DEMISED PREMISES AS WELL AS THE ASSETS OF THE ASSESSEE COMPANY AS ITS BUSINESS ASSETS THROUGH OUT THE PERIOD OF LEASE AND IT HAD NEVER ABANDONED THE IDEA OF RESUMING ITS BUSINESS AFTER FINDING A FAVOURABLE ATMOSPHERE. THEIR LORDSHIP HAVE FURTHER HELD THAT LENGTH OF LEAS E PERIOD IS UNDOUBTEDLY A RELEVANT CIRCUMSTANCES IN FINDING OUT THE INTENTION OF THE ASSESSEE BUT IT IS NOT CONCLUSIVE. THE INTENTION OF THE ASSESSEE TO DISCONTINUE ITS BUSINESS CAN BE GATHERED FROM THE SURROUNDING CIRCUMST ANCES. 10. IN THE CASE OF CIT VS. ARYAN INDUSTRIES (SUPRA) DESPITE OF COMPOSITE LETTING OF FACTORY AND BUILDING THE ASSESSEE HAS BEEN MAINTAINING ITS WORK FORCE AND UNDERTAKING TO SUPPLY RAW MATERIALS RECEIVED ON QUOTAS IN ITS NAME. INDUSTRIAL LICENSE CONTINUED IN THE NAME OF THE ASSESSEES. THE ASSESSEE HAS ALSO AGREED THAT ALL THE RAW MATERIALS MANUFACTURED PRODUCTS CHEMICALS ETC. REMAINING WITH THE LESSEE AT THE EXPIRY OF THE PERIOD OF LEASE SHALL BE PURCHASED BY THE ASSESSEE SUBJECT TO A MAXIMUM VAL UE OF RS.1 LAKH. THESE FACTS ARE QUITE INDICATIVE OF THE ASSESSEES INTENTION TO DO BUSINESS AFTER THE EXPIRY OF THE LEASE. THE ADDITIONAL MACHINERY INSTALLED FOR EXPANDING THE PRODUCTION CAPACITY OF THE FACTORY WAS TO BE PAID FOR AND RETAINED BY THE ASS ESSEE ITSELF. THE POWER SUPPLY WAS ALSO CONTINUED IN THE NAME OF THE ITA 490/VIZ/2009 PUJYA SUJATHA AGRO FARMS P LTD, VSKP 7 ASSESSEE ONLY. ALL THESE FACTS FURTHER SUGGEST THAT ASSESSEE HAD AN INTENTION TO CONTINUE ITS BUSINESS AFTER THE LEASE PERIOD. THEREFORE, THE HONBLE HIGH COURT HAVE CATEGORICALLY HELD THAT WHE RE THE ASSESSEE LETS OUT FACTORY ON LEASE AND THE ATTEND ANT FACTORS CLEARLY INDICATE THAT THE ASSESSEE DOES NOT INTEND TO DISCONTINUE ITS BUSINESS AND IT CONTINUES TO EXPLOIT THE ASSET COMMERCIALLY , THE INCOME FROM SUCH LEASE IS ASSESSABLE AS BUSI NESS INCOME. 11 . WAY BACK IN 1969, THE HONBLE APEX COURT HAVE HELD IN THE CASE OF NEW SAVAN & GUR REFINING LTD. VS. CIT 74 ITR 7 (SC) THAT WHERE THE FACTORY AND PREMISES ARE LEASED OUT IN RETURN OF ROYALTY WORKED OUT ON THE BASIS OF PRODUCTION, THE INTENT ION OF THE ASSESSEE WAS NOT TO TREAT THE ASSET LEASED OUT AS COMMERCIAL ASSET BUT TO OPERATE WITH MACHINERY FOR EARNING RENTAL INCOME. INCOME THEREFORE CANNOT BE CALLED TO BE THE BUSINESS INCOME. IN THE CASE OF UNIVERSAL COILS LIMITED VS. CIT 237 ITR 454 THEIR LORDSHIP OF THE APEX COURT HAVE HELD THAT NO PRECISE TEST CAN BE LAID DOWN TO ASCERTAIN WHETHER INCOME ( REFERRED TO BY WHATEVER NOMENCLATURE , LEASE AMOUNT, RENTS, LICENSE FEE ) RECEIVED BY AN ASSESSEE FROM LEAS ING OR LETTING OF ASSETS WOULD FALL UNDE R THE HEAD PROFIT AND GAINS AND BUSINESS OR PROFESSION. IT IS A MIXED QUESTION OF LAW AND FACT AND HAS TO BE DETERMINED FROM THE POINT OF VIEW OF A BUSINESS MAN IN THAT BUSINESS ON THE FACTS AND IN THE CIRCUMSTANCES OF EACH CASE INCLUDING TRUE INTERPRETAT IONS OF THE AGREEMENT UNDER WHICH THE ASSETS ARE LET OUT. WHERE ALL THE ASSETS OF THE BUSINESS ARE LET OUT, THE PERIOD FOR WHICH ASSETS ARE LET OUT IS A RELEVANT FACTOR TO FIND OUT WHETHER THE INTENTION OF THE ASSESSEE IS TO GO OUT OF BUSINESS ALTOGETHER OR TO COME BACK AND RESTART THE SAME. IF ONLY OR A FEW OF THE BUSINESS ASSETS ARE LET OUT TEMPORARILY WHILE THE ASSESSEE IS CARRIED OUT HIS OTHER BUSINESS ACTIVITIES THEN IT IS A CASE OF EXPLOITING OF THE BUSINESS ASSETS , OTHERWISE THEN EMPLOYING THEM FOR ITS OWN USE FOR MAKING PROFIT FOR THAT BUSINESS , BUT IF THE BUSINESS NEVER STARTED OR HAS STARTED BUT CEASED WITH NO INTENTION TO BE RESUMED THE ASSETS ALSO WILL CEASE TO BE BUSINESS ASSETS AND THE TRANSACTIONS WILL ONLY BE THE EXPLOITATION OF PROPERTY BY A OWNER THERE OF , BUT NOT EXPLOITATION OF BUSINESS ASSET. SIMILAR VIEW WAS EXPRESSED BY DIFFERENT HIGH COURTS IN FOLLOWING CASES: 1. METAL PRODUCTS OF INDIA VS. CIT (P&H) 293 ITR 618 2. MADRAS SILK & RAYON MILLS PVT. LTD. VS. ITO AND ANOTHER (MADRAS) 26 2 ITR 122. ITA 490/VIZ/2009 PUJYA SUJATHA AGRO FARMS P LTD, VSKP 8 1 2 . TURNING TO THE FACTS OF THE CASE IN THE LIGHT OF LEGAL PROPOSITIONS LAID DOWN THROUGH VARIOUS JUDICIAL PRONOUNCEMENTS OF APEX COURT AND THE VARIOUS HIGH COURTS, WE FIND THAT THE ASSESSEE WAS ACTIVELY ENGAGED IN ITS BUSINESS ONLY FOR 2 YEA RS I.E. FROM FEB97 TO OCT2000. THEREAFTER, IT DISCONTINUED ITS POULTRY BUSINESS AND THE POUNTRY COMPLEX WAS LET OUT INITIALLY FOR 4 YEARS AND THERE AFTER TIME TO TIME FOR 11 MONTHS AND TILL DATE THE ASSESSEE HAS NOT STARTED ITS POULTRY BUSINESS AND HAS FINALLY OFFERED THE RENTAL INCOME AS AN INCOME FROM OTHER SOURCES IN A.Y. 2010 - 11 . E XCEPT ONE LETTER DATED 10.8.2009 FOR FINANCIAL ASSISTANCE TO BANKER AND ITS REFUSAL DATED 9.9.2009 , N OTHING IS PLACED ON RECORD WHERE FROM AN INFERENCE CAN BE DRAWN THAT A SSESSEE WAS EVER INTENDED TO RESTART ITS POULTRY BUSINESS. THE INTENTION OF THE ASSESSEES CAN ONLY BE INFERRED FROM THE SURROUNDING CIRCUMSTANCES AND THE MATERIAL AVAILABLE ON RECORD. BUT UNFORTUNATELY NOTHING IS AVAILABLE ON RECORD WHERE FROM IT CAN BE INFERRED THAT ASSESSEE HAS EVER INTENDED TO RESTART ITS BUSINESS. WE HAVE ALSO CAREFULLY EXAMINED THE ORDER OF THE CIT(A) AND WE ARE AT LOSS TO UNDERSTAND HOW HE CAME TO THE CONCLUSION THAT ASSESSEE HAD AN INTENTION TO RESTART ITS BUSINESS. HE HAS SIMPLY RELIED UPON CERTAIN CLAUSES OF THE AGREEMENT BUT HE HAS OVER LOOKED THE REAL FACTOR THAT NO EFFORTS WERE MADE BY THE ASSESSEE FOR THE RESTART OR REVIVAL OF ITS BUSINESS. SINCE THE ASSESSEE HAS NOT STARTED ITS BUSINESS AND HAS FINALLY CLOSED DOWN WE ARE O F THE VIEW THAT THE ASSESSEE HA D NEVER INTENTION TO RESTART ITS BUSINESS, THEREFORE, THE LEASED RENTAL INCOME WAS RIGHTLY CONSIDERED BY THE ASSESSING OFFICER AS AN INCOME FROM OTHER SOURCES. 1 3 . NOW THE QUESTION OF ALLOWABLE EXPENSES ARE CONCERNED, WE AR E OF THE VIEW THAT WHEN THE INCOME WAS CONSIDERED TO BE THE INCOME FROM OTHER SOURCES WHATEVER EXPENSES ARE NECESSARY TO BE INCURRED TO EARN THE INCOME ARE ALLOWABLE EXPENDITURE U/S 57( III ) OF THE I.T. ACT. THE ASSESSING OFFICER HAS ONLY ALLOWED THE DEPRE CIATION OR THE INSURANCE EXPENSES. THE OTHER EXPENDITURES WERE DISALLOWED BY THE A.O. THE OTHER EXPENSES ARE TO BE EXAMINED INDEPENDE NT LY WHETHER THEY ARE NECESSARY TO BE INCURRED IN EARNING THE AFORESAID INCOME FROM OTHER SOURCE. THE ASSESSEE HAS GIVE N THE DETAILS OF THE EXPENDITURE AVAILABLE IN THE ASSESSMENT ORDER AND FROM ITS PERUSAL, WE FIND THAT THE POULTRY EQUIPMENT REPAIRS, SALARY AND WAGES, STAFF ITA 490/VIZ/2009 PUJYA SUJATHA AGRO FARMS P LTD, VSKP 9 WELFARE, REPAIR AND MAINTENANCE, PRINTING AND STATIONER Y, MISCELLANEOUS EXPENSES, TAX PRESENTATION FEES, AUDIT FEES, FILING FEES AND BANK CHARGES ARE TO BE ALLOWED BECAUSE THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND THE MINIMUM EXPENDITURES ARE TO BE INCURRED TO KEEP THE ASSESSEE COMPANY ALIVE. THE REASONABLENESS IS TO BE ESTIMATED BY THE A.O. WE ACC ORDINGLY SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE A.O. TO RECOMPUT E THE INCOME OF THE ASSESSEES IN TERMS INDICATED ABOVE. 1 4 . IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 19.11 .20 10 SD/ - SD/ - (BR BASKARAN) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM, DATED 19 TH NOVEMBER , 20 10 COPY TO 1 ITO WARD - 4(1), VISAKHAPATNAM 2 M/S. PUJYA SUJATHA AGRO FARMS PVT. LTD., D .NO.10 - 27 - 16, KAILAS METTA, OPP. GOVERNORS BUNGALOW, WALTAIR UPLANDS, VISAKHAPATNAM 3 THE CI T, VISAKHAPATNAM 4 THE CIT (A) , VISAKHAPATNAM 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRE TARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM