ACIT, CHENNAI V. M/s. S&S Industries Enterprises Ltd., CHENNAI

ITA 96/CHNY/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4816 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 16-06-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 21-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: R SU BRAMANIAN
• Keywords: Business income; Depreciation; Question of law

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH A CHENNAI (BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER) .. I.T.A. NO. 96/MDS/2011 ASSESSMENT YEAR : 2007-08 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE VI(1), CHENNAI 600 034. (APPELLANT) V. M/S S&S INDUSTRIES ENTERPRISES LTD., 204, SIDCO AIEMA TOWERS, I MAIN RD., AMBATTUR INDUSTRIAL ESTATE, CHENNAI 600 058. PAN : AAACS5108G (RESPONDENT) APPELLANT BY : SHRI SHAJI P. JACOB RESPONDENT BY : SHRI R. SU BRAMANIAN O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE REVENUE, ITS GRIEVANCE IS THAT LD. CIT(APPEALS) HELD INCOME RECEIVED BY THE ASSESSEE O N LETTING OUT ITS BUSINESS ASSETS, AS INCOME FROM BUSINESS. AS PER T HE REVENUE, THE CIT(APPEALS) OUGHT HAVE UPHELD THE ACTION OF THE AS SESSING OFFICER IN VIEW OF THE DECISIONS OF HON'BLE APEX COURT IN T HE CASE OF I.T.A. NO. 96/MDS/11 2 UNIVERSAL PLAST LTD. V. CIT (237 ITR 454) AND CIT V . PODAR CEMENT PVT. LTD. (226 ITR 625). 2. SHORT FACTS APROPOS ARE THAT ASSESSEE IN THE BUS INESS OF EDIBLE OIL CONTRACT PACKAGING, FILED ITS RETURN FOR THE IM PUGNED ASSESSMENT YEAR WITH A LOSS OF ` 17,87,92,478/-. ASSESSING OFFICER NOTED FROM THE PROFIT AND LOSS ACCOUNT FILED BY THE ASSESSEE, THAT ASSESSEE HAD RECEIVED ` 16.56 LAKHS AS LICENCE FEE. SUCH LICENCE FEE, AS PER A.O., WAS RECEIVED BY WAY OF LETTING OUT OF ITS FACTORY B UILDINGS. ASSESSEE WAS PUT ON NOTICE THAT SUCH RENTAL WAS TO BE CONSID ERED UNDER THE HEAD INCOME FROM HOUSE PROPERTY, WHEREUPON IT WAS REPLIED BY THE ASSESSEE THAT WHAT WAS LET OUT WAS NOT MERE BUILDIN G OR ONE OR TWO ITEMS OF PLANT BUT, THE TOTAL FACILITY ITSELF. AS PER THE ASSESSEE, IT COULD NOT OPERATE THIS FACILITY TEMPORARILY DUE TO SICKNE SS AND PENDING APPROVAL OF REHABILITATION FROM BIFR, IT HAD GIVEN IT ON LICENCE BASIS. AS PER THE ASSESSEE, SINCE IT HAD LET OUT FACILITIE S ONLY DUE TO TEMPORARY OPERATIONAL AND FINANCIAL CONSTRAINTS, TH E RECEIPTS WERE TO BE TREATED AS BUSINESS INCOME ONLY. HOWEVER, THE A SSESSING OFFICER WAS NOT IMPRESSED. HE HELD AS FOLLOWS:- I.T.A. NO. 96/MDS/11 3 THE ASSESSEE STOPPED ITS BUSINESS ACTIVITIES AND ST ARTED LEASING OUT THE FACTORY BUILDINGS AND IT HAS BEEN RE CEIVING LEASE RENTS. IT HAS NO INTENTION TO RESTART THE BUSINESS ACTIVITY WHICH IS EVIDENT FROM THE FACT THAT IT HAD STOPPED BUSINE SS WAY BACK IN THE YEAR 2002-03 AND IT DID NOT RESUME THE BUSINESS ACTIVITY EVEN AS ON DATED. THE COMPANY WAS REGISTERED AS SIC K COMPANY PURSUANT TO THE PROVISIONS OF THE SICK INDUSTRIAL C OMPANIES ACT (SPECIAL PROVISIONS ACT, 1985). AS CAN BE SEEN FRO M THE LEASE AGREEMENTS, THE ASSESSEE HAD LET OUT THE ASSETS FOR A PERIOD OF 3 YEARS W.E.F. 15.12.2005 WITH A CLAUSE THAT THE LEASE CAN BE EXTENDED FOR A FURTHER PERIOD. ALL THE ABOVE FACTS GOES TO SAY THAT THE ASSESSEE COMPLETELY STOPPED ITS BUSINESS AN D HAS NO INTENTION TO RESTART THE SAME. THEREFORE, THE LEAS E RENTALS RECEIVED BY THE ASSESSEE TO THE EXTENT OF RS. 38,07, 000/- CANNOT BE TREATED AS BUSINESS INCOME AND THE SAME I S TREATED AS INCOME FROM OTHER SOURCES. SINCE THE ASSESSEE STOP PED ITS BUSINESS ACTIVITIES, THE FACTS OF THE CASE LAWS CIT ED BY THE ASSESSEE DIFFER FROM THE FACTS OF ITS CASE. I TAKE SUPPORT OF THE ABOVE VIEW FROM THE DECISION OF THE APEX COURT IN T HE CASES OF UNIVERSAL PLAST V. CIT (237 ITR 454) AND PODAR CEME NTS LTD. (226 ITR 126), CHENNAI PROPERTIES LTD. (SAIYANA WARE HOUSING ORDER) NEVERTHELESS, WHILE COMPLETING THE ASSESSMENT, THE LICENCE FEE WAS TREATED BY THE A.O. AS INCOME FROM HOUSE PROPERTY. THE RESULT WAS THAT ASSESSEES CLAIM FOR DEPRECIATION AND EXPENSES WAS DISALLOWED SINCE AS PER THE A.O., NONE OF ITS UNITS WERE OPERA TIONAL AND ASSESSEE HAD NOT DONE ANY BUSINESS FOR ITSELF DURIN G THE RELEVANT PREVIOUS YEAR. I.T.A. NO. 96/MDS/11 4 3. IN ITS BEFORE THE CIT(APPEALS), SUBMISSION OF TH E ASSESSEE WAS THAT IT HAD GIVEN THE FACILITIES ONLY ON A LICENCE BASIS AND ONCE ITS REHABILITATION PLANS WERE APPROVED BY BIFR, IT WOUL D RESUME ITS MANUFACTURING ACTIVITIES. FURTHER, AS PER THE ASSE SSEE, LETTING WAS NOT ONLY THE BUILDING BUT THE PLANT AND MACHINERY A S WELL. ASSESSEE ALSO POINTED OUT THAT ITS CASE WAS AKIN TO THE FACT S IN THE DECISION OF HON'BLE APEX COURT IN CIT V. VIKRAM COTTON MILLS LT D. (169 ITR 597). ASSESSEE ALSO DISTINGUISHED THE CASE OF HON'BLE APE X COURT IN UNIVERSAL PLAST LTD. (SUPRA). ACCORDING TO IT, IN THE SAID CASE, IT WAS LEASE-CUM-SALE AND THE INTENTION OF THE ASSESSEE TO DISCONTINUE BUSINESS WAS CLEAR AND APPARENT. AS FOR THE DECISI ON IN THE CASE OF PODAR CEMENT (P) LTD. (SUPRA), ARGUMENT OF THE ASSE SSEE WAS THAT THERE WHAT WAS LET OUT WAS ONLY A BUILDING AND NOT A MANUFACTURING UNIT AS SUCH. LD. CIT(APPEALS) WAS APPRECIATIVE OF THESE CONTENTIONS OF THE ASSESSEE. ACCORDING TO HIM, ASSESSEE HAD NO INTENTION TO PERMANENTLY DISCONTINUE ITS BUSINESS. IT WAS ONLY USING ITS ASSETS THROUGH A THIRD PARTY TO TIDE OVER FINANCIAL DIFFIC ULTIES, BUT THE POSSESSION OF THE BUSINESS ALWAYS REMAINED WITH IT. AS PER THE LD. CIT(APPEALS), ASSESSEE HAD NOT STOPPED ITS BUSINESS PERMANENTLY BUT OWING TO BUSINESS EXIGENCIES, IT HAD FOUND IT M ORE ADVANTAGEOUS I.T.A. NO. 96/MDS/11 5 TO LEASE OUT THE FACILITY TEMPORARILY TO A THIRD PA RTY. HE WAS OF THE OPINION THAT DECISION OF HON'BLE APEX COURT IN THE CASE OF VIKRAM COTTON MILLS LTD. (SUPRA) CLEARLY SUPPORTED THE CAS E OF THE ASSESSEE. HE, THEREFORE, DIRECTED THE A.O. TO TREAT THE INCOM E FROM LETTING OUT THE ASSETSAS BUSINESS INCOME AND ALSO TO ALLOW DEDU CTION AVAILABLE AGAINST SUCH BUSINESS INCOME. 4. NOW BEFORE US, LEARNED D.R., STRONGLY ASSAILING THE ORDER OF LD. CIT(APPEALS), SUBMITTED THAT LD. CIT(APPEALS) PLACE D RELIANCE MAINLY ON THE CASE OF VIKRAM COTTON MILLS LTD. (SUPRA) WHI CH WAS OVERRULED BY A LARGER BENCH OF HON'BLE APEX COURT IN THE CASE OF UNIVERSAL PLAST LTD. (SUPRA). ACCORDING TO HIM, THERE WAS NO INTENTION FOR THE ASSESSEE TO RESUME ITS BUSINESS OPERATION AND THERE FORE, THE LEASE INCOME WAS RIGHTLY TREATED AS INCOME FROM HOUSE PRO PERTY. 5. PER CONTRA, LEARNED A.R., PLACING A COPY OF LICE NCE AGREEMENT DATED 20 TH DECEMBER, 2006 ENTERED INTO BY THE ASSESSEE WITH M /S ICA (MADRAS) PVT. LTD., SUBMITTED THAT WHAT WAS GIV EN WAS ONLY A THREE-YEAR LICENCE TO THE LICENCEE FOR UTILIZING TH E REFINING AND PACKAGING FACILITIES. AS PER THE LEARNED A.R., THE LICENCEE WAS OBLIGED TO MARKET THE PACKAGED ITEM UNDER THE BRAND NAME OF THE I.T.A. NO. 96/MDS/11 6 ASSESSEE AND THE REFINERY CONTINUED TO BE MANAGED B Y THE ASSESSEE. LEARNED A.R. POINTED OUT THAT THE LICENCEE WAS OBLI GED TO MAINTAIN QUALITY, STANDARDS PRESCRIBED BY THE ASSESSEE AND W AS ALSO OBLIGED TO UTILIZE PERSONNEL EMPLOYED BY THE ASSESSEE. AC CORDING TO HIM, ASSESSEE HAD STOPPED ITS DIRECT MANUFACTURING ONLY TEMPORARILY ON ACCOUNT OF FINANCIAL DIFFICULTY. THE MOMENT ITS RE HABILITATION PLAN WAS APPROVED BY BIFR, ASSESSEE WOULD RESUME ITS MANUFAC TURING ACTIVITIES. AGAIN, AS PER LEARNED A.R., LICENCE PE RIOD WAS ONLY THREE YEARS AND THE LICENCEE WAS TO HAND OVER THE REFINER Y IN GOOD WORKING CONDITION, BACK TO THE ASSESSEE, AS PER THE TERMS O F THE LICENCE. PLACING A COPY OF THE ANNUAL REPORT OF THE ASSESSEE -COMPANY FOR THE RELEVANT PREVIOUS YEAR, LEARNED A.R. SUBMITTED THAT THE INTENTION OF THE ASSESSEE TO RESUME ITS OPERATION WAS CLEAR FROM THE DIRECTORS REPORT. 6. IN REPLY, THE LEARNED D.R. SUBMITTED THAT THE DI RECTORS REPORT CLEARLY MENTIONED THAT REVIVAL OF THE UNIT WOULD BE POSSIBLE ONLY IF SUPPORT WAS FORTHCOMING FROM THE LENDERS DURING THE COURSE OF THE PROCEEDINGS BEFORE BIFR. THEREFORE, AS PER THE LEA RNED D.R., IT WAS CLEAR THAT ASSESSEE HAD NO INTENTION TO RESUME ITS BUSINESS OPERATION I.T.A. NO. 96/MDS/11 7 BY ITSELF. HENCE, ACCORDING TO HIM, IT WAS A CLEAR CASE OF LETTING OUT OF BUILDING AND MACHINERY. LEARNED D.R. SUBMITTED THA T EVEN IF IT WAS CONSIDERED AS A LETTING OUT OF ENTIRE UNIT, THE LEA SE RENT RELATABLE TO BUILDING OUGHT TO BE CONSIDERED AS INCOME FROM HOUS E PROPERTY AND THE BALANCE AMOUNT HAD TO BE CONSIDERED AS INCOME F ROM OTHER SOURCES. 7. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL C ONTENTIONS. TO RESOLVE THE ISSUE, WE HAVE TO DECIDE WHETHER THE ASSESSEE HAD AN INTENTION TO RESUME OPERATION OF THE REFINERY IT SELF AND WHETHER THE LICENCING WAS TEMPORARY IN NATURE. BEFORE THAT, IT HAS TO BE MENTIONED THAT THE A.O. THOUGH IN HIS ORDER, PART O F WHICH IS REPRODUCED AT PARA 2 ABOVE, HAD MENTIONED THAT THE AMOUNT OF LEASE RENTAL WAS TO BE TREATED AS INCOME FROM OTHER SOURC ES, IN HIS COMPUTATION, CONSIDERED IT AS INCOME FROM HOUSE PR OPERTY. OBVIOUSLY, THERE IS NO QUESTION OF THE AMOUNT BEING CONSIDERED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. IT WAS AN IND IVISIBLE LICENCE OF A UNIT INCLUSIVE OF PLANT AND MACHINERY AND PERSONN EL. THEREFORE, A.O. WAS AWARE THAT EVEN IF IT WAS CONSIDERED THAT THE BUSINESS I.T.A. NO. 96/MDS/11 8 ACTIVITIES WERE STOPPED, IT WOULD STILL HAVE TO BE CONSIDERED AS INCOME FROM OTHER SOURCES. 8. COMING TO THE QUESTION RAISED BEFORE US AS TO WH ETHER ONLY THERE WAS A TEMPORARY LULL IN THE BUSINESS OF THE A SSESSEE AND WHETHER THE LICENCING WAS TEMPORARY WITH THE INTENT ION TO RESUME OPERATION BY ITSELF, IT WOULD BE NECESSARY TO REPRO DUCE RELEVANT CLAUSES IN THE LICENCE AGREEMENT DATED 20.12.2006 M ENTIONED SUPRA:- 01. SSIEL HEREBY GRANTS A LICENCE TO THE LICENCEE FO R A PERIOD OF 3 YEARS ON AND WITH EFFECT FROM THE 1 ST DAY OF JANUARY 2007 (HEREINAFTER REFRRED TO IN THIS AGREEMENT AS T HE EFFECTIVE DATE) TO UTILIZE ITS PRESENT REFINING AND PACKAGING FACILITIES AT THE REFINERY FOR MANUFACTURING AND PA CKAGING REFINED EDIBLE OILS (OTHER THAN RICE BRAN OIL) FOR BEING MARKETED BY THE LICENCEE UNDER BRAND NAMES OF SSIEL. 02. THE REFINERY WILL CONTINUE BE MANAGED AND OPERA TED BY SSIEL AND ITS NOMINEE WILL CONTINUE TO BE THE OCCUP IER FOR THE PURPOSE OF COMPLYING WITH THE PROVISIONS OF THE FACT ORIES ACT, 1948. SSIEL, ITS DIRECTORS, ITS BANKERS AND ALL PE RSONS DULY AUTHORIZED BY SSIEL SHALL CONTINUE TO HAVE FULL AND UNRESTRICTED ACCESS TO ALL PARTS OF THE REFINERY AT ALL TIMES WI THOUT ANY NOTICE TO THE LICENCEE TO INSPECT ITS ASSETS TO SAT ISFY ITSELF ABOUT ITS STATUS, THE METHODOLOGY ADOPED FOR MANUFAC TURE AND MAINTENANCE REGIMEN AND PRACTICES FOLLOWED. THE LI CENCEE IS ENTITLED TO USE THE REFINERY ADDRESS TO OBTAIN STAT UTORY REGISTRATIONS, APPROVALS & LICENCES AND IS FURTHER ENTITLED TO PUT UP DISPLAY BOARDS AT THE REFINERY INCORPORATING ITS NAME AND I.T.A. NO. 96/MDS/11 9 OTHER APPROPRIATE DETAILS ABOUT ITS OPERATION AT TH AT LOCATION IN ITS CAPACITY AS A LICENCEE. 03. IT IS MUTUALLY AGREED THAT IN RESPECT OF ALL MAT TERS TO THE REFINERY OR SSIEL, THE DECISION OF SSIEL SHALL BE F INAL. ALL MATERIALS RECEIVED AND SENT OUT OF THE REFINERY SHA LL BE PROPERLY DOCUMENTED AND ALL THE REQUIRED RECORDS BE PROPERLY MAINTAINED. ALL ITEMS SENT OUT OF THE REFINERY PRE MISES SHALL BE ACCOMPANIED BY DELIVERY CHALLANS & SECURITY GATE PA SSES WHICH SHALL BE COUNTER-SIGNED BY THE NOMINEE OF BOTH THE LICENCEE AND SSIEL. NO MATERIAL SHALL BE ALLOWED T O LEAVE THE PREMISES OF SSIEL UNLESS THE ABOVE SAID DOCUMENTATI ON PROCEDURE IS STRICTLY COMPLIED WITH. 04. ALL PERSONNEL EMPLOYED BY SSIEL AT THE REFINERY A S ON THE EFFECTIVE DATE SHALL STAND AUTOMATICALLY DEPUTED TO THE LICENCEE FROM THE SAID EFFECTIVE DATE AND SHALL BE ABSORBED INTO THE PAYROLL OF THE LICENCEE FOR THE SM OOTH CONDUCT AND RUNNING OF THE OPERATIONS INCLUDING THE QUALITY OF PRODUCTS PRODUCED BY THE LICENCEE AND COMPLIANCE WIT H THE REQUIRED STATUTORY FORMALITIES. 05. THE REFINERY AND ALL OTHER ASSETS SHALL ALWAYS R EMAIN INSURED AT THE LICENCEES COST AND BE USED BY THE LI CENCEE ONLY FOR THE DESIGNATED PURPOSES. ANY LOSS, DAMAGE O R BREAKAGE SHALL BE SET RIGHT IMMEDIATELY AT LICENCEES COST FA ILING WHICH THE SAME MAY BE DONE BY SSIEL AT ITS COST AND RECOVER ED FROM THE LICENCEE. WHERE THE COST IS INCURRED BY SSIEL I N RECTIFYING SUCH LOSS, THE SAME SHALL BE REIMBURSED B Y THE LICENCEE WITHIN 7 DAYS OF BEING NOTIFIED AND ANY FAIL URE IN THIS REGARD SHALL BE DEEMED TO BE A BREACH OF THIS AGREE MENT. 06. BOTH PARTIES HAVE AGREED THAT THE LICENCEE SHAL L DIRECTLY INCUR AND MEET OUT ALL DIRECT AND INDIRECT OVERHEAD S INCLUDING SALARIES, REPAIRS AND MAINTENANCE, AND OTHER EXPENS ES REQUIRED FOR RUNNING OF REFINERY AND ITS ASSOCIATED FACILITI ES AND THE SAME SHALL BE REVIEWED FROM TIME TO TIME BY BOTH THE PARTIES. I.T.A. NO. 96/MDS/11 10 BOTH PARTIES AGREE TO PUT IN THEIR BEST EFFORTS TO OPTIMIZE THE EXPENDITURE IN ORDER TO IMPROVE THE EFFICIENCY OF OP ERATIONS AND MAXIMISE THE PROFIT POTENTIAL. THIS COVENANT ON TH E PART OF THE LICENCEE TO DEFRAY ALL THE EXPENSES DURING THE TENUR E OF THIS AGREEMENT SHALL OPERATE NOTWITHSTANDING THE FACT WH ETHER THE LICENCEE HAS UTILISED THE FACILITIES OR NOT OR HAS UTILISED THE FACILITIES TO LESS THAN TARGETED LEVELS OF OPERATIO N AT ANY TIME DURING THE TENURE OF THIS AGREEMENT. 07. THE LICENCEE HAS IN ADDITION TO 6 ABOVE, AGREED TO PAY TO SSIEL, A LICENCE FEE AS DETAILED BELOW FOR USE OF R EFINERY FACILITIES. PERIOD AMOUNT YEAR 1 RS. 3,00,000/- P.M. YEAR 2 RS. 3,50,000/- P.M. YEAR 3 RS. 4,00,000/- P.M. THE ABOVE LICENCE FEE SHALL BE PAID BY THE LICENCEE TO SSIEL ON OR BEFORE THE 7 TH DAY OF EACH SUBSEQUENT CALENDAR MONTH, IRRESPECTIVE OF THE LEVEL OF OPERATION OR EV EN NIL OPERATION IN ANY MONTH DURING THE TENURE OF THIS AGR EEMENT. SSIEL SHALL BE ENTITLED TO TERMINATE THIS AGREEMENT FORTHWITH (NOTWITHSTANDING THE PROVISIONS OF CLAUSE 12 HEREIN BELOW) IN CASE THERE IS ANY DELAY OR DEFAULT IN PAYMENT OF THE LICENC E FEE OR IN THE EVENT OF BREACH OF ANY OF THE TERMS OF THIS L ICENCE AGREEMENT. THE LICENCEE FURTHER AGREES TO PROVIDE A ADVANCE OF RS.10,25,000/- (RUPEES TEN LACS TWENTY FIVE THOUS ANDS ONLY) ON OR BEFORE 15 TH FEBRUARY 2007, SUCH ADVANCE BEING REFUNDABLE BY SSIEL AT THE TIME OF TERMINATION OF THIS LICENCE AGREEMENT AS PROVIDED HEREUNDER. 08. THE LICENCEE AGREES (IN THE INTEREST OF MAINTAI NING THE PLANT AND EQUIPMENT AT THE REFINERY IN GOOD ORDER A T ALL TIMES) TO PROCURE AND USE ONLY RAW EDIBLE OIL PRODUCTS MEET ING THE QUALITY STANDS OF SSIEL AND THE LICENCEE AGREES THAT THE I.T.A. NO. 96/MDS/11 11 DECISIONS OF THE SSIEL IN THIS REGARD SHALL BE FINA L BINDING ON BOTH. BY-PRODUCTS SHALL BELONG TO THE LICENCEE ONL Y. 09. ALL MATERIALS REQUIRED FOR PRODUCTION AND PACKA GING ARE TO BE BROUGHT IN BY THE LICENCEE ONLY ON ITS ACCOUNT OF AND IN THE NAME OF THE LICENCEE ONLY. THE LICENCEE AGREES THAT SSIEL SHALL NOT AT ANY TIME BE MADE TO INCUR ANY LIABILITY O R RESPONSIBILITY WHATSOEVER ON ANY OR ALL OF THESE INPU TS. 9. FIRST THING THE COME OUT FROM THE ABOVE AGREEMEN T IS THAT THE REFINERY WAS TO BE MANAGED AND OPERATED BY THE ASSE SSEE AND THE ASSESSEE HAD THE FINAL SAY ON THE RAW EDIBLE OIL PR ODUCTS THAT WERE TO BE USED. REFINED EDIBLE OILS WERE TO BE MARKETED U NDER THE BRAND NAME OF THE ASSESSEE ONLY. IN OTHER WORDS, ASSESSE E WAS INTIMATELY INVOLVED IN THE BUSINESS THOUGH NOT DIRECTLY DOING IT. CLAUSE 4 OF THE ABOVE AGREEMENT ALSO MENTIONS THAT PERSONNEL EMPLOY ED BY THE ASSESSEE WOULD AUTOMATICALLY GET DEPUTED TO THE LIC ENCEE. IT IS THUS IN OUR OPINION EXPLOITATION OF A COMMERCIAL ASSET B Y THE ASSESSEE AS THE LICENCEE WAS NOT GIVEN A PERMANENT RIGHT TO USE . IT IS CLEAR THAT THE VALIDITY OF THE LICENCE WAS ONLY UPTO 31.12.200 9 AND IF ANY RENEWAL WAS TO BE THERE, IT HAD TO BE DONE ON MUTUA LLY ACCEPTABLE TERMS. 10. NOW, IF WE LOOK AT THE ANNUAL REPORT OF THE ASS ESSEE-COMPANY FOR THE RELEVANT PREVIOUS YEAR, NO DOUBT, IT IS MEN TIONED BY THE I.T.A. NO. 96/MDS/11 12 DIRECTORS THAT REVIVAL WOULD BE POSSIBLE ONLY IF SU PPORT WAS FORTHCOMING FROM THE LENDERS DURING THE IMPLEMENTAT ION OF THE REHABILITATION PLAN. NEVERTHELESS, IT IS ALSO MENT IONED BY THE DIRECTORS AT PARA 2 OF THEIR REPORT THAT THEY WERE CONFIDENT OF SUCCEEDING IN THE APPEAL BEFORE APPELLATE AUTHORITY FOR INDUSTRIAL & FINANCIAL RECONSTRUCTION, WHICH WOULD FACILITATE RE VIVAL OF ASSESSEE- COMPANYS BUSINESS OPERATIONS. ASSESSEE HAD FILED AN APPEAL BEFORE APPELLATE AUTHORITY FOR INDUSTRIAL AND FINAN CIAL RECONSTRUCTION, CHALLENGING THE REJECTION OF ITS REFERENCE BEFORE B IFR, ON 17 TH JANUARY, 2006. HENCE, CONTEMPLATION OF THE ASSESSE E WAS ALWAYS TO REVIVE ITS BUSINESS AND NOT TO LET ITS PREMISES OUT PERMANENTLY. THE ACCOUNTS WERE ALSO PREPARED BY THEM ON A GOING CONC ERN BASIS. ASSESSEE ALSO HAD CURRENT ASSETS WHICH INCLUDED INV ENTORY OF ` 174.57 LAKHS AS SEEN FROM SCHEDULE 7 OF ITS AUDITED ACCOUNTS STATEMENT FOR THE RELEVANT PREVIOUS YEAR. SUCH INV ENTORY INCLUDED RAW MATERIALS ` 53.75 LAKHS, WORK IN PROCESS ` 26.34 LAKHS, FINISHED STOCK ` 64.35 LAKHS. NO DOUBT, THESE WERE HELD AT THE SAM E VALUE FROM PREVIOUS FINANCIAL YEAR ENDED 31.3.2006. BUT, HAD THE INTENTION OF THE COMPANY BEEN TO DISCONTINUE ITS BUSINESS, TH EN IT WOULD NOT HAVE HELD ON TO SUCH INVENTORY, WITHOUT DISPOSING O F THEM. THE I.T.A. NO. 96/MDS/11 13 INTENTION, AS SEEN IN THE HOLDING OF INVENTORY, ALS O WAS TO RESUME ITS OPERATION AS SOON AS POSSIBLE. 11. COMING TO THE DECISION OF HON'BLE APEX COURT IN THE CASE OF UNIVERSAL PLAST LTD. (SUPRA), NO DOUBT THEIR LORDSH IPS HAD CONSIDERED ITS EARLIER DECISION IN THE CASE OF VIKRAM COTTON M ILLS LTD. (SUPRA). HOWEVER, WE ARE UNABLE TO ACCEPT ARGUMENT OF THE LE ARNED D.R. THAT THE DECISION IN THE CASE OF VIKRAM COTTON MILLS LTD . (SUPRA) STOOD OVERRULED BY THE UNIVERSAL PLAST LTD. (SUPRA). IN THE CASE OF UNIVERSAL PLAST LTD. (SUPRA), THERE WAS A CLEAR FINDING THAT THE ASSESSEE HAD NO INTENTION TO RESUME ITS BUSINESS AND THE AGREEMENT ENTERED INTO BY THE ASSESSEE WAS ONE FOR LEASE-CUM-SALE. AFTER REF ERRING TO VARIOUS DECISIONS ON THE ISSUE REGARDING TREATMENT OF THE A MOUNTS BY AN ASSESSEE ON LETTING OUT OF ASSETS OF ITS BUSINESS, HON'BLE APEX COURT CULLED OUT THE PRINCIPLES INVOLVED, AT PARA 12 OF I TS ORDER WHICH READ AS UNDER:- (1) NO PRECISE TEST CAN BE LAID DOWN TO ASCERTAIN W HETHER INCOME (REFERRED TO BY WHATEVER NOMENCLATURE, LEASE AMOUNT, RENTS, LICENCE FEE) RECEIVED BY AN ASSESSEE FROM LEA SING OR LETTING OUT OF ASSETS WOULD FALL UNDER THE HEAD PROFITS AN D GAINS OF BUSINESS OR PROFESSION; I.T.A. NO. 96/MDS/11 14 (2) IT IS A MIXED QUESTION OF LAW AND FACT AND HAS TO BE DETERMINED FROM THE POINT OF VIEW OF A BUSINESSMAN IN THAT BUSINESS ON THE FACTS AND IN THE CIRCUMSTANCES OF E ACH CASE INCLUDING TRUE INTERPRETATION OF THE AGREEMENT UNDE R WHICH THE ASSETS ARE LET OUT; (3) WHERE ALL THE ASSETS OF THE BUSINESS ARE LET OU T, THE PERIOD FOR WHICH THE ASSETS ARE LET OUT IS A RELEVANT FACT OR TO FIND OUT WHETHER THE INTENTION OF THE ASSESSEE IS TO GO OUT OF BUSINESS ALTOGETHER OR TO COM BACK AND RESTART THE SAME. (4) IF ONLY OR FEW OF THE BUSINESS ASSETS ARE LET OU T TEMPORARILY WHILE THE ASSESSEE IS CARRYING OUT HIS OT HER BUSINESS ACTIVITIES THEN IT IS A CASE OF EXPLOITING THE BUSI NESS ASSETS OTHERWISE THAN EMPLOYING THEM FOR HIS OWN USE FOR MA KING PROFIT FOR THAT BUSINESS; BUT IF THE BUSINESS NEVER STARTE D OR HAS STARTED BUT CEASED WITH NO INTENTION TO BE RESUMED, THE ASSETS ALSO WILL CEASE TO BE BUSINESS ASSETS AND THE TRANS ACTION WILL ONLY BE EXPLOITATION OF PROPERTY BY AN OWNER THEREOF, BUT NOT EXPLOITATION OF BUSINESS ASSETS. ONE OF THE DECISIONS RELIED ON BY HON'BLE APEX COUR T FOR CULLING OUT THE ABOVE PRINCIPLES WAS THAT OF VIKRAM COTTON MILL S LTD. (SUPRA) BUT, THERE WAS NO OVERRULING WHATSOEVER. IF THE BUSINES S NEVER STARTED OR HAD STARTED, BUT CEASED WITH NO INTENTION TO BE RES UMED, THEN THE ASSETS WOULD CEASE TO BE BUSINESS ASSETS. HERE, AS AFORESAID, ASSESSEE HAD AN INTENTION TO RESUME AND IT WAS NOT A CASE WHERE BUSINESS HAD NEVER STARTED. ASSESSEES BRAND NAMES WERE USED BY THE LICENCEE, ITS PERSONNEL WERE USED BY THE LICENC EE AND IT HAD CONTROL OVER THE QUALITY OF RAW MATERIALS ALSO. WE CANNOT SAY THAT I.T.A. NO. 96/MDS/11 15 THERE WAS A STOPPAGE OF THE BUSINESS AS A WHOLE, BU T THE FACT OF MATTER WAS THAT BUSINESS WAS BEING CONTINUED BY THE ASSESSEE IN A DIFFERENT MANNER. EVEN IF WE PRESUME THAT THERE WA S A TEMPORARY STOPPAGE, THERE WAS A CLEAR INTENTION TO RESUME. VI S--VIS RELIANCE PLACED ON THE DECISION OF APEX COURT IN THE CASE OF PODAR CEMENT PVT. LTD. (SUPRA) BY THE REVENUE, THERE WHAT WAS RE NTED OUT WAS BUILDING AND NOT A FACTORY UNIT AS SUCH. WE, THERE FORE, HOLD THAT LD. CIT(APPEALS) WAS JUSTIFIED IN DIRECTING THE A.O. TO TREAT THE INCOME OF THE ASSESSEE UNDER THE HEAD INCOME FROM BUSINESS. NO INTERFERENCE IS CALLED FOR. 12. IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON 24 TH JUNE, 2011. SD/- SD/- (GEORGE MATHAN) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 24 TH JUNE, 2011. KRI. COPY TO: APPELLANT/RESPONDENT/CIT(A)-V, CHENNAI-34 / CIT, CHENNAI-III, CHENNAI/D.R./GUARD FILE