TRAVANCORE SUGARS AND CHEMICALS LTD. V. DEPUTY COMMISSIONER OF INCOME TAX

ITA/282/2010

AI Insights

The case involves Travancore Sugars and Chemicals Ltd., the appellant, contesting the classification of rental income from properties let out to various entities, including KSBC, as income from business rather than income from house property. The Income Tax Department, represented by the Commissioner of Income Tax, Cochin, challenged this classification. The High Court of Kerala examined whether the rental income should be considered business income based on precedents and the nature of the asset's use. The court referenced several judgments, including the Malabar and Pioneer Hosiery (P.) Ltd case, to determine the correct classification of the income. Ultimately, the court found that the rental income did not qualify as business income and upheld the decisions of the lower authorities.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 764203 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 31-03-2022
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax v. Malabar and Pioneer Hosiery (P.) Ltd, Karanpura Development Co. v. The Commissioner of Income Tax, West Bengal, Commissioner of Income Tax, Bombay City I, Bombay v. National Storage Pvt. Ltd., Bombay, Sultan Brothers Private Ltd v. Commissioner of Income Tax, Bombay City II, Attukal Shopping Complex P. Ltd v. Commissioner of Income Tax, Universal Plast Ltd v. Commissioner of Income Tax, Calcutta, East India Housing and Land Development Trust Ltd. v. Commissioner of Income Tax, West Bengal, Calcutta, Shri Lakshmi Silk Mills Limited v. Commissioner of Income Tax, Bombay City
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: JOSE JOSEPH
• Assessee Lawyers: RAJAKANNAN; E K NANDAKUMAR; ANIL D NAIR
• Keywords: Assessment Year; Income from Business; Income from house property; Rental income
• Section: 147; 148; 143(3); 153A; 68

Judgement Text

" IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS & THE HONOURABLE MR.JUSTICE BASANT BALAJI THURSDAY, THE 31ST DAY OF MARCH 2022 / 10TH CHAITHRA, 1944 ITA NO. 11 OF 2008 AGAINST THE ORDER IN ITA 297/2006 OF I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/S: TRAVANCORE SUGARS AND CHEMICALS LTD. VALANJAVATTOM, THIRUVALLA. BY ADVS. SRI RAJA KANNAN, SRI.E.K.NANDAKUMAR; SRI.ANIL D. NAIR RESPONDENT/S: COMMISSIONER OF INCOME TAX, COCHIN BY ADV SRI.JOSE JOSEPH, SC, FOR INCOME TAX OTHER PRESENT: ADV RAJA KANNAN FOR THE APPELLANT THIS INCOME TAX APPEAL HAVING COME UP FOR REFERENCE AND RESERVED FOR JUDGMENT ON 03.03.2022, ALONG WITH ITA.12/2008, 279/2010 AND CONNECTED CASES, THE COURT ON 31.03.2022 DELIVERED THE FOLLOWING: ITA Nos.11/2008, 12/2008, 279/2010, 282/2010, 292/2010 -2- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS & THE HONOURABLE MR.JUSTICE BASANT BALAJI THURSDAY, THE 31ST DAY OF MARCH 2022 / 10TH CHAITHRA, 1944 ITA NO. 12 OF 2008 AGAINST THE ORDER IN ITA 605/2006 OF I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/S: TRAVANCORE SUGARS AND CHEMICALS LTD. VALANJAVATTOM, THIRUVALLA. BY ADVS. SRI RAJA KANNAN; SRI.E.K.NANDAKUMAR SRI.ANIL D. NAIR RESPONDENT/S: COMMISSIONER OF INCOME TAX, COCHIN BY ADV SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING COME UP FOR REFERENCE AND RESERVED FOR JUDGMENT ON 03.03.2022, ALONG WITH ITA.11/2008 AND CONNECTED CASES, THE COURT ON 31.03.2022 DELIVERED THE FOLLOWING: ITA Nos.11/2008, 12/2008, 279/2010, 282/2010, 292/2010 -3- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS & THE HONOURABLE MR.JUSTICE BASANT BALAJI THURSDAY, THE 31ST DAY OF MARCH 2022 / 10TH CHAITHRA, 1944 ITA NO. 279 OF 2010 AGAINST THE ORDER IN ITA 885/2000 OF I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/S: TRAVANCORE SUGARS AND CHEMICALS LTD VALANJAVATTOM,THIRUVALLA. BY ADVS. SRI RAJA KANNAN; SRI.E.K.NANDAKUMAR SRI.K.JOHN MATHAI; SRI.P.BENNY THOMAS SMT.PREETHA S.NAIR RESPONDENT/S: DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1, TIRUVALLA. BY SC SRI JOSE JOSEPH THIS INCOME TAX APPEAL HAVING COME UP FOR REFERENCE AND RESERVED FOR JUDGMENT ON 03.03.2022, ALONG WITH ITA.11/2008 AND CONNECTED CASES, THE COURT 31.03.2022 DELIVERED THE FOLLOWING: ITA Nos.11/2008, 12/2008, 279/2010, 282/2010, 292/2010 -4- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS & THE HONOURABLE MR.JUSTICE BASANT BALAJI THURSDAY, THE 31ST DAY OF MARCH 2022 / 10TH CHAITHRA, 1944 ITA NO. 282 OF 2010 AGAINST THE ORDER IN ITA 886/2008 OF I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/S: TRAVANCORE SUGARS AND CHEMICALS LTD. VALANJAVATTOM, THIRUVALLA. BY ADVS. SRI RAJA KANNAN; SRI.E.K.NANDAKUMAR SRI.P.BENNY THOMAS; SRI.K.JOHN MATHAI RESPONDENT/S: DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-I, THIRUVALLA. BY SC SRI JOSE JOSEPH THIS INCOME TAX APPEAL HAVING COME UP FOR REFERENCE AND RESERVED FOR JUDGMENT ON 03.03.2022, ALONG WITH ITA.11/2008 AND CONNECTED CASES, THE COURT ON 31.03.2022 DELIVERED THE FOLLOWING: ITA Nos.11/2008, 12/2008, 279/2010, 282/2010, 292/2010 -5- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS & THE HONOURABLE MR.JUSTICE BASANT BALAJI THURSDAY, THE 31ST DAY OF MARCH 2022 / 10TH CHAITHRA, 1944 ITA NO. 292 OF 2010 AGAINST THE ORDER IN ITA 887/2008 OF I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/S: TRAVANCORE SUGARS AND CHEMICALS LTD VALANJAVATTOM, THIRUVALLA. BY ADVS. SRI RAJA KANNAN; SRI.E.K.NANDAKUMAR SMT.PREETHA S.NAIR; SRI.P.BENNY THOMAS; SRI.K.JOHN MATHAI RESPONDENT/S: DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-II, THIRUVALLA. BY ADV SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING COME UP FOR REFERENCE AND RESERVED FOR JUDGMENT ON 03.03.2022, ALONG WITH ITA.11/2008 AND CONNECTED CASES, THE COURT ON 31.03.2022 THE FOLLOWING: ITA Nos.11/2008, 12/2008, 279/2010, 282/2010, 292/2010 -6- J U D G M E N T [ITA Nos. 11/2008; 12/2008; 279/2010; 282/2010; 292/2010] S.V. Bhatti, J. We heard Mr.Rajakannan, learned counsel for the appellant and Mr. Jose Joseph, learned Standing Counsel for the respondent. 2. Travancore Sugars and Chemicals Ltd., Thiruvalla/assessee, is the appellant. The Commissioner of Income Tax, Cochin/Revenue, is the respondent. 2.1 The assessee, for the subject Assessment Years, claimed the rental income earned by the assessee as income from the business. The assessee's claim was not accepted by all the authorities, including the Tribunal, hence the subject ITA Nos.11/2008, 12/2008, 279/2010, 282/2010, 292/2010 -7- appeals. I.T.A. No.11/2008 is the representative appeal for the narrative of circumstances in issue between the parties. Since the events and points are similar in all other appeals, the reference to one case would be sufficient for answering/deciding the appeals. I.T.A. No.11/2008 3. The assessee, a Government Company, manufactures and sells Indian Made Foreign Liquor (IMFL). On 26.10.2004, the assessee filed a tax return for the Assessment Year 2004-05 as 'Nil' income. In the appeal and the companion appeals, the issue relates to the assessee's claim to treat the rental income received by the assessee as income from business and not income from house property. The assessee let out a few of its assets, namely godown, building premises etc., to Kerala State ITA Nos.11/2008, 12/2008, 279/2010, 282/2010, 292/2010 -8- Beverages Corporation (KSBC), State Bank of Travancore (SBT), Police Station, etc. The assessee claimed the rental income from KSBC, amounting to Rs.12 lakh per annum, as income from the assessee's business. Through an order in Annexure-A dated 12.01.2006, the Assessing Officer disallowed the claim of the assessee to treat the rental income as income from the business. The said view of the Assessing Officer has been confirmed by the Commissioner of Income Tax (Appeals) in Annexure-B order dated 14.03.2006, and by the Income Tax Appellate Tribunal (for short 'the Tribunal'), vide order dated 24.08.2007. 3.1 The assessee placed strong reliance on the judgment in Commissioner of Income Tax v. Malabar and Pioneer Hosiery (P.) Ltd1, especially the following paragraph: 1 [1996] 221 ITR 117 (Ker.) ITA Nos.11/2008, 12/2008, 279/2010, 282/2010, 292/2010 -9- 'It is also necessary to see the situational peculiarities. If a commercial asset in a given case is not capable of being used as such and then it is let out to others, it has to be understood with reference to the character of the asset and not with reference to it being temporarily put out of use or let to another person to use in his business or trade. The income is related to the source in question and if the source is the commercial asset, irrespective of the manner in which the asset is exploited by the owner of the business, the income would have to be understood as “Income from business\" because to mean the situations of exigencies, the owner of the asset will have to be understood to have a right to exploit the situation to the best of his advantage. He may use it for himself or he may earn income by letting it out to someone else. Whatever may be the line of action, the source does not get polluted with regard to the understanding in the process of required classification.” 4. Through Reference Order dated 22.11.2018, the Division Bench, noticing the similarity of circumstances in Malabar and Pioneer Hosiery (P.) Ltd case and the case on hand, expressed its reservations on the correctness of the view taken by the Division Bench in Malabar and Pioneer Hosiery (P.) Ltd case ITA Nos.11/2008, 12/2008, 279/2010, 282/2010, 292/2010 -10- referred the matter to a Larger Bench. The operative portion of the Reference Order reads thus: “10. We notice that the Division Bench in Malabar and Pioneer Hosiery (P.) Ltd. has specifically found that the issue has to be decided on the facts arising in each case and there could be no general principle laid down. We find from the extracted portion in Karanpura Development Co. that here the lease was not part of the business of the assessee which was manufacture and sale of IMFL. Likewise in Malabar and Pioneer Hosiery (P.) Ltd., the renting of godown to stock rice was not related to manufacture of hosiery and handloom goods. Since we notice that the facts in the reported decision of the Division Bench of this Court and the facts available in the present appeals are identical, judicial discipline requires reference to a Larger Bench. We, hence direct the Registry to place the matter before the Hon'ble the Chief Justice for appropriate orders.” 4.1 The learned counsel appearing for the assessee and the Revenue, after appreciating the scope, purpose and object of consideration by the Full Bench of this Court, have stated that the Full Bench needs to consider the correctness or otherwise of ITA Nos.11/2008, 12/2008, 279/2010, 282/2010, 292/2010 -11- the view taken by a Division Bench of this Court in Malabar and Pioneer Hosiery (P.) Ltd and the assessee's claim for treating the rental income as income from business; may have to decide on the merits of the matter. The Full Bench heard the learned counsel on the following point: “Whether the rent income received by the assessee from the premises let out to KSBC can be held as income earned from business by following the judgment in Malabar and Pioneer Hosiery (P.) Ltd case or is it to be treated as income from house property? 5. Mr Raja Kannan argues that the assessee, from the nature of manufacturing activity undertaken by it and the compulsion to sell the product to KSBC, has made a working arrangement by letting the godown of the assessee to KSBC. The assessee was before the Board for Industrial and Financial ITA Nos.11/2008, 12/2008, 279/2010, 282/2010, 292/2010 -12- Reconstruction (BIFR) from 1995 to 2012. Under the lease agreement dated 24.06.1998, the assessee rented its godown/warehouse to KSBC for seven years. The rental income from KSBC is treated as business income for the Assessment Year 1999-2000. The treatment of rental income as income from property in the preceding Assessment Years neither would act as consent nor preclude the assessee from claiming the rental income as income from business in the subject and subsequent Assessment Years. The demised premises is a business asset of the assessee. The assessee incurs loading, unloading, transportation charges etc., for delivering the product at the doorstep of KSBC. By letting out the godown to KSBC, the assessee reduces the operational cost of IMFL product and enhances the profitability from the business activity ITA Nos.11/2008, 12/2008, 279/2010, 282/2010, 292/2010 -13- undertaken by it. The rental income forms part of the income generated along with the manufacture of IMFL. The products manufactured by the assessee are sold only to KSBC. At any rate, the rental arrangement made with KSBC is the generation of income by exploitation of one of the business assets of the assessee. At one point, the assessee utilised the business asset; now, the business asset is let out to KSBC, and rental income received from such letting out is to be treated as income from the business. The assessee since has a right to exploit the business asset to the best of its advantage, the rental income received from KSBC should have been treated as income from the assessee's business. The yield of income from an asset of a business is the company's profit, irrespective of how that asset is put to use. ITA Nos.11/2008, 12/2008, 279/2010, 282/2010, 292/2010 -14- 5.1 He emphasizes the argument that the character or source of an asset will not lose its original nature because of a temporary arrangement. He lays further emphasis on Malabar and Pioneer Hosiery (P.) Ltd case, particularly the sentences excerpted supra. He, therefore, argues that the ratio laid down by a Division Bench of this Court in Malabar and Pioneer Hosiery (P.) Ltd case, in similar circumstances, is applicable in all fours to the circumstances of the case. Firstly, he prays for allowing the appeal in terms of the ratio laid down by the Division Bench of this Court, and, the judgments reported in Commissioner of Excess Profits Tax, Bombay City v. Shri Lakshmi Silk Mills Limited2; Universal Plast Ltd v. Commissioner of Income Tax, Calcutta3; East India Housing and Land Development Trust Ltd. v. Commissioner of 2 [1951] 20 ITR 451 (SC) 3 (1999) 5 SCC 189 ITA Nos.11/2008, 12/2008, 279/2010, 282/2010, 292/2010 -15- Income Tax, West Bengal, Calcutta4; Karanpura Development Co. Ltd. v. The Commissioner of Income Tax, West Bengal5; and Commissioner of Income Tax, Bombay City I, Bombay v. National Storage Pvt. Ltd., Bombay6 . 6. Mr.Jose Joseph argues that whether the income received by the assessee is by exploiting the business asset or otherwise employing them for the assessee's own use for making a profit for that business is a substantial question of facts and law. The nature of receipt is dependent on the totality of circumstances of a case. The assessee in the subject Assessment Year has shown the rental income as income from the business. The assessee's case is that regarding operational advantages the assessee derives by letting out the godown to 4 (1961) 42 ITR 49 5 (1962) 44 ITR 362 6 (1967) 66 ITR 596 ITA Nos.11/2008, 12/2008, 279/2010, 282/2010, 292/2010 -16- KSBC, the rental income earned from such activity be reckoned as income from the business. According to him, the said argument is without merit. That, the mere fact the assessee derives operational advantage is not the criteria for classifying the rental income as income earned from the business. For meriting consideration as income from the assessee's business, the assessee must establish that the assessee has exploited the commercial asset for earning such income. There is no precise or definite meaning for the expression 'commercial asset', and it is different from letting plant/machinery on a rental basis to a third party. 6.1 In the case on hand, the operational advantage is not definite in its sense and if the argument is accepted, in the case of a godown, the same analogy is extended to other premises let ITA Nos.11/2008, 12/2008, 279/2010, 282/2010, 292/2010 -17- out by the assessee namely to Bank, Police Station etc. He relied on the judgments reported in Sultan Brothers Private Ltd v. Commissioner of Income Tax, Bombay City II7 and Attukal Shopping Complex P. Ltd v. Commissioner of Income Tax8. He contends that the findings of fact recorded by the Tribunal are with reference to the circumstances stated by the assessee and upon consideration of all the documents, including the subject lease agreement with KSBC. Therefore, the findings of fact do not warrant interference. The view of this Court in Malabar and Pioneer Hosiery (P.) Ltd case is in tune with the ratio of the Supreme Court in Karanpura Development Co. Ltd.; Shri Lakshmi Silk Mills Limited etc. or expanding the dictum. The view in Malabar and Pioneer Hosiery (P.) Ltd case is incorrect and far 7 (1964) ITR 353 8 (2003) 259 ITR 567 ITA Nos.11/2008, 12/2008, 279/2010, 282/2010, 292/2010 -18- beyond the ratio laid down by the Apex Court in the same judgments on which the assessee is relying. 6.2 Firstly, it is argued that the ratio of Malabar and Pioneer Hosiery (P.) Ltd case in all fours is applicable to the case on hand, and, secondly, from the very nature of explanation given by the assessee for including the rental income as income from business and the findings of fact recorded by the Tribunal, it is argued that the authorities under the Act have correctly treated the subject rental income as income from house property. He prays for declaring the position as narrated above and dismissing the appeals. 7. The genesis of reference to the Larger Bench is already noted. The assessee argues that the income is related to the source in question; the source is the commercial asset ITA Nos.11/2008, 12/2008, 279/2010, 282/2010, 292/2010 -19- irrespective of how the owner exploits the asset; the income would have to be understood as income from the business, which is the basis for reference to the Larger Bench. To appreciate whether the above observation by the Division Bench in Malabar and Pioneer Hosiery (P.) Ltd case conforms to the ratio, principle or obiter laid down by the Apex Court in all the judgments referred to by both the parties, we consider it proper to excerpt the very paragraphs which deal with treating whether the rental income is income from business or income from house property. 8. Juxtaposing the narrative with our consideration of the issue, we notice that in Malabar and Pioneer Hosiery (P.) Ltd case, the Division Bench for ascertaining a category of income, laid substantial emphasis on the relatability of income to a ITA Nos.11/2008, 12/2008, 279/2010, 282/2010, 292/2010 -20- particular source. The source of income is from a commercial asset; without reference to how the owner exploits the asset, then the income would have to be understood as income from the business. Stated precisely, Malabar and Pioneer Hosiery (P.) Ltd case lays down a simple test viz. generation of income and the source of such income are from a commercial asset, then, the income merits inclusion as business income. 8.1 Let us chronologically advert to situations considered in the judgments referred to above, to ascertain whether those principles would vouchsafe the broad view taken in Malabar and Pioneer Hosiery (P.) Ltd case. Shri Lakshmi Silk Mills Limited case was dealing with leasing out of a dyeing Plant - a commercial asset proper and specific at the hands of the assessee. There it was held that the yield of ITA Nos.11/2008, 12/2008, 279/2010, 282/2010, 292/2010 -21- income by a commercial asset is the business's profit irrespective of how the business owner exploits that asset, i.e. commercial asset. He is entitled to exploit it to his best advantage, and he may do so either by using it himself personally or by letting it out to somebody else.\" 8.2 East India Housing and Land Development Trust Ltd. case dealt with the situation of an assessee whose object was promoting and developing markets. The rental income received from the shops was claimed as income taxable under \"profits or gains of business\". The distinct heads of income specified in Section 6 of the Income Tax Act 1962 were considered and held that the sources are mutually exclusive, and the income derived from different sources falling under a specific head has to be computed for the purpose of taxation in the manner provided by appropriate section. If the income from a source falls within ITA Nos.11/2008, 12/2008, 279/2010, 282/2010, 292/2010 -22- a specific head, set out in Section 6, the fact that it may indirectly be covered by another head will not make the income taxable under the latter head. Referring to Commercial Properties Ltd. v Commissioner of Income Tax9, it is also held that merely because the owner of the property was a company incorporated with the object of owning property, the incidence of income derived from the property owned could not be regarded as altered; the income came more directly and specifically under the property than income from the business. 8.3 Karanpura Development Co. Ltd. was a case dealing with rental income as salami derived by a lessee, in terms of or according to the grant of sub-lease of rights in coal fields, whether such rental income constitutes profits or gains from business or property. The Calcutta High Court affirmed the 9 (1928) ILR 55 Cal 1057 ITA Nos.11/2008, 12/2008, 279/2010, 282/2010, 292/2010 -23- question \"whether on the facts and in the circumstances of the case, the sums received as salami by the assessee for granting sub-leases were trading receipts in its hands and the amount of profit therein is assessable under the Indian Income Tax\". Assessee’s appeals were dismissed. Paragraph 22 of the reported judgment reads thus: “22. Ownership of property and leasing it out may be done as a part of business, or it may be done as landowner. Whether it is the one or the other must necessarily depend upon the object with which the Act is done. It is not that no company can own property and enjoy it as property, whether by itself or by giving the use of it to another on rent. Where this happens, the appropriate head to apply is \"income from property\" (s. 9), even though the company may be doing extensive business otherwise. But a company formed with the specific object of acquiring properties not with the view to leasing them as property but to selling them or turning them to account even by way of leasing them out as an integral part of its business cannot be said to treat them as landowner but as trader. The ITA Nos.11/2008, 12/2008, 279/2010, 282/2010, 292/2010 -24- cases which have been cited in this case both for and against the assessee Company must be applied with this distinction properly borne in mind. In deciding whether a company dealt with its properties as owner, one must see not to the form which it gave to the transaction but to the substance of the matter. Californian Copper Syndicate case illustrates vividly dealings with mineral rights and concessions by a company as part of the objects of its business, or, in other words, in the doing of the business. The Calcutta cases and the case of Fry v. Salisbury House Estate Ltd. illustrate the contrary proposition. There, the property, though dealt with by a company intending to do business, was dealt with as landowner. The intention in those cases was not to derive profit by business done with those properties but to derive .income by renting them out Where a Company acquires properties which it sells or leases out with a view to acquiring other properties to be dealt with in the same manner, the company is not treating them as properties to be enjoyed in the shape of rents which they yield but as a kind of circulating capital leading to profits of business, which profits may be either enjoyed or put back into the business to acquire more properties for further profitable exploitation.\" ITA Nos.11/2008, 12/2008, 279/2010, 282/2010, 292/2010 -25- 8.4 Next decision on the point is Sultan Brothers Pvt. Ltd. The assessee, a limited company, being the plot owner, developed it into a building fitted with furniture and let it out as a hotel on rent of Rs.5,950/- for the building and hire Rs.5,000/- for the fittings. The question for decision, in this background, was how to assess the income received as rent and hire, i.e., under which section of the Income Tax Act 1962 was it assessable. 8.5 The Apex Court’s consideration has a bearing on the circumstances of the case on hand and are excerpted hereunder: \"The first contention of the appellant, as already seen, is that the assessment should be made under Section 10 as of income from a business. The reason for this preference is that under that section it would be entitled to much larger allowances as deductions in the ITA Nos.11/2008, 12/2008, 279/2010, 282/2010, 292/2010 -26- computation of the income than it would be under either section 9 or section 12. The appellant put the matter in this way. Letting out of a commercial asset is a business and what it did was to let out a commercial asset, namely, a fully equipped hotel building. It also said that the lessor's covenants in the lease showed that in making the lease, the appellant was carrying on a business and not letting out property. This is somewhat different from the way in which it was put before the Tribunal. The argument advanced before the Tribunal was not advanced in this Court and need not, therefore, be considered. It is indeed not very clear. A very large number of cases was referred to in support of this contention but it does not seem to us that much assistance can be derived from them. Whether a particular letting is business has to be decided in the circumstances of each case. We do not think that the cases cited lay down a test for deciding when a letting amounts to a business. We think each case has to be looked at from a businessman's point of view to find out whether the letting was the doing of a business or the exploitation of his property by an owner. We do not further think that a thing can by its very nature be a commercial asset. A commercial asset is only an asset used in a business and nothing else, and business may be carried on with practically all things. Therefore it is 'not possible to say that a particular activity is business because it is concerned with an asset ITA Nos.11/2008, 12/2008, 279/2010, 282/2010, 292/2010 -27- with which trade is commonly carried on. We find nothing in the cases referred, to support the proposition that certain assets are commercial assets in their very nature.\" 8.5.1 Finally held that the rent from the building will be computed separately from the income from the furniture and fixtures. In the case of rent from the building, the assessee will be entitled to the allowances mentioned in sub-section (4) of Section 12 and in the case of income from the furniture and fixtures to those mentioned in sub-section (3) and cannot assess the income under Section 9 or Section 10. 8.6 Next in point of time is Malabar and Pioneer Hosiery (P.) Ltd case. As narrated above, the Division Bench laid down, after referring to a few judgements referred to above, a broad parameter viz. \"…... The income is related to the source in question and if the source is the commercial asset, irrespective of the manner in which ITA Nos.11/2008, 12/2008, 279/2010, 282/2010, 292/2010 -28- the asset is exploited by the owner of the business, the income would have to be understood as \"income from business\" because to mean the situations of exigencies, the owner of the asset will have to be understood to have a right to exploit the situation to the best of his advantage.....\" 8.7 Universal Plast Ltd./assessee set up a factory styled as \"UPL Factory\" for manufacturing PVC sheets. The assessee suffered losses and entered a 'leave and licence' agreement to transfer the occupational right of premises in favour of the lessee. The licence fee was shown as business income, which was negatived by the authorities and the High Court of Calcutta. The question of law considered by Calcutta High Court reads thus: \"Whether on the facts and in the circumstances of the case, the Tribunal was correct in law that the income received by the assessee by leasing out the factory was business income?\" ITA Nos.11/2008, 12/2008, 279/2010, 282/2010, 292/2010 -29- The question of law considered by Andhra Pradesh High Court in Guntur Merchants Cotton Press Co. Ltd v. Commissioner of Income Tax10 reads thus: \"Whether on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the letting of godowns at Guntur and Narsaraopet and the letting of the factory with machinery at Narsaraopet and at Guntur did not constitute business of the assessee?\" (emphasis supplied) 8.8 The propositions summarised in the Universal Plast Ltd case read as follows: “(1) no precise test can be laid down to ascertain whether income (referred to by whatever nomenclature, lease amount, rents licence fee) received by an assessee from leasing or letting out of assets would fall under the head \"profits and gains of business or profession\"; 10 (1985) 154 CTR 861 (AP) ITA Nos.11/2008, 12/2008, 279/2010, 282/2010, 292/2010 -30- (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 each case including true interpretation of the agreement under which the assets are let out; (3) where all the assets of the business are let out, the period for which the 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. (4) if only or a few of the business assets are let out temporarily while the assessee is carrying out his other business activities then it is a case of exploiting the business assets otherwise than employing them for his 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 transaction will only be exploitation of property by an owner thereof, but not exploitation of business assets.\" The assessee's appeals were dismissed, and the assessee's claim of rental income as business income was rejected. ITA Nos.11/2008, 12/2008, 279/2010, 282/2010, 292/2010 -31- 9. The above discussion takes us to the next stage of our consideration, whether the ratio laid down in Malabar and Pioneer Hosiery (P.) Ltd case viz. source of income from a commercial asset as a solitary circumstance is the correct application of the ratio laid down by the Apex Court in the judgments considered or not. The events, question of law, and conclusions recorded in each one of the cases would demonstrate that source of income is one of the tests, but not an absolute proposition to treat the rental income as income from the business. The test expounded in Malabar and Pioneer Hosiery (P.) Ltd if accepted, then, the categorisation of sources of income under Section 14 of the Income Tax Act strains the plain and straightforward language employed in the Act and ITA Nos.11/2008, 12/2008, 279/2010, 282/2010, 292/2010 -32- corresponding allowances provided to different income categories. There could be cases where the rental income constitutes income from the business. Such claim is tested on the broad propositions noted in Sultan Brothers Private Ltd, Universal Plast Ltd, etc. We are not understood to mean that rental income, by and large, would merit as an income from house property or forms part of business income. Rental income from a property including a commercial asset is claimed as business income; in such cases, the comprehensive tests laid down in Sultan Brothers Private Ltd and Universal Plast Ltd are applied. Therefore, the view in Malabar and Pioneer Hosiery (P.) Ltd is a view expressed by the Division Bench in the peculiar facts of the case on hand and cannot be applied to all the instances of letting of godowns by an assessee. The rental ITA Nos.11/2008, 12/2008, 279/2010, 282/2010, 292/2010 -33- income merits acceptance as income from the business. For the view we arrive at, from the discussion of binding precedents, we hold that the ratio in Malabar and Pioneer Hosiery (P.) is made in the circumstances of the Malabar and Pioneer Hosiery (P.) case. Hence the source of income cannot be the sole test for deciding the category of income viz Whether business income or income from the property forms Section 14 of the Act? 9.1 The Division Bench expressing disagreement on Malabar and Pioneer Hosiery (P.) case referred the matter to Full Bench. We have laid down criteria for deciding the tests for determining whether the rental income received is business income or not since we are considering the merits of the matter. ITA Nos.11/2008, 12/2008, 279/2010, 282/2010, 292/2010 -34- 9.2 The next question for decision is whether the rental income in terms of the lease agreement dated 24.06.1998, in favour of KSBC, merits inclusion under income from business or not. The assessee's case is that being a manufacturer of IMFL, the assessee, by law, sold IMFL to KSBC. The letting out of godown earns receipts and avoids business overheads. The letting out is exploiting a business asset, but not letting out of property as owner. The source of income is yet another circumstance relied on by the assessee. The ratio laid down in Sultan Brothers Private Ltd and Universal Plast Ltd, is kept in our perspective. The tests need not be reiterated while considering the facts of the case on hand. However, depending on the outcome of consideration on other propositions, this will be considered. ITA Nos.11/2008, 12/2008, 279/2010, 282/2010, 292/2010 -35- 9.3 We have perused the agreement dated 24.06.1998, and we are satisfied that the arrangement is made or entered into more to adjust the outstanding liability of the assessee to KSBC. The clauses in the agreement refer to an owner of property transferring lease-hold rights. As rightly held by the appellate authority, the additional advantage or reduction in overheads is not the deciding factor for meriting a claim as business income. The crux of the matter is whether the object of the transaction, whether the assessee continues to do business or not, chances of revival, nature of asset in which third-party enjoyment right is created for consideration are relevant and essential. Looking at the circumstance stated by the assessee, it is clear that the assessee was doing the same business before the subject Assessment Year and continued to ITA Nos.11/2008, 12/2008, 279/2010, 282/2010, 292/2010 -36- do the same business of manufacture of IMFL. The assessee has let several portions of available building on lease to different individuals/entities. The parting of possession of godown, particularly in the circumstances of the case, is more as an owner of a business asset, but not for exploiting a commercial asset. The Assessing Officer, the Appellate Authority, and the Tribunal have considered the case in the right perspective and disallowed the claim of rental income as business income. By applying the ratio of the judgments considered supra, we hold that the Tribunal and the authorities have rendered available findings of fact on the assessee’s claim of rental income as business income and rejected the claim. No ground warranting interference is made out. The question is answered against the assessee and in favour of the Revenue. ITA Nos.11/2008, 12/2008, 279/2010, 282/2010, 292/2010 -37- I.T.A. Nos.12/2008; 279, 282 and 292/2010 In the light of the above discussion, these appeals fail, hence dismissed. The questions in all these appeals are answered in favour of Revenue and against the assessee. Sd/- S.V.BHATTI JUDGE Sd/- BECHU KURIAN THOMAS JUDGE Sd/- BASANT BALAJI JUDGE jjj ITA Nos.11/2008, 12/2008, 279/2010, 282/2010, 292/2010 -38- APPENDIX OF ITA 12/2008 PETITIONER ANNEXURES ANNEXURE \"A\" TRUE COPY OF THE ASSESSMENT ORDER FOR 2005-06 ISSUED BY THE INCOME TAX DEPARTMENT TO THE APPELLANT DATED 28.02.2006 ANNEXURE 'B' TRUE COPY OF THE ORDER ISSUED BY THE COMMISSIONER OF INCOME TAX (APPEALS) TO THE APPELLANT DATED 05.10.2006. ANNEXURE 'C' TRUE COPY OF THE TRIBUNALORDER DATED 30.08.2007 ISSUED TO THE APPELLANT ANNEXURE ‘D’ TRUE COPY OF THE RETURN OF INCOME DATED 26.10.2004 FOR THE ASSESSMENT YEAR 2004-05 ANNEXURE ‘E’ TRUE COPY OF THE RELEVANT EXTRACT OF THE PROFIT & LOSS ACCOUNT DATED 06.09.2005 FOR THE YEAR ENDED 31.03.2005 ALONG WITH SCHEDULE NO.13 ITA Nos.11/2008, 12/2008, 279/2010, 282/2010, 292/2010 -39- APPENDIX OF ITA 279/2010 PETITIONER ANNEXURES ANNEXURE \"A\" TRUE COPY OF THE ASSESSMENT ORDER FOR 1999-00 ISSUED BY THE INCOME TAX DEPARTMENT TO THE APPELLANT DATED 29.11.2006 ANNEXURE 'B' TRUE COPY OF THE ORDER ISSUED BY THE COMMISSIONER OF INCOME TAX (APPEALS) TO THE APPELLANT DATED 24.12.2007 ANNEXURE 'C' TRUE COPY OF THE TRIBUNAL ORDER DATED 25.02.2010 ISSUED TO THE APPELLANT ANNEXURE ‘D’ TRUE COPY OF THE RETURN OF INCOME DATED 07.11.2000 FOR THE ASSESSMENT YEAR 1999-2000 ANNEXURE ‘E’ TRUE COPY OF THE RELEVANT EXTRACT OF THE PROFIT & LOSS ACCOUNT DATED 29.07.1999 FOR THE YEAR ENDED 31.03.1999 ALONG WITH SCHEDULE NO.13 ITA Nos.11/2008, 12/2008, 279/2010, 282/2010, 292/2010 -40- APPENDIX OF ITA 282/2010 PETITIONER ANNEXURES ANNEXURE \"A\" TRUE COPY OF THE ASSESSMENT ORDER FOR 2000-01 ISSUED BY THE INCOME TAX DEPARTMENT TO THE APPELLANT DATED 08.12.2006 ANNEXURE 'B' TRUE COPY OF THE ORDER ISSUED BY THE COMMISSIONER OF INCOME TAX (APPEALS) TO THE APPELLANT DATED 24.12.2007 ANNEXURE 'C' TRUE COPY OF THE TRIBUNAL ORDER DATED 25.02.2010 ISSUED TO THE APPELLANT ANNEXURE ‘D’ TRUE COPY OF THE RETURN OF INCOME DATED 29.11.2000 FOR THE ASSESSMENT YEAR 2000-01 ANNEXURE ‘E’ TRUE COPY OF THE RELEVANT EXTRACT OF THE PROFIT & LOSS ACCOUNT DATED 28.06.2000 FOR THE YEAR ENDED 31.03.2000 ALONG WITH SCHEDULE NO.13 ITA Nos.11/2008, 12/2008, 279/2010, 282/2010, 292/2010 -41- APPENDIX OF ITA 292/2010 PETITIONER ANNEXURES ANNEXURE\"A\" TRUE COPY OF THE ASSESSMENT ORDER FOR 2001-2002 ISSUED BY THE INCOME TAX DEPARTMENT TO THE APPELLANT DATED 29.11.2006. ANNEXURE\"B\" TRUE COPY OF THE ORDER ISSUED BY THE COMMISSIONER OF INCOME TAX (APPEALS) TO THE APPELLANT DATED 24.12.2007. ANNEXURE\"C\" TRUE COPY OF THE TRIBUNAL ORDER DATED 25.02.2010 ISSUED TO THE APPELLANT. ITA Nos.11/2008, 12/2008, 279/2010, 282/2010, 292/2010 -42- APPENDIX OF ITA 11/2008 PETITIONER ANNEXURES ANNEXURE \"A\" TRUE COPY OF THE ASSESSMENT ORDER FOR 2004-05 ISSUED BY THE INCOME TAX DEPARTMENT TO THE APPELLANT DATED 12.01.2006 ANNEXURE 'B' TRUE COPY OF THE ORDER ISSUED BY THE COMMISSIONER OF INCOME TAX (APPEALS) TO THE APPELLANT DATED 14.03.2006 ANNEXURE 'C' TRUE COPY OF THE TRIBUNALORDER DATED 24.08.2007 ISSUED TO THE APPELLANT ANNEXURE ‘D’ TRUE COPY OF THE RETURN OF INCOME DATED 26.10.2004 FOR THE ASSESSMENT YEAR 2004-05 ANNEXURE ‘E’ TRUE COPY OF THE RELEVANT EXTRACT OF THE PROFIT & LOSS ACCOUNT DATED 06.09.2005 FOR THE YEAR ENDED 31.03.2005 ALONG WITH SCHEDULE NO.13 "