TITLE: M/S. OBEROI BUILDING & INVESTMENT (P) LIMITED Vs. COMMISSIONER OF INCOME TAX – II, KOLKATA & ANR.
CITATION: ITA/168/2010
DECIDED ON: 15 DECEMBER 2023
CORAM: JUSTICE SURYA PRAKASH KESARWANI, JUSTICE RAJARSHI BHARADWAJ
Facts of the Case
The case involves M/S. Oberoi Building & Investment (P) Limited challenging the Income Tax Appellate Tribunal’s order. The appellant, a subsidiary of EIH Limited, entered into a leave and license agreement in 1972, obtaining office space for 50 years. The appellant sub-licensed this space for business purposes. The dispute arose when, during the assessment year 2005-06, the assessing officer categorized the income from sub-licensing as “income from house property” rather than “income from business.” The Commissioner of Income Tax (Appeal) accepted the appellant’s argument that its primary business was property licensing and sub-licensing, and the income was consistently disclosed as business income. However, the Income Tax Appellate Tribunal overturned this decision, leading to the appeal before the High Court. The High Court framed substantial questions of law, addressing the nature of the income and the interpretation of the license agreement. Relying on legal provisions and precedents, the court concluded that the appellant’s core business was property licensing and sub-licensing. It held that the income from sub-licensing and related services should be treated as business income. The court allowed the appeal, directing the refund of any deposited amounts and answering the substantial questions of law in favor of the appellant.
Legal Provisions:
Section 22 of the Income Tax Act deals with the assessment of income from house property.
Section 28 of the Income Tax Act deals with the taxation of income derived from the business. Section 27(3b) defines the term “deemed owner” in the context of house property for taxation purposes. Section 269 UA(f) defines the term “transfer” for the purpose of the Income Tax Act.
Issues Involved:
Whether the income arising from sub-licensing and services provided can be assessed under Section 22 of the Income Tax Act as income from house property or under Section 28 as business income? Whether the license agreement dated 25th April 1972 constitutes a transfer under Section 269UA(f), and whether the assessee can be treated as a deemed owner under Section 27(3b) of the Income Tax Act?
Court’s Observation and Analysis
The court considered the appellant’s main business objective, as outlined in its Memorandum of Association, which includes acquiring property on license or purchase and sub-licensing or leasing such property. The court observed that the appellant’s primary business is the licensing and sub-licensing of property. The court referred to the judgments in Rajdadarkar and Associates and Chennai Properties and Investments Limited, emphasizing that the nature of the activity determines whether income is to be treated as business income or income from house property. The court held that if letting out of premises itself is the business of the assessee, the income can be treated as business income. The Memorandum of Association clearly stated the appellant’s objective of acquiring premises for sub-licensing, and the court noted that the appellant had consistently disclosed income as business income in its tax returns. The court cited Royla Corporation Private Limited, where it was held that income earned by renting property by a company engaged in the business of renting is business income. The court distinguished the assessing officer’s treatment of income from house property in the assessment year 2005-06, highlighting that in subsequent years, the Income Tax Department consistently accepted the appellant’s income as business income. The court referred to the ITAT’s order in ITA No. 1640/KOL/2014 for the assessment year 2006-07, where the tribunal upheld the income as business income. The court allowed the appeal, holding that the income derived from sub-licensing and related services by the appellant is business income and not income from house property. The court set aside the order of the Income Tax Appellate Tribunal and affirmed the order of the CIT (A). The court directed the refund of any amount deposited by the appellant towards the demand raised by the assessing officer. The substantial questions of law were answered in favor of the assessee and against the revenue.
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Written by- Komal Goswami
