According To The Learned Counsel For The Assessee, It v. Cit (1964) 51 Itr 353 Andcontended That, This Is A Case Where The Assessee Wasexploiting A Commercial Asset And There

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE ANTONY DOMINIC & THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU THURSDAY, THE 19TH DAY OF OCTOBER 2017/27TH ASWINA, 1939 ITA.No. 83 of 2013 ---------------------- AGAINST THE ORDER IN ITA 249/2011 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 14/9/12 ------- APPELLANT/APPELLANT:--------------------------- PALMSHORE HOTELS (P)LIMITED, LIGHT HOUSE ROAD,VIZHINJAM,TRIVANDRUM. BY ADV. SRI.A.KUMAR RESPONDENT/RESPONDENT: -------------------------------- COMMISSIONER OF INCOME TAX(APPEALS)-I, KOWDIAR,TRIVANDRUM-695001. BY SRI.JOSE JOSEPH, SC, FOR INCOME TAX SRI.P.K.R. MENON, SC (SR.) THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 19-10-2017, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ANTONY DOMINIC, & DAMA SESHADRI NAIDU, JJ. ------------------------------------------------ I. T. A. No.83 of 2013 ------------------------------------------------ Dated this the 19[th ]day of October, 2017 JUDGMENT Antony Dominic, J. 1. aThe assessee is in appeal against the order passedby the Income Tax Appellate Tribunal, Cochin Bench in ITANo.249/2011 concerning the Assessment Year 2005-06. Bythe said order, the Tribunal allowed the appeal filed by theRevenue and set aside the order passed by theCommissioner of Income Tax (Appeals) and the assessmentorder, holding that the income derived was income fromhouse property, was restored. It is aggrieved by this orderof the Tribunal, this appeal is filed by the assessee, with thefollowing questions of law framed for the consideration ofthis Court: "AWhether, on the facts and circumstances ofthe case, the Tribunal was right in law in I. T. A. No.83 of 2013 holding that the income derived out of theproperty was chargeable under the head'Income from house property' and not underthe head 'Income from business orprofession'? B In the facts and the circumstances of thecase and in law when the assessee derivesincome from commercial asset, namely itshotel business, which asset is capable ofbeing used as a commercial asset, whetherthe asset would cease to be a commercialasset simply because it was let out to othersand is it not in law income from business nomatter whether the commercial asset is usedby itself or somebody else? C Whether the income earned from letting outa running hotel, a commercial asset, can betreated as income from house property at alland when such rental income is wholly andexclusively for business purpose and is it notliable to be assessed as Business incomeonly? DWhether on analyzing Section 22 and 28(i)of the Income Tax Act and on a conspectusof the facts and circumstances of the case,where, from the very beginning the buildingand the machinery were a hotel ofcommercial activity and the income wasfrom this commercial property, whether theincome earned out of letting a commercialasset as the hotel with the entire building,plant and machinery, furniture can be assessed as house property at all?” 2. We heard the learned counsel for the assessee andthe learned Senior Counsel appearing for the Revenue.the learned Senior Counsel appearing for the Revenue. DWhether on analyzing Section 22 and 28(i)of the Income Tax Act and on a conspectusof the facts and circumstances of the case,where, from the very beginning the buildingand the machinery were a hotel ofcommercial activity and the income wasfrom this commercial property, whether theincome earned out of letting a commercialasset as the hotel with the entire building,plant and machinery, furniture can be assessed as house property at all?” 2. We heard the learned counsel for the assessee andthe learned Senior Counsel appearing for the Revenue.the learned Senior Counsel appearing for the Revenue. 3. The facts of the case are that the assessee hereinhad constructed, established and operated a hotel by name“Hotel Palmshore”. Since the business was running onlosses, the assessee decided to give the hotel along with itsfurnishings and equipments on license basis. Accordingly,the assessee entered into an agreement of licence on 11[th]December, 2000 with M/s Abad Motels and Resorts PrivateLimited for a period of seven years. The compensation forgiving the hotel along with other furnitures and fixtures onlicence has been fixed in Article VIII of the agreement, thedetails of which may not be relevant for this judgment. Inthe return filed, the assessee offered the licence fee underthe head “income from business”. Subsequently, the returnwas processed under Section 143(3) and the income in I. T. A. No.83 of 2013 question was brought to tax as income from house property. This order was set aside by the first appellate authorityholding that the income in question was income frombusiness. The Tribunal set aside the order of the firstappellate authority and restored the order of assessment. Itis in this background, this appeal is filed. 4. According to the learned counsel for the assessee, it was taking into account the provisions of the Act, thedecided cases and the agreement between the assessee andthe licencee, that the first appellate authority has held theincome to be income from business. On the other hand, thelearned counsel for the Revenue placed considerablereliance on the judgment of the Apex Court in SultanBrothers Pvt. Ltd. v. CIT (1964) 51 ITR 353 andcontended that, this is a case where the assessee wasexploiting a commercial asset and therefore, the income inquestion was income from house property as rightlyconcluded by the Tribunal. I. T. A. No.83 of 2013 5. Having considered the submissions made, we feel that as held by the Apex Court in Sultan Brothers Pvt.Ltd. v. CIT (supra), each case has to be looked at from thebusinessman's point of view to find out whether the lettingwas the doing of a business or the exploitation of theproperty by an owner. This being the test indicated by theApex Court, according to us, the controversy should beresolved in the context of the intention of the parties asreflected in the licence agreement and the nature of therespective obligations as contained in the licence agreementwhich is also placed on record. 6. The licence agreement is dated 11[th] of December, 2000. It is stated that the licensor is desirous of appointinga hotel operator who would operate the hotel “inconformitywith standards comparable to hotels of similar standard andstanding and consistent with the facilities provided in hotelsof similar class upon the terms and conditions” set out in theagreement. Thereafter, Article III of the agreement provides 6. The licence agreement is dated 11[th] of December, 2000. It is stated that the licensor is desirous of appointinga hotel operator who would operate the hotel “inconformitywith standards comparable to hotels of similar standard andstanding and consistent with the facilities provided in hotelsof similar class upon the terms and conditions” set out in theagreement. Thereafter, Article III of the agreement provides that the licensor covenants and agrees that the licensorshall permit the licensee to operate the hotel in accordancewith the terms of the agreement. That the licence is grantedauthorising the licensee “to operate the hotel” is recited inseveral other provisions of the agreement. In Article VI, it isalso stated that on expiry of the seven year period ofagreement or on termination of the same, the licensee shallcease to have any right on the operation of the hotel andthe licensor shall have full right to operate the hotel.Clause-1 of Item-IV of Article X entitles the licensor toinspect the operations of the hotel with a view to satisfyitself that the hotel is being operated in terms of theagreement and also to intimate observation, if any, to thelicensee. Similarly, Clause-2 of Item-V of Article XV,specifically provides that the membership of the hotel in theFederation of Hotel and Restaurant Association of India,Kerala Hotel and Restaurant Association etc. will be in thename of the licensor. Similarly, provision is also made to I. T. A. No.83 of 2013 clarify that the provisions of the agreement shall not beconstrued as creating a partnership or joint venture ormanaging/selling agency or any other relationship except alicence. In Article XIV of the agreement, it is specificallyprovided that during the term of the agreement, the hotelshall be known as and designated by the logo and nameHotel Palmshore, which will be suffixed by the words “AnAbad Beach Resort” —along with Abad logo. The provisionsof the agreement also indicate that the licensor has the rightof supervisory control in the manner in which the hotel isoperated. All these, provisions of the agreement would,therefore, indicate that the licence that has been granted isthat of a fully established running hotel authorising thelicensee to operate the hotel for a specified period subject tothe terms and conditions incorporated therein. Therefore,the license granted is that of a business. These facts would,therefore, clearly indicate that the intention of the parties asreflected in the agreement was to grant licence in respect of I. T. A. No.83 of 2013 a running hotel, the income of which can only be incomefrom business. Therefore, the Commissioner of Income Taxwas fully justified in setting aside the order of assessmentand holding that the income of the assessee was incomefrom business and not income from house property. In thatview of the matter, the order of the Tribunal isunsustainable and has to be set aside and we do so. Accordingly, the appeal is disposed of setting aside theorder of the Tribunal and answering the questions of law infavour of the assessee. Sd/- ANTONY DOMINIC JUDGE Sd/- DAMA SESHADRI NAIDU JUDGE kns/- //TRUE COPY// P.S. TO JUDGE