Constitution Bench Of The Hon'ble Supreme Court Insultan Brothers Pvt. Ltd v. Commmissioner Of Income Tax

-Court No. 35Case :- INCOME TAX APPEAL No. - 52 of 2014Appellant :- M/S Meeraj Estate And DevelopersRespondent :- Commmissioner Of Income TaxCounsel for Appellant :- Rahul AgarwalCounsel for Respondent :- C.S.C. It,Gaurav Mahajanwith Case :- INCOME TAX APPEAL No. - 55 of 2014Appellant :- M/S Meeraj Estate And DevelopersRespondent :- Commmissioner Of Income TaxCounsel for Appellant :- Rahul AgarwalCounsel for Respondent :- C.S.C. It,Gaurav Mahajan Hon'ble Bharati Sapru,J.Hon'ble Rohit Ranjan Agarwal,J. (Per Hon'ble Rohit Ranjan Agarwal,J.) 1.These two appeals filed under Section 260A of theIncome Tax Act, 1961 arise out of judgment and order dated14.08.2013 passed by Income Tax Appellate Tribunal, AgraBench (hereinafter called as 'ITAT') in Income Tax Appeal No.182 and 292/ Agra/ 2012 for assessment years 2006-07 and2008-09. 2.As the issues in question are same in both the appeals,as such they are being heard and decided together by acommon order. 3.These appeals were admitted on 25.10.2017 on thefollowing question of law:- “(a) Whether in view of the facts of the caseparticularly the source of funding for acquiring theproperty, the inter-relationship between theagreements entered into by the appellant and the Constitution Bench of the Hon'ble Supreme Court inSultan Brothers Pvt. Ltd. Vs. C.I.T. (1964) 51 ITR 353(S.C.) and the Division Bench judgment of this Hon'bleCourt passed in CIT v. Goel Builders 331 ITR 344(All.), the Tribunal below was justified in holding thatthe receipts of the appellant were income from houseproperty/ other sources and not business income? (b) Whether, in view of the decisions In RadhasaomiSatsang v. CIT 193 ITR 321 (SC) and in ACIT Vs.D.M. Brothers (2010) 44 DTR 13 (All.), the decision ofthe Tribunal below in discarding the treatment of thereceipts of the appellant as business income forAssessment Year 2005-06 and in all subsequentassessment year's till A.Y. 2013-2014 (exceptassessment year's under appeals) is legally justified?” 4.The assessee is a partnership firm, which wasconstituted w.e.f. 01.07.2004, while the deed formingpartnership is dated 01.11.2004. According to the deed, theobject of the assessee firm is to venture into real estatebusiness and allied activities such as leasing/ sub leasing,maintaining properties on maintenance contract etc. It wassubsequent to formation of partnership firm, that assesseeacquired leasehold rights over a commercial propertymeasuring 6925 square feet at third floor of Block No. G10/ 8,Padam Deep Tower, Sanjay Place, Agra. The said rights wereacquired by the assessee from one M/s Pee Cee Soap andChemicals Pvt. Ltd. through a deed of assigning of leaseexecuted on 17.11.2004. The money for acquiring theleasehold right by the assessee was arranged by taking loanof Rs.1,31,04,107/- from Indian Overseas Bank and also loansof Rs.16,94,107/- from M/s Meeraj Industries and Rs.5,03,385from M/s Accurate Ferro Casting. Thereafter, the assesseeentered into an agreement with Gas Authority of India Ltd.(hereinafter called as 'GAIL') on 30.11.2004 to lease the saidproperty to GAIL for a period of 10 years. Second agreement [3] was executed by the assessee with GAIL on 14.12.2004 forfurnishing of the leased area of 6925 square feet to ensure thefurniture and fitting etc. and also to undertake major repairs.Thereafter, on 16.12.2004 third agreement was executedbetween the assessee and GAIL for maintaining the leased outarea. 5.The assessee filed a return for assessment year 2005-06at a loss of Rs.20,13.100/-. The said return was processedunder Section 143(3) of the Income Tax Act (hereinafter calledas 'Act') and reply filed by the assessee was accepted byassessing authority, which passed an order under Section143(3) of the Act on 28.12.2007. [3] was executed by the assessee with GAIL on 14.12.2004 forfurnishing of the leased area of 6925 square feet to ensure thefurniture and fitting etc. and also to undertake major repairs.Thereafter, on 16.12.2004 third agreement was executedbetween the assessee and GAIL for maintaining the leased outarea. 5.The assessee filed a return for assessment year 2005-06at a loss of Rs.20,13.100/-. The said return was processedunder Section 143(3) of the Income Tax Act (hereinafter calledas 'Act') and reply filed by the assessee was accepted byassessing authority, which passed an order under Section143(3) of the Act on 28.12.2007. 6.Return for the assessment year 2006-07 was filed byassessee on 12.06.2006 showing a loss of Rs.10,95,190/-.The case was picked under scrutiny, and notice under Section143(2) of the Act was issued on 18.06.2007. As no compliancewas made by the assessee, again notice under Section 143(2)along with notice under Section 142(1) with questionnairesdated 08.07.2008 was sent to the assessee. The assesseeappeared and replied to the various queries. The AO afterconsidering the three agreements as well as examining thestatement of one of partners of the firm found that assesseewas not involved in any kind of recurring activity to treat thereceipt as business receipt and the income of the assesseewas calculated at Rs.10,94,460/- as against loss ofRs.10,95,190/- and the setoff of brought forward loss ofassessment year 2005-06 amounting to Rs.20,13,103/- wasrejected on 14.11.2008. An appeal was filed before [4] Commissioner of Income Tax (Appeals) challenging the saidorder but the said appeal was rejected by order dated23.01.2012 by CIT (A), aggrieved by the said order a SecondAppeal was preferred before the ITAT which was also rejectedby order dated 14.08.2013, which is impugned before thisCourt. Pursuant to the order of this Court, assessee filedcopies of the partnership deed, as well as the threeagreements executed between the assessee -appellant andGAIL. 7.Sri Rahul Agarwal, learned counsel appearing for theassessee submitted that the assessee firm is in the businessof real estate and allied activities such as leasing and sub-letting, maintaining properties on contracts. He furthersubmitted that the three agreements executed between theappellant and GAIL indicates that they were supplemental/incidental to each other and were part of one compositetransaction and should not be read in isolation as done by thetaxing authorities. He further submitted that GAIL being aGovernment organisation does not enter into tenancyagreement with private parties without protracted negotiationsand usually does not conclude a transaction within a space ofa week or 10 days, as in the present case the property wasobtained by assessee on 17.11.2004 and was let out on30.11.2004, which indicates the fact that the property wasacquired in view of the ongoing discussions with GAIL to fulfilltheir office requirements. It was also contended that the entirereceipts received under the three contracts with GAIL wasclaimed under the head 'business income' and depreciationthereon was claimed and the assessee for assessment [5] year 2005-06 filed a return of loss of Rs.20,13,100/- which wasaccepted by the Additional Commissioner of Income Tax on28.12.2007, as such there was no occasion for the assessingauthority to treat the entire receipts of the appellant-assesseefrom the three agreements executed with GAIL as income fromhouse property and from other sources and not as businessincome for assessment year 2006-07. [5] year 2005-06 filed a return of loss of Rs.20,13,100/- which wasaccepted by the Additional Commissioner of Income Tax on28.12.2007, as such there was no occasion for the assessingauthority to treat the entire receipts of the appellant-assesseefrom the three agreements executed with GAIL as income fromhouse property and from other sources and not as businessincome for assessment year 2006-07. 8.Sri Rahul Agarwal, learned counsel for the assessee alsocontended that even a solitary instance/ transaction couldconstitute business so long as it was established that intentionof the assessee was to earn profit while undertaking thetransaction and not with an object of making an investment forkeeping the money safe or earning from that investment. Herelied upon a Division Bench judgment of this Court in Case ofCIT vs. Goel Builders 331 ITR 334 (All.), and which hadconsidered the distinction between income from houseproperty and income from business or profession. 9.It was also contended that assessee-appellant hadacquired the asset out of borrowed funds, which normallywould indicate an intention to carry on business and not profitfrom an investment. Counsel for the assessee relied upon thedecision of the Constitution Bench of the Supreme Court incase of Sultan Brothers Pvt. Ltd. Vs. CIT [1964] 51 ITR 353(SC), and also judgments of the Apex Court in UniversalPlast Ltd. vs. Commissioner of Income Tax [1999] 237 ITR454 (SC), Karnani Properties Ltd. vs. Commissioner ofIncome Tax [1971] 82 ITR 547 (SC), KaranpuraDevelopment Co. Ltd. vs. Commissioner of Income Tax [1962] 44 ITR 362 (SC). 10.Counsel for the assessee also relied upon the decision ofthe Supreme Court in Chennai Properties and InvestmentLtd. Vs. CIT [2015] 373 ITR 673 (SC). Relevant Para 11 isextracted hereasunder:- “11. We are conscious of the aforesaid dicta laid downin the Constitution Bench judgment. It is for thisreason, we have, at the beginning of this judgment,stated the circumstances of the present case fromwhich we arrive at irresistible conclusion that in thiscase, letting of the properties is in fact is the businessof the assessee. The assessee, therefore, rightlydisclosed the income under the head “Income frombusiness”. It cannot be treated as “Income from thehouse property”. We, accordingly, allow this appealand set aside the judgment of the High Court andrestore that of the Income Tax Appellate Tribunal. Noorders as to costs.” 11.Reliance has also been placed on a judgment of theDivision Bench of this Court in case of Hotel Arti Delux (Pvt.)Ltd. vs. Assistant Commissioner of Income Tax [2014] 227Taxman 119 (All.) wherein this Court held as under:- “15. From the recital of the lease deed it is evident thatonly the building was leased out along with a lift,tubewell and electrical fittings. These cannot betreated as plant and machinery but would be treatedas amenities, which are necessary for the use of anybuilding. We find that the appellant had not placed anymaterial on record to show that the building hadpeculiar amenities with which the building could betreated as a "plant" and not a building simplicitor. Nomaterial has been brought on record to indicate thatthe building had peculiar amenities, which could becommercially exploited such as facilities of sterilizationof surgical instruments and bandages or an operationtheatre. The Tribunal has given a categorical finding offact that the building which was leased out by theappellant was nothing else but a building simplicitorand was not a building, which was equipped withspecialized plant and machinery. This being a finding of fact, we are not inclined to interfere in such findings,especially when nothing has been brought on record toindicate that the said finding was perverse. of fact, we are not inclined to interfere in such findings,especially when nothing has been brought on record toindicate that the said finding was perverse. 16. We also find that the appellant is not running thebusiness of a hospital and has only let out the building.We are of the opinion that the income derived by theappellant was from the ownership of the building andnot from the personal exertion, which is necessary totreat the income as a business income.” 12.Further, in case of Commissioner of Income Tax vs.Shambhu Investment (Pvt.) Ltd. [2001] 116 Taxman 795(Calcutta) it was held as under:- “7. Let us approach the problem from another angle byapplying the lest suggested by the five judges' Bench in thecase of Sultan Brothers Pvt. Ltd. (supra). The threequestions framed by the apex court are applied in theinstant case as follows: (A) Was it the intention in making the lease-andit matters not whether there is one lease or two,i.e., separate leases in respect of the furnitureand the building-that the two should be enjoyedtogether ? In the instant case there is no separateagreement for furniture and fixtures or forproviding security and other amenities. The onlyintention, in our view, was to let out the portionof the premises to the respective occupants.Hence, the intention in making such agreementis to allow the occupants to enjoy the tablespace together with the furniture and fixtures.Hence, this question should be answered in theaffirmative. (B) Was it the intention to make the letting ofthe two practically one letting? From a plain reading of the agreement itappears that the intention of the parties to thesaid agreement is clear and unambiguous bywhich the first party has allowed the secondparty to enjoy the said table space uponpayment of the comprehensive monthly rent.Hence, this question should be answered in theaffirmative. (C) Would one have been let alone, and a leaseof it accepted, without the other ? As we have discussed hereinbefore that it iscomposite table space let out to variousoccupants, the amenities granted to thoseoccupants including the user of the furnitureand fixtures are attached to such letting out andthe last question, in view of the same, must beanswered in the negative. Applying the said test we hold that by the saidagreement the parties have intended that suchletting out would be an inseparable one. 8. Hence, we hold that the prime object of theassessee under the said agreement was to let out theportion of the said property to various occupants bygiving them additional right of using the furniture andfixtures and other common facilities for which rent wasbeing paid month by month in addition to the securityfree advance covering the entire cost of the saidimmovable property. In view of the facts and law discussed above we holdthat the income derived from the said property is anincome from property and should be assessed assuch.” 13.In case of Raj Dadarkar and Associates Vs. AssistantCommissioner of Income Tax, [2017] 81 Taxmann.com 193(SC), the Supreme Court held that object clause contained inpartnership deed would not be conclusive factor in determiningwhether the assessee carried on business activity, and liableto be assessed under the head 'income from business. 14.Per contra, Sri Gaurav Mahajan, learned counselappearing for the Department submitted that assessee had letout vacant floor to GAIL and the receipts from the same cannotbe treated as business income, as business is a continuousand systematic activity carried on by a person with a view toearn profit. As per the first agreement the assessee was notrequired to provide any day-to-day service or incur any day to [9] 13.In case of Raj Dadarkar and Associates Vs. AssistantCommissioner of Income Tax, [2017] 81 Taxmann.com 193(SC), the Supreme Court held that object clause contained inpartnership deed would not be conclusive factor in determiningwhether the assessee carried on business activity, and liableto be assessed under the head 'income from business. 14.Per contra, Sri Gaurav Mahajan, learned counselappearing for the Department submitted that assessee had letout vacant floor to GAIL and the receipts from the same cannotbe treated as business income, as business is a continuousand systematic activity carried on by a person with a view toearn profit. As per the first agreement the assessee was notrequired to provide any day-to-day service or incur any day to [9] day expenses to receive the leased rent receipt, whichestablishes the fact that receipts are to be taxed income from'house property' and not as income from business orprofession. Second agreement was executed between theassessee and GAIL to furnish the third floor of the building asper requirement of GAIL, meaning thereby that vacant floorwhich was leased out was furnished and finished andconverted into office by the assessee. This agreement wasconsequence of the first agreement and was executed 14 dayslater. The third agreement executed between assessee andGAIL was in regard to maintenance and upkeeping of building/floor, furniture and fittings and other equipments installed andset up in said premises, and further, only one person wasdeputed to look after premises and the income from the saidagreement should be treated as income under head 'incomefrom other sources'. 15.He further submitted that in income tax, each year isindependent year and in each year correct income is to beassessed under the correct head, and any mistake ifcommitted cannot be allowed to continue. Sri Mahajanvehemently argued that mere statement of each of the deedwould not be determinative factor to arrive at a conclusion thatincome is to be treated from business and in present case asthere was no business activity being carried out by theassessee and having failed to produce any evidence, theassessing authority as well as the Tribunal rightly rejected theclaim treating the income as income from house property andother sources and not from business or profession. 16.We have heard learned counsel for the parties andperused the material on record. 17.The question which arises for consideration is whetherthe property acquired by the assessee and subsequentlyentered into an agreement with GAIL and the receipts at thehand of assessee pursuant to the agreements is assessableunder the head 'income from business or income from houseproperty or income from other sources'. 18.The contention of the assessee hinges around twofacts, firstly that AO has already taken a view while makingassessment for the assessment year 2005-06 that income isassessable under the head 'income from business' andtherefore maintaining consistency the Assessing Officershould have not taken a different view for the subsequentassessment year, and the second ground of attack being thatthe assessee firm is in the business of real estate and alliedactivities and the three agreements executed weresupplemental and incidental to each other and are part of onecomposite transaction and should not be read in isolation, furtherthe property acquired by the assessee was for letting, as suchthe same being income from business and cannot be assessedunder the heading 'income from house property or income fromother sources'. 19.The first question raised by the appellant-assesseeregarding the maintenance of consistency by the assessingauthority, the Tribunal had recorded categorical finding in viewof the judgment of the Apex Court in case of Bhart SancharNigam Nigam Ltd. and another vs. Union of India and 19.The first question raised by the appellant-assesseeregarding the maintenance of consistency by the assessingauthority, the Tribunal had recorded categorical finding in viewof the judgment of the Apex Court in case of Bhart SancharNigam Nigam Ltd. and another vs. Union of India and others [2006] 3 SCC 1, wherein the Court held that res-judicata does not apply to tax matters for different assessmentyears, the relevant Paragraphs 20, 21, 22 are extractedhereasunder:- “20. The decisions cited have uniformly held that resjudicata does not apply in matters pertaining to tax fordifferent assessment years because res judicataapplies to debar courts from entertaining issues on thesame cause of action whereas the cause of action foreach assessment year is distinct. The courts willgenerally adopt an earlier pronouncement of the law ora conclusion of fact unless there is a new groundurged or a material change in the factual position. Thereason whey the courts have held parties to theopinion expressed in a decision in one assessmentyear to the same opinion in a subsequent year is notbecause of any principle of res judicata but because ofthe theory of precedent or the precedential value of theearlier pronouncement. Where facts and law in asubsequent assessment year are the same, noauthority whether quasi-judicial or judicial cangenerally be permitted to take a different view. Thismandate is subject only to the usual gateways ofdistinguishing the earlier decision or where the earlierdecision is per incuriam. However, these are fettersonly on a coordinate Bench which, failing thepossibility of availing of either of these gateways, mayyet differ with the view expressed and refer the matterto a Bench of superior strength or in some cases to aBench of superior jurisdiction. 21. In our opinion, the preliminary objection raised bythe State of U.P. therefore, rests on a faulty premise.The contention of the appellant-petitioners in thesematters is not that the decision in State of U.P. v.Union of India, (2003) 3 SCC 239 for that assessmentyear should be set aside, but that it should beoverruled as an authority or precedent. Therefore, thedecisions in Devilal Modi v. STO, (1965) 1 SCR 686and in Hurra v. Hurra (2002) 4 SCC 388 are notgermane. 22. A decision can be set aside in the same lis on aprayer for review or an application for recall or underArticle 32 in the peculiar circumstances mentioned inHurra v. Hurra. As we have said, overruling of adecision takes place in a subsequent lis where theprcedential value of the decision is called in question. No one can dispute that in our judicial system it isopen to a court of superior jurisdiction or strengthbefore which a decision of a Bench of lower strength iscited as an authority, to overrule it. This overrulingwould not operate to upset the binding nature of thedecision on the parties to an earlier lis in that lis, forwhom the principle of res judicata would continue tooperate. But in tax cases relating to a subsequent yearinvolving the same issue as an earlier year, the courtcan differ from the view expressed if the case isdistinguishable or per incuriam. The decision in Stateof U.P. v. Union of India related to the year 1988.Admittedly, the present dispute relates to asubsequent period. Here a coordinate Bench hasreferred the matter to a large Bench. This Bench beingof superior strength, we can, if we so find, declare thatthat the earlier decision does not represent the law.None of the decisions cited by the State of U.P. areauthorities for the proposition that we cannot, in thecircumstances of this case, do so. This preliminaryobjection of the State of U.P. is therefore rejected.” 20.The said decision was followed by the Apex Court againin case ofC.K. Gangadharan and another vs.Commissioner of Income Tax, Cochin [2008] SCC 739,while the counsel for the appellant placed reliance upon thedecision of the Apex Court in case of Radhasaomi Satsangvs. Commissioner of Income Tax [1992] 1 SCC 659.Relevant Paras 13 and 16 are extracted hereasunder:- “13. One of the contentions which the learned seniorcounsel for the assessee-appellant raised at thehearing was that in the absence of any change in thecircumstances, the Revenue should have felt boundby the previous decisions and no attempt should havebeen made to reopen the question. He relied uponsome authorities in support of his stand. A full Benchof the Madras High Court considered this question inT.M.M Sankaralinga Nadar & Bros. & Ors, v. CIT, 4ITC 226 (Mad) (FB). After dealing with the contentionthe Full Bench expressed the following opinion: "The principle to be deducted from these twocases is that where the question relating toassessment does not vary with the incomeevery year but depends on the nature of theproperty or any other question on which the rights of the parties to be taxed are based, e.g.,whether a certain property is trust property ornot, it has nothing to do with the fluctuations inthe income; such questions if decided by aCourt on a reference made to it would be resjudicata in that the same question cannot besubsequentiy agitated." 16. We are aware of the fact that strictly speaking resjudicata does not apply to income-tax proceedings.Again, each assessment year being a unit, what isdecided in one year may not apply in the followingyear but where a fundamental aspect permeatingthrough the different assessment years has beenfound as a fact one way or the other and parties haveallowed that position to be sustained by notchallenging the order, it would not be at all appropriateto allow the position to be changed in a subsequentyear.” 21.From the reading of the judgment of the Apex Court, it isclear that the judgment relied by the assessee in case ofRadhasaomi Satsang (supra) was dealt by the Apex Court inthe case of BSNL (supra) and Supreme Court held thatprincipal of res-judicata does not apply in matter pertaining totax for different assessment years, because res-judicataapplies to debar courts from entertaining issues on the samecause of action, whereas cause of action for each assessmentyear is distinct. In the case in hand, the AO for assessmentyear 2005-06 had accepted claim of the assessee withoutexamining relevant records, as well as without recording anyfinding on the issue in question. Thus, for subsequent year, theclaim of assessee cannot be accepted without examiningrecords and material, and AO after examining the recordscame to conclusion and took a view that receipts at the handof assessee was to be assessed under income from houseproperty and income from other sources and not businessincome. In Commissioner of Income Tax vs. British Paints [14] India Ltd., Supreme Court while interpreting Section 145 ofthe Act held that even if the assessee had adopted a regularsystem of accounting, it was the duty of the Assessing Officerto consider whether correct profits and gains would bededuced from the account so maintained. Relevant portion areextracted hereasunder:- “Section 145 of the Income Tax Act, 1961 conferssufficient power upon the officer-nay it imposes a dutyupon him-to make such computation in such manneras he determines for deducing the correct profits andgains. This means that where accounts are preparedwithout disclosing the real cost of the stock-in-trade,albeit on sound expert advice in the interest of efficientadministration of the company, it is the duty of theIncome Tax Officer to determine the taxable income bymaking such computation as he thinks fit. “Section 145 of the Income Tax Act, 1961 conferssufficient power upon the officer-nay it imposes a dutyupon him-to make such computation in such manneras he determines for deducing the correct profits andgains. This means that where accounts are preparedwithout disclosing the real cost of the stock-in-trade,albeit on sound expert advice in the interest of efficientadministration of the company, it is the duty of theIncome Tax Officer to determine the taxable income bymaking such computation as he thinks fit. Any system of accounting which excludes, for thevaluation of the stock-in-trade, all costs other than thecost of raw materials for the goods-in-process andfinished products, is likely to result in a distortedpicture of the true state of the business for the purposeof computing the chargeable income. Such a systemmay produce a comparatively lower valuation of theopening stock and the closing stock, thus showing acomparatively low difference between the two. In aperiod of rising turnover and rising prices, the systemadopted by the assessee, as found by the Tribunal, isapt to diminish the assessment of the taxable profit ofa year. The profit of one year is likely to be shifted toanother year which is an incorrect method ofcomputing profits and gains for the purpose ofassessment. Each year being a self-contained unit,and the taxes of a particular year being payable withreference to the income of that year, as computed interms of the Act, the method adopted by the assesseehas been found to be such that the income cannotproperly be deduced therefrom. It is, therefore, notonly the right but the duty of the Assessing Officer toact in exercise of his statutory power, as he has donein the instant case, for determining what, in hisopinion, is the correct taxable income.” 22.Thus, a conspicuous glance of judgments of the ApexCourt in case of Radhasaomi Satsang (supra), BSNL (supra) [15] as well as British Paints India Ltd. (supra) it has beenconstant view that question of res-judicata does not apply intax proceedings, while each assessment year being a unit,what is decided in one year may not apply in following years,but where a fundamental aspect permeating through differentassessment years has been found as a fact one way or theother, and parties have allowed that position to be sustainedby not challenging the order, it would not be at all appropriateto allow the position to be changed in subsequent year, unlessthere was a material change justifying the revenue to takedifferent view. 23.In the present case, the AO found sufficient materials andchanges in the year under consideration, as he afterexamining the relevant clauses of agreements formed anopinion that the property was taken on lease for giving it onrent to GAIL. Further, Section 2(13) defines business, whichincludes any trade, commerce or manufacture or adventure orconcerned in the nature of trade, commerce or manufacture. Inthe present case no business activity was being carried out bythe assessee as business is a continuous and systematicactivity carried on with a view to earn profit. 24.Further, the records of the assessee revealed that onlyone person was employed, which cannot go on to establishthe fact that any business activity was being carried out by theappellant, and the premises was only let out to GAIL pursuantto the agreement and was thus rightly assessed by theAssessing Officer under the heading 'income from houseproperty and income from other sources'. [16] 25.Now adverting to the second question, whether theassessing authority was justified in treating the receipt of theappellant-assessee as income from house property andincome from other sources other than income from businesson the basis of partnership deed which defines object of thefirm as to the business activity of real estate, letting and sub-letting of the properties and further, upon the agreement soentered by it with GAIL. [16] 25.Now adverting to the second question, whether theassessing authority was justified in treating the receipt of theappellant-assessee as income from house property andincome from other sources other than income from businesson the basis of partnership deed which defines object of thefirm as to the business activity of real estate, letting and sub-letting of the properties and further, upon the agreement soentered by it with GAIL. 26.The constitution Bench of the Apex Court in case ofSultan Brothers Pvt. Ltd. vs. CIT, [1964] 51 ITR 353 (SC)had the occasion to consider whether the letting of a buildingfitted with furniture and fixtures and income derived fromlease, would be income from business or income fromproperty as well as income from other sources. The ApexCourt held that merely by providing in the object clause thatany activity was in regard to acquiring the land and building, aswell as furnishing and maintaining it and also by leasing thesame, would not be assumed as carrying on business activity.Relevant portion are extracted hereasunder:- “A very large number of cases was referred to in supportof this contention but it does not seem to us that muchassistance can be derived from them. Whether aparticular letting is business has to be decided in thecircumstances of each case. We do not think that thecases cited lay down a test for deciding when a lettingamounts to a business. We think each case has to belooked at from a businessman's point of view to find outwhether the letting was the doing of a business or theexploitation of his property by an owner. We do notfurther think that a thing can by its very nature be acommercial asset. A commercial asset is only an assetused in a business and nothing else, and business maybe carried on with practically all things. Therefore it isnot possible to say that a particular activity is businessbecause it is concerned with an asset with which trade iscommonly carried on. We find nothing in the cases referred, to support the proposition that certain assetsare commercial assets in their very nature. The object of the appellant company no doubt was toacquire land and buildings and to turn the same intoaccount by construction and reconstruction, decoration,furnishing and maintenance of them and by leasing andselling the same. The activity contemplated in theaforesaid object of the company, assuming it to be abusiness activity, would not by itself turn the lease in thepresent case into a business deal. That would followfrom the decision of this Court in East India Housing andLand Development Trust Ltd. v. Commissioner ofIncome-tax where it was observed that "the incomederived by the company from shops and stalls is incomereceived from property and falls under the specific headdescribed in Section 9. The character of that income isnot altered because it is received by a company formedwith the object of developing and setting up markets." Now the cases on which learned counsel for theappellant specially relied were cases of the letting out ofplant and machinery, in some instances along with thefactory buildings in which they had been housed. In all ofthem, except one, which we will presently mention, theassessee had previously been operating the factory ormill as a business and had only temporarily let it out as itwas not convenient for him at the time to carry on thebusiness of running the mill or factory. In thesecircumstances, it was held that by letting out the plant,machinery and building the assessee was still conductinga business though not the business of running the mill orfactory. Now the cases on which learned counsel for theappellant specially relied were cases of the letting out ofplant and machinery, in some instances along with thefactory buildings in which they had been housed. In all ofthem, except one, which we will presently mention, theassessee had previously been operating the factory ormill as a business and had only temporarily let it out as itwas not convenient for him at the time to carry on thebusiness of running the mill or factory. In thesecircumstances, it was held that by letting out the plant,machinery and building the assessee was still conductinga business though not the business of running the mill orfactory. Learned counsel for the appellant also relied on certainclauses in the lease and a clause in the memorandum ofthe appellant company to show that the lease amountedto the carrying on of a business. We shall now turn tothese provisions. Clause 3(b) of the memorandumgave power to the appellant to manage land,buildings, and other property and to supply the tenantsand occupiers thereof refreshment, attendants,messengers, light, waiting-room, reading room,meeting, room, libraries, laundry convenience, electricconveniences, lifts, stables and other advantages. Thecontention was that this cause in the memorandumgave the appellant a power to carry on a business ofthe nature of running a hotel. We do not think, it did.But in any case, by the lease none of the objectsmentioned in this clause was sought to be achieved.We find nothing in the lessor's covenants to some ofwhich we were referred to bring the matter withinclause 3(b) of the memorandum. None of theseclauses support the contention that by granting the lease, the appellant did anything like carrying on thebusiness of running a hotel. Thus clause (a) is acovenant for quiet enjoyment. Clause (b) provides fora renewal of the lease of the demised premises beinggranted to the lessee for a further term of six years athis request. Clause (c) deals with payment ofmunicipal bills and similar charges and ground rent.Clause (d) provides that the lessor shall during thecontinuance of the lease and on its renewal providevarious things which included furniture, pillows,mattresses, gas-stoves, bottle coolers, refrigerators,lift, electric fittings and the like and also paint theoutside of the building with oil once in five years andkeep the building insured. These are ordinarycovenants in a lease of a furnished building. These donot at all show that the lessor was rendering anyservice in the hotel business carried on by the lesseeor in fact doing any business at all. On the facts of thiscase we are unable to agree that the letting of thebuilding amounted to the doing of a business. Theincome under the lease cannot, therefore be assessedunder section 10 of the Act as the income of abusiness.” 27.In case of Universal Plast Ltd. vs. Commissioner ofIncome Tax [1999] 237 ITR 454 (SC), the Apex Courtconsidering the question of leasing out of asset of thebusiness would be income from business or not, the Courtheld as under:- “The question whether the amount earned by anassessee by leasing out the assets of the businesswould be income from business carried on by it, hasbeen the subject-matter of consideration by this Courtas well as by various High Courts and it would beuseful to refer to the judgments of this Court bearingon the issue. In Commissioner of Excess Profits Tax v..Shri Lakshmi Silk Mills Limited [1951] 20 ITR 451(SC), the assessee-company was carrying on thebusiness of manufacturing silk cloth and dyeing silkyarn. Due to lack of supply of silk yarn during therelevant period while keeping idle other plant andmachinery, it let out dyeing plant for five months. Thequestion which came up for consideration before thisCourt was whether the rent received from letting outthe dyeing plant would fall under the head "Income from business" or "Income from other sources". If itwas "Income from business", it would have beenchargeable to excess profits tax; if not, the liabilitywould not arise. Mahajan,J., speaking for the Court,observed that no general principle could be laid downwhich was applicable to all cases and each case hadto be decided on its own circumstances. It was heldthat it was part of the normal activities of theassessee's business to earn money by making use ofits machinery by either employing it in its ownmanufacturing concern or temporarily letting it toothers for making profit for that business when for thetime being it could not itself run it and for that reasonthe dyeing plant had not ceased to be a commercialasset of the assessee, so the sum representing therent for five months received from the lessee by theassessee was income from business and waschargeable to excess profits tax. In Narain SwadeshiWeaving Mills CEPT [1954] 26 ITR 765, a ConstitutionBench of this Court considered a similar questionwhich also arose under the Excess Profits Tax Act,1940. In that case, the assessee-firm was carrying onmanufacturing business. A Public Limited Companywas incorporated to take over the business from theassessee-firm. The company purchased the building ofthe assessee-firm and took over from it the plant andmachinery on lease at an annual rent. One of thequestions that fell for consideration there was whetherthe lease money obtained by the assessee from thecompany could be legally treated as business profitliable to excess profit tax. Distinguishing Shri LakshmiSilk Mills' case [1951] 20 ITR 451 (SC), it was pointedout that only a part of the business of the assesseetherein, namely dyeing silk yarn, was temporarilystopped owing to difficulty in obtaining silk yarn onaccount of war so that part of the assets did not ceaseto be commercial asset of that business andaccordingly, the income from the assets would be theprofit of the business irrespective of the manner inwhich that asset was exploited by the company.Noticing the facts in the case before the Court that theassessee had already sold land and building to theCompany; it was not having any manufacturing,trading or commercial activity; and let out the plant andmachinery on an annual rent of Rupees forty thousandand applying the common sense principle to the facts,this Court found that the transaction of lease was quiteapart from the ordinary business activity of thecompany, so it was impossible to hold that the lettingout of the plant and machinery etc. was at all a business operation when its normal business activityhad come to a close. In CIT v. Calcutta National Bank Limited [1959] 37 ITR171 (SC), the case arose under the Excess Profits TaxAct. The assessee was a banking company. It owned asix-storeyed building of which only a part was under itsoccupation and the rest was let out to tenants. Thequestion was whether the rent received from thetenants of the building was the business income of thecompany. The majority opinion was that realisation ofrental income of the assessee was in the course of itsbusiness being in prosecution of one of its objects inits memorandum and was liable to be included in itsbusiness profits and was assessable to excess profitstax. That conclusion was reached on the premise thatthe term `business' as defined in that Act was widerthan the definition of that term under the Income TaxAct. The minority, however, took a contrary view. In Sultan Brothers Private Ltd. vs. CIT, [1964] 51 ITR353 (SC), the assessee constructed a building, fitted itup with furniture and fixtures and let it out on leasefully equipped and furnished for the purpose of runninga hotel. The lease amount provided separately forrunning of the building and hire charges for furnitureand fixtures. The question that fell for considerationwas whether the rent income was business incometaxable under the Income Tax Act, 1922? It was heldthat as the assessee never carried on any business ofa hotel in the premises let out or otherwise at all andthere was nothing to show that it intended to carry on ahotel business itself in the same building, the letting ofthe building did not amount to the carrying on of abusiness, so the income under the lease could not beassessed as income from business. The Constitution Bench formulated the principle thus(headnote) : "Whether a particular letting is business, has to bedecided in the circumstances of each case. Each casehas to be looked at from the businessman's point ofview to find out whether the letting was the doing of abusiness or the exploitation of his property by anowner....". In New Sevan Sugar and Gur Refining Co. Ltd. v. CIT[1969] 74 ITR 7 (SC), the appellant-company wascarrying on business of crushing sugarcane and gurrefining. The building, machinery and plant of thefactory mill were leased out initially for a period of fiveyears with three options to renew for similar periods on the part of the lessee. The assessee had, however, theoption to terminate the lease after first two years whichoption was not exercised. The question was whetherthe income which arose to the assessee for theAssessment Year 1955-56 from the lease wasassessable as income from business or income fromother sources? It was held, on interpretation of theterms of the lease deed, that the intention of theappellant-assessee was to part with the machinery ofthe factory and the premises with the obvious purposeof earning rental income and not to treat the factoryand the machinery as commercial asset during thesubsistence of the lease; the intention of the appellantwas found to go out of business altogether, thereforethe income was not assessable as business income. the part of the lessee. The assessee had, however, theoption to terminate the lease after first two years whichoption was not exercised. The question was whetherthe income which arose to the assessee for theAssessment Year 1955-56 from the lease wasassessable as income from business or income fromother sources? It was held, on interpretation of theterms of the lease deed, that the intention of theappellant-assessee was to part with the machinery ofthe factory and the premises with the obvious purposeof earning rental income and not to treat the factoryand the machinery as commercial asset during thesubsistence of the lease; the intention of the appellantwas found to go out of business altogether, thereforethe income was not assessable as business income. CIT v. Vikram Cotton Mills Ltd. [1988] 169 ITR 597(SC) is again a case arising under the Income Tax Act,1922. One of the creditors filed a petition in the HighCourt for winding up. The Industrial FinancialCorporation took possession of fixed assets under anEnglish mortgage of those assets. The assesseecompany had gone into losses and had stopped itsmanufacturing activity. Under the scheme evolved bythe High Court under the Companies Act, the businessassets were let out for ten years with an opt