Ita/15/2017 Of The Principal Commissioner Of Income Tax v. M/S. Ptl Enterprises Limited

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS FRIDAY, THE 23 DAY OF JULY 2021 / 1ST SRAVANA, 1943 ITA NO. 15 OF 2017 AGAINST THE ORDER IN ITA 200/2015 OF I.T.A.TRIBUNAL, COCHIN BENCH,ERNAKULAM APPELLANT/ APPELLANT/ RESPONDENT/ REVENUE: THE PRINCIPAL COMMISSIONER OF INCOME TAX, KOCHI-1, KOCHI, INCOME TAX OFFICES, CENTRAL REVENUE BUILDING, I.S. PRESS ROAD, KOCHI. BY ADVS.SRI.P.K.R.MENON, SR.COUNSEL, GOI(TAXES)SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/ APPELLANT/ REVENUE/ ASSESSEE : M/S. PTL ENTERPRISES LIMITED,SHANMUGHAM ROAD, KOCHI – 682 031 6TH FLOOR, CHERUPUSHPAM BUILDINGS, BY ADVS. SRI.JOSEPH MARKOSE (SR).SRI.V.ABRAHAM MARKOSSRI.ABRAHAM JOSEPH MARKOSSRI.ISAAC THOMAS THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON23.07.2021, ALONG WITH ITA.231/2019 AND ITA NO. 250 OF 2019, THECOURT ON THE SAME DAY DELIVERED THE FOLLOWING : 2 IN THE HIGH COURT OF KERALA AT ERNAKULAMPRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS FRIDAY, THE 23 DAY OF JULY 2021 / 1ST SRAVANA, 1943 ITA NO. 231 OF 2019 AGAINST THE ORDER IN ITA 160/2017 OF I.T.A.TRIBUNAL, COCHINBENCH, ERNAKULAM APPELLANT/ APPELLANT: THE PRINCIPAL COMMISSIONER OF INCOME TAX,KOCHI-1, KOCHI, INCOME TAX OFFICES, CENTRAL REVENUE BUILDING, I.S.PRESS ROAD, KOCHI-682018. BY ADVS.P.K.RAVINDRANATHA MENON (SR.)SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/ RESPONDENT : M/S.PTL ENTERPRISES LIMITED,6TH FLOOR, CHERUPUSHPAM BUILDING,SHANMUGHAM ROAD, KOCHI-682031. BY ADVS.SRI.JOSEPH MARKOSE (SR.)SRI.ABRAHAM JOSEPH MARKOSSRI.ISAAC THOMASSRI.P.G.CHANDAPILLAI ABRAHAMSHRI.VIPIN ANTO H.M.SHRI.ALEXANDER JOSEPH MARKOSSHRI.SHARAD JOSEPH KODANTHARA THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON23.07.2021, ALONG WITH ITA.NOS.15/2017 & 250/2019, THE COURT ONTHE SAME DAY DELIVERED THE FOLLOWING: IN THE HIGH COURT OF KERALA AT ERNAKULAMPRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI& THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS FRIDAY, THE 23 DAY OF JULY 2021 / 1ST SRAVANA, 1943 ITA NO. 250 OF 2019 AGAINST THE ORDER IN ITA 161/2017 OF I.T.A.TRIBUNAL, COCHINBENCH, ERNAKULAM APPELLANT/ APPELLANT: THE PRINCIPAL COMMISSIONER OF INCOME TAX,I.S.PRESS ROAD, KOCHI - 682 018 KOCHI-I, KOCHI, CENTRAL REVENUE BUILDING, BY ADVS.SRI.P.K.RAVINDRANATHA MENON (SR.)SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/ RESPONDENT : PTL ENTERPRISES LIMITED,SHANMUGHAM ROAD, KOCHI - 682 031 6TH FLOOR, CHERUPUSHPAM BUILDING, BY ADVS.SRI.JOSEPH MARKOSE (SR.)SRI.ISAAC THOMASSRI.P.G.CHANDAPILLAI ABRAHAMSHRI.VIPIN ANTO H.M.SHRI.ALEXANDER JOSEPH MARKOSSHRI.SHARAD JOSEPH KODANTHARA THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON23.07.2021, ALONG WITH ITA.NOS.15/2017 & 231/2019, THE COURTONTHE SAME DAY DELIVERED THE FOLLOWING: JUDGMENT ITA Nos.15/2017, 231/2019 & 250/2019 Dated this the 23[rd] day of July, 2021 Bechu Kurian Thomas, J. ITA.No.15 of 2017 This appeal arises from the assessment year 2010-11. The main issue for consideration in this appeal relates to whether thelease rent received by the assessee should be treated as a businessincome, or as income from other sources. 2. Before we refer to the specific questions raised for our 6TH FLOOR, CHERUPUSHPAM BUILDING, BY ADVS.SRI.JOSEPH MARKOSE (SR.)SRI.ISAAC THOMASSRI.P.G.CHANDAPILLAI ABRAHAMSHRI.VIPIN ANTO H.M.SHRI.ALEXANDER JOSEPH MARKOSSHRI.SHARAD JOSEPH KODANTHARA THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON23.07.2021, ALONG WITH ITA.NOS.15/2017 & 231/2019, THE COURTONTHE SAME DAY DELIVERED THE FOLLOWING: JUDGMENT ITA Nos.15/2017, 231/2019 & 250/2019 Dated this the 23[rd] day of July, 2021 Bechu Kurian Thomas, J. ITA.No.15 of 2017 This appeal arises from the assessment year 2010-11. The main issue for consideration in this appeal relates to whether thelease rent received by the assessee should be treated as a businessincome, or as income from other sources. 2. Before we refer to the specific questions raised for our consideration, it is apposite to mention the circumstances arising inthe instant case. The assessee was incorporated on 29.10.1959 withthe object of carrying on the business of manufacture of tyres. Asthe years passed, the company incurred business losses and itsentire net worth got depleted, resulting in the assessee beingdeclared as a sick company under the Sick Industrial Companies(Special Provisions) Act, 1985. Thereafter, a scheme for rehabilitationwas prepared, which obtained the approval of the Board for Industrialand Financial Reconstruction (BIFR) on 17.04.1995. Under theapproved scheme, M/s.Apollo Tyres Ltd. was to operate the plant andmachinery of the assessee on a lease deed for eight years i.e. 01.04.1995 till 31.03.2003. A rent of Rs.45.5 Crores was fixed forthe entire period of eight years and all expenses incurred foroperating the plant were to be reimbursed to the assessee byM/s. Apollo Tyres Ltd. 3. Taking note of the scheme approved by the BIFR andgiving due regard to the attempt of the assessee to revive itselfwithin a span of time, we had held by our judgment in ITA.No.757 of2009 and connected cases that, for the assessment years from1995-96 till 2003-04, the rental income of the assessee ought to betreated as business income. 4. It is to be noted that by the assessment year 2001-02, the assessee's net worth had turned positive and the assessee couldhave revived and resumed operations by itself. Instead of resumingoperations by itself, assessee decided to continue the leasearrangement with M/s.Apollo Tyres Ltd. by renewing it every year. 5. Having regard to the continued lease, even after theBIFR sanctioned period was over, we had held, by our judgmentdated 22.07.2021 in ITA.No.193 of 2012 and ITA.No.207/2013 andconnected cases that the rental income received by the assesseefrom M/s.Apollo Tyres Ltd. for the period from 2004-05 till 2009-10can be regarded only as income from other sources and not as business income. 6. Be that as it may, the assessee had filed his return ofincome for the assessment year 2010-11, declaring an income ofRs.8,50,60,330/- and the regular assessment was completed on21.03.2013. The total income was determined by the assessingofficer at Rs.24,60,77,239/-. In the assessment so made, the leaserent of Rs.25 Crores received by the assessee for the assessmentyear 2010-11, from M/s. Apollo Tyres Ltd. for leasing its plant andmachinery, though claimed as income from business, was treated bythe assessing officer as income from other sources as per Section56(2)(ii) of the Income Tax Act. Assessee's claims to exclude anamount of Rs.18,21,609/- under the head 'Professional Charges',another sum of Rs.6,46,25,550/- as interest under Section 14(A) anda further sum of Rs.9,45,69,750/- as value of shares gifted to theCEO of the subsidiary company were also disallowed by the assessingofficer. 7. Though assessee preferred an appeal before the CIT(Appeals), the same was dismissed. A second appeal was filed by theassessee before the Tribunal. By the impugned order, the Tribunalallowed the appeal and held that the rental income ought to betreated as business income. The Revenue has preferred this appeal on the following questions of law :- 1(a). Whether, on the facts and in the circumstances of thecase, the Tribunal is right in law and fact in holding the lease rentas income from business and is not such a finding perverse? 1(b). Whether, on the facts and in the circumstances of thecase, should not the Tribunal have followed its own earlier orderheld in favour of the Revenue as “Income from Other Sources”?and is not the present inconsistent order perverse and againstjudicial decorum always insisted on by the Tribunal? 2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in - (i) allowing the expenditure towards professional charges;charges; (ii) allowing interest expenditure; (iii) allowing expenditure incurred on gift of shares to the CEO and is not allowing the above allowances unjustified and perverse?unjustified and perverse? 8. Before we consider the aforesaid questions of law, it is appropriate to mention that we had, by separate judgments, dealtwith the lease rent received by the assessee in a varied manner fordifferent periods. For the assessment years 1995-96 to 2003-04,during which the lease was entered into under a scheme approved bythe BIFR, we held that the lease rent received by the assessee wasits business income. However, for the assessment year 2004-05onwards till 2009-10, we had, by our judgment in ITA.No.185/2013 and connected cases held the rent received from M/s.Apollo TyresLtd. to be an income from other sources. We had thus consideredeach case on the basis of the facts arising in each assessment year. 9. For the assessment year 2010-11, we notice a variance in the facts as pointed out to us by the learned Senior Counselappearing for the assessee. It is in such circumstances that wedecided to consider the appeals relating to assessment years 2010-11, 2011-12 and 2012-13 separately. 10. We have heard Adv. Jose Joseph, the learned SeniorStanding Counsel for the Income Tax Department as well as SeniorAdvocate Joseph Markose duly instructed by Adv. Abraham Markoseon behalf of the respondent. 11. As mentioned earlier, we could not decipher any realintention on the part of the assessee to indulge in any element of risktaking for carrying on a manufacturing activity. We had held by ourjudgment in ITA.No.185/2013 and connected cases that the assesseehad no intention from the assessment year 2004-05 to conduct anybusiness so as to earn a business income and that the incomereceived by the assessee by renting out its plant and machinery fromthe year 2004-05 was not business income but was income fromother sources. The position was the same for the assessment years till 2009-10. 11. As mentioned earlier, we could not decipher any realintention on the part of the assessee to indulge in any element of risktaking for carrying on a manufacturing activity. We had held by ourjudgment in ITA.No.185/2013 and connected cases that the assesseehad no intention from the assessment year 2004-05 to conduct anybusiness so as to earn a business income and that the incomereceived by the assessee by renting out its plant and machinery fromthe year 2004-05 was not business income but was income fromother sources. The position was the same for the assessment years till 2009-10. 12. Distinct from the earlier years, it was pointed out bythe learned Senior Counsel that, in the year 2008 (09.01.2008), theassessee had obtained a lease of 20.78 acres of land on a 90 yearlease to set up a new tyre manufacturing facility. According to thelearned Senior Counsel, the said conduct was a clear indication of anintention on the part of the assessee to revive its business and alsothat since the Tribunal had by a detailed order treated the saidcircumstance as sufficient enough to evidence the absence ofintention to exit the business and hence treated the rental income asa business income from the assessment year 2010-11 onwards.Notwithstanding the above, it was brought to our notice that thelease was surrendered by the assessee on 28.10.2017. On a perusalof the order of the Tribunal, we observe that the Tribunal proceededon the basis of the lease executed but had not (and could not have)appreciated the surrender of that lease by the assessee on theground of non-commencement of business in the leased portion ofland. Of course, at the time when the Tribunal decided the appeal,the surrender of the lease was not in existence. 13. Since we have been apprised of the surrender of thelease that took place in 2017 and that too for the reason that the assessee had not commenced any activity in the leased land, it isnecessary to reconsider the issue regarding whether the rentalincome could be treated as a business income or income from othersources, in the light of the said development for the period from2010-11 onwards. None of the authorities had the benefit ofappreciating the assessees' claim in the light of the surrender of leasein 2017 and the fact that the surrender was occasioned due to thefailure of the assessee to commence any manufacturing activity inthe leased land.14 In view of the above, we are of the opinion that theclaim of the assessee to treat the rental income for the year 2010-11as a business income and not as an income from other sources isrequired to be revisited by the assessing officer himself, afterconsidering the entire matter afresh and after giving an opportunityof hearing to the assessee. 15. The second and third questions relate to thedisallowance of the professional charges, interest charges and valueof shares gifted to the CEO. We are of the view that those issues areancillary or incidental to the first question and hence the saidquestions can also be revisited by the assessing officer. We,therefore, set aside the order of the Tribunal in ITA.No.200/Coch/2015 dated 29.09.2016 and remand the case to theassessing officer for a fresh consideration of all the questions inaccordance with law. ITA.No.231 of 2019 This appeal relates to the assessment year 2011-12. Thequestions of law raised in this appeal are also identical to the first twoquestions raised in ITA.No.15 of 2017. Since we have already remanded ITA.No.15 of 2017 forreconsideration by the assessing officer afresh, this appeal is alsoliable to be allowed and remanded. Accordingly, we set aside theorder of the Income Tax Appellate Tribunal, Cochin Bench inITA.No.160 of 2017 dated 06.05.2016 for the assessment year 2011-12 and remand the same to the assessing officer for freshconsideration, in accordance with law. ITA.No.250 of 2019 ITA.No.200/Coch/2015 dated 29.09.2016 and remand the case to theassessing officer for a fresh consideration of all the questions inaccordance with law. ITA.No.231 of 2019 This appeal relates to the assessment year 2011-12. Thequestions of law raised in this appeal are also identical to the first twoquestions raised in ITA.No.15 of 2017. Since we have already remanded ITA.No.15 of 2017 forreconsideration by the assessing officer afresh, this appeal is alsoliable to be allowed and remanded. Accordingly, we set aside theorder of the Income Tax Appellate Tribunal, Cochin Bench inITA.No.160 of 2017 dated 06.05.2016 for the assessment year 2011-12 and remand the same to the assessing officer for freshconsideration, in accordance with law. ITA.No.250 of 2019 This appeal relates to the assessment year 2012-13. Thequestions of law raised in this appeal are also identical to the first twoquestions raised in ITA.No.15 of 2017. Since we have already remanded ITA.No.15 of 2017 forreconsideration by the assessing officer afresh, this appeal is alsoliable to be allowed and remanded. Accordingly we set aside theorder of the Income Tax Appellate Tribunal, Cochin Bench inITA.No.161 of 2017 dated 06.05.2016 for the assessment year2012-13 and remand the same to the assessing officer for a freshconsideration, in accordance with law. In view of the above, these three appeals are allowed and the same are remanded to the assessing officer for freshconsideration, in accordance with law, after hearing the partiesconcerned. Sd/-S.V.BHATTI, JUDGE Sd/-BECHU KURIAN THOMAS, JUDGE RKM APPENDIX OF ITA 15/2017 PETITIONER'S ANNEXURES : ANNEXURE ACOPY OF ASSESSMENT ORDER U/S 143(3) DATED 21.03.2013 FOR THE A.Y.2010-11 ANNEXURE B COPY OF CTI (APPEALS) ORDER IN ITA No.28/ R-4/E/CIT(A)-1/12-13 DATED 29.01.2015 ANNEXURE C CERTIFIED PLUS COPY OF THE APPELLATE ORDER OF THE ITAT COCHIN BENCH IN ITA No.200/COCH/2015 DATED 29.09.2016 FOR A.Y.2010-11 APPENDIX OF ITA 231/2019 PETITIONER'S ANNEXURES : ANNEXURE ACOPY OF THE ASSESSMENT YEAR U/S.143(3)DT.24/10/2013 FOR A.Y.2011-12ANNEXURE BCOPY OF CIT (APPEALS) ORDER IN ITA 690/R-4/E/CT(A)-II/13-14 DT.13/02/2017 ANNEXURE CCOPY OF THE APPELLATE OF THE ITAT COCHIN BENCH,COCHIN IN ITA NO.160/COCH/2017 DT.06/05/2019 FOR A.Y.2011-12. ANNEXURE C COPY OF THE APPELLATE ORDER OF THE ITAT COCHIN BENCH IN ITA NO 160, 161 & 162/COCH/2017 DATED 6/5/2019 FOR A.YRS 2011-12,2012-13 AND 2013-14 APPENDIX OF ITA 250/2019 PETITIONER'S ANNEXURES : ANNEXURE-A COPY OF ASSESSMENT ORDER U/S.143(3) DATED 26/0-3/2015 FOR THE A.Y.2012-13 ANNEXURE-B COPY OF CIT (APPEALS) ORDER IN ITA 36/R-1/E/CIT(A)-1/2015-16 DATED 14/02/2017 ANNEXURE-C COPY OF THE APPELLATE ORDER OF THE ITAT /COCHIN BENCH IN ITA NO.160,1621 & 162/COCH/2017 DATED 06/05/2019 FOR A.YRS.2011-12,2012-13