Ita/200/2013 Of Ptl Enterprises Ltd v. The Deputy Commissioner Of Income-Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS THURSDAY, THE 22 DAY OF JULY 2021 / 31ST ASHADHA, 1943 ITA NO. 193 OF 2012 AGAINST THE ORDER IN ITA 659/Coch/2010 OF I.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM APPELLANT/RESPONDENT: M/S.PTL ENTERPRISES LTD6TH FLOOR, CHERUPUZHPAM BUILDING, SHANMUGHAM ROAD, KOCHI-31,(PAN-AABCP 3839N) BY ADVS.SRI.JOSEPH MARKOS (SR.) SRI.V.ABRAHAM MARKOSSRI.BINU MATHEWSRI.B.J.JOHN PRAKASHSRI.MATHEWS K.UTHUPPACHANSRI.TERRY V.JAMESSRI.TOM THOMAS KAKKUZHIYIL RESPONDENT/APPELLANT: THE DEPUTY COMMISSIONER OF INCOME TAX,CIRCLE-4(1), ERNAKULAM 682 018. SRI.JOSE JOSEPH, SC FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON22.07.2021, ALONG WITH ITA Nos.185/2013, 200/2013,206/2013, 207/2013, 227/2013, 92/2014 & 93/2014, THE COURTON THE 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 THURSDAY, THE 22 DAY OF JULY 2021 / 31ST ASHADHA, 1943ITA NO. 185 OF 2013 AGAINST THE ORDER IN ITA 520/Coch/2007 & C.O. NO.36/Coch/2007 OF I.T.A.TRIBUNAL, COCHIN BENCH, ERNAKULAM APPELLANT/RESPONDENT: M/S.PTL ENTERPRISES LTD.(FORMERLY PREMIER TYRES LTD), 6TH FLOOR, CHERUPUSHPAM BUILDINGS, KOCHI-31 (PAN:AABCP 3839N) BY ADVS.SRI.JOSEPH MARKOSE (SR.)SRI.ABRAHAM JOSEPH MARKOSSRI.BINU MATHEWSRI.TOM THOMAS KAKKUZHIYIL RESPONDENT/APPELLANT: THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-2(1), RANGE-2, ERNAKULAM, PIN-682 018. BY ADV SRI.JOSE JOSEPH, SC FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON22.07.2021, ALONG WITH ITA.193/2012 AND CONNECTED CASES,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: -:3:- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS THURSDAY, THE 22 DAY OF JULY 2021 / 31ST ASHADHA, 1943 ITA NO. 200 OF 2013 AGAINST THE ORDER IN ITA 410/Coch/2009 OF I.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM APPELLANT/RESPONDENT: M/S.PTL ENTERPRISES LTD. (FORMERLY PREMIER TYRES LTD), 6TH FLOOR, CHERUPUSHPAM BUILDINGS, SHANMUGHAM ROAD, KOCHI-31 (PAN:AABCP 3839N) BY ADVS.SRI.JOSEPH MARKOSE (SR.)SRI.V.ABRAHAM MARKOSSRI.ABRAHAM JOSEPH MARKOSSRI.BINU MATHEWSRI.TOM THOMAS KAKKUZHIYIL RESPONDENT/APPELLANT: THE DEPUTY COMMISSIONER OF INCOME-TAXCIRCLE-2(1)RANGE-2, ERNAKULAM, KOCHI-682018. CIRCLE-2(1)RANGE-2, BY ADV SRI.JOSE JOSEPH, SC FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON22.07.2021, ALONG WITH ITA.193/2012 AND CONNECTED CASES,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: -:4:- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS THURSDAY, THE 22 DAY OF JULY 2021 / 31ST ASHADHA, 1943 ITA NO. 206 OF 2013 AGAINST THE ORDER IN ITA 893/Coch/2008 OF I.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM APPELLANT/RESPONDENT: M/S.PTL ENTERPRISES LTD. (FORMERLY PREMIER TYRES LTD), 6TH FLOOR, CHERUPUSHPAM BUILDINGS, SHANMUGHAM ROAD KOCHI-31 (PAN:AABCP 3839N)BY ADVS.SRI.JOSEPH MARKOSE (SR.)SRI.V.ABRAHAM MARKOSSRI.ABRAHAM JOSEPH MARKOSSRI.BINU MATHEWSRI.TOM THOMAS KAKKUZHIYIL RESPONDENT/APPELLANT: THE DEPUTY COMMISSONER OF INCOME TXCIRCLE-2(1), RANGE -2, ERNAKULAM, KOCHI-682018.BY ADV SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON22.07.2021, ALONG WITH ITA.193/2012 AND CONNECTED CASES,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: -:5:- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS APPELLANT/RESPONDENT: M/S.PTL ENTERPRISES LTD. (FORMERLY PREMIER TYRES LTD), 6TH FLOOR, CHERUPUSHPAM BUILDINGS, SHANMUGHAM ROAD KOCHI-31 (PAN:AABCP 3839N)BY ADVS.SRI.JOSEPH MARKOSE (SR.)SRI.V.ABRAHAM MARKOSSRI.ABRAHAM JOSEPH MARKOSSRI.BINU MATHEWSRI.TOM THOMAS KAKKUZHIYIL RESPONDENT/APPELLANT: THE DEPUTY COMMISSONER OF INCOME TXCIRCLE-2(1), RANGE -2, ERNAKULAM, KOCHI-682018.BY ADV SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON22.07.2021, ALONG WITH ITA.193/2012 AND CONNECTED CASES,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: -:5:- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS THURSDAY, THE 22 DAY OF JULY 2021 / 31ST ASHADHA, 1943 ITA NO. 207 OF 2013 AGAINST THE ORDER IN ITA 899/Coch/2008 OF I.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM APPELLANT/APPELLANT: M/S.PTL ENTERPRISES LTD. (FORMERLY PREMIER TYRES LTD), 6TH FLOOR, CHERUPUSHPAM BUILDINGS, SHANMUGHAM ROAD KOCHI-31 (PAN:AABCP 3839N) BY ADVS.SRI.JOSEPH MARKOSE (SR.)SRI.V.ABRAHAM MARKOSSRI.ABRAHAM JOSEPH MARKOSSRI.BINU MATHEWSRI.TOM THOMAS KAKKUZHIYIL RESPONDENT/RESPONDENT: THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2(1), RANGE-2, ERNAKULAM, KOCHI 682018 SRI.JOSE JOSEPH, SC FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON22.07.2021, ALONG WITH ITA.193/2012 AND CONNECTED CASES,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: -:6:- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS THURSDAY, THE 22 DAY OF JULY 2021 / 31ST ASHADHA, 1943 ITA NO. 227 OF 2013 AGAINST THE ORDER IN ITA 189/Coch/2009 OF I.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM APPELLANT/RESPONDENT: M/S.PTL ENTERPRISES LTD.(FORMERLY PREMIER TYRES LTD), 6TH FLOOR, CHERUPUSHPAM BUILDINGS, KOCHI-31 (PAN:AABCP 3839N) CHERUPUSHPAM BUILDINGS, BY ADVS.SRI.JOSEPH MARKOSE (SR.)SRI.V.ABRAHAM MARKOSSRI.ABRAHAM JOSEPH MARKOSSRI.BINU MATHEWSRI.TOM THOMAS KAKKUZHIYIL RESPONDENT/APPELLANT: THE DEPUTY COMMISSIONER OF INCOME TAXCIRCLE -2(1), RANGE -2, ERNAKULAM, PIN 682 018. CIRCLE -2(1), RANGE -2, SRI.JOSE JOSEPH, SC FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON22.07.2021, ALONG WITH ITA.193/2012 AND CONNECTED CASES,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: -:7:- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS THURSDAY, THE 22 DAY OF JULY 2021 / 31ST ASHADHA, 1943 ITA NO. 92 OF 2014 AGAINST THE ORDER IN ITA 650/Coch/2013 OF I.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM APPELLANT/APPELLANT: M/S PTL ENTERPRISES LTD., 6TH FLOOR,CHERUPUSHPAM BUILDINGS, KOCHI 682 031 REP.BY ITS DIRECTOR MR.V.S OBEROI (PAN AABCP 3839N) BY ADVS.SRI.JOSEPH MARKOSE (SR.)SRI.V.ABRAHAM MARKOSSRI.ABRAHAM JOSEPH MARKOSSRI.ABRAHAM VARGHESE THARAKANSRI.BINU MATHEWSRI.TOM THOMAS KAKKUZHIYIL RESPONDENT/RESPONDENT: THE DEPUTY COMMISSIONER OF INCOME-TAX,KOCHI 682 018 CIRCLE-4(1), ERNAKULAM, SRI.JOSE JOSEPH, SC FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON22.07.2021, ALONG WITH ITA.193/2012 AND CONNECTED CASES,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: -:8:- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS THURSDAY, THE 22 DAY OF JULY 2021 / 31ST ASHADHA, 1943 ITA NO. 93 OF 2014 AGAINST THE ORDER IN ITA 651/Coch/2013 OF I.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM APPELLANT/APPELLANT: M/S. PTL ENTERPRISES LTD.KOCHI 682 031 (PAN AABCP 3839N) 6TH FLOOR,CHERUPUSHPAM BUILDINGS, RESPONDENT/RESPONDENT: THE DEPUTY COMMISSIONER OF INCOME-TAX,KOCHI 682 018 CIRCLE-4(1), ERNAKULAM, SRI.JOSE JOSEPH, SC FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON22.07.2021, ALONG WITH ITA.193/2012 AND CONNECTED CASES,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: -:8:- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS THURSDAY, THE 22 DAY OF JULY 2021 / 31ST ASHADHA, 1943 ITA NO. 93 OF 2014 AGAINST THE ORDER IN ITA 651/Coch/2013 OF I.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM APPELLANT/APPELLANT: M/S. PTL ENTERPRISES LTD.KOCHI 682 031 (PAN AABCP 3839N) 6TH FLOOR,CHERUPUSHPAM BUILDINGS, BY ADVS.SRI.JOSEPH MARKOSE (SR.)SRI.V.ABRAHAM MARKOSSRI.ABRAHAM JOSEPH MARKOSSRI.ABRAHAM VARGHESE THARAKANSRI.BINU MATHEWSRI.TOM THOMAS KAKKUZHIYIL RESPONDENT/RESPONDENT: THE JOINT COMMISSIONER OF INCOME-TAXRANGE 4, KOCHI 682 018 SRI.JOSE JOSEPH, SC FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON22.07.2021, ALONG WITH ITA.193/2012 AND CONNECTED CASES,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: I.T.A. No.193/12 & Conn. Cases “C.R.” JUDGMENT I.T.A. Nos.193 of 2012, 185, 200, 206, 207, 227 of 2013, 92 & 93 of 2014 Dated this the 22[nd] day of July, 2021 Bechu Kurian Thomas, J. This batch of appeals relates to the assessment years 2004-05till 2009-10. The issues raised in all these appeals are similar if notidentical and hence we heard these appeals together. Except in twoappeals, the questions raised are all the same. In those two appeals,additional questions of law have been raised. We, therefore,proceed to consider ITA No.185 of 2013 as the first and lead case.The remaining appeals are considered one after the other in thisjudgment itself. -I.T.A. No.185 of 2013 (AY 200405) 2. Though this appeal was admitted on six questions of law, three main issues arise for consideration, and hence we re-framed the questions of law into three, and they are as follows: (i) Whether the lease rent received by the assessee for the year2004-05 from M/s. Apollo Tyres Limited is to be treated asbusiness income or as income from other sources?2004-05 from M/s. Apollo Tyres Limited is to be treated asbusiness income or as income from other sources? (ii) Whether the penalty of Rs.52 lakhs imposed under section45A of the Kerala General Sales Tax Act, and paid underorders of the High Court, ought to be treated as anexpenditure for the assessment year, even though thedispute had not attained finality?45A of the Kerala General Sales Tax Act, and paid underorders of the High Court, ought to be treated as anexpenditure for the assessment year, even though thedispute had not attained finality? (iii)Whether the amount of Rs.1,25,12,348/- claimed as qualityloss paid by the assessee to M/s. Apollo Tyres Limited isliable to be deducted?loss paid by the assessee to M/s. Apollo Tyres Limited isliable to be deducted? 3. The assessee is a tyre manufacturing company, earlier (ii) Whether the penalty of Rs.52 lakhs imposed under section45A of the Kerala General Sales Tax Act, and paid underorders of the High Court, ought to be treated as anexpenditure for the assessment year, even though thedispute had not attained finality?45A of the Kerala General Sales Tax Act, and paid underorders of the High Court, ought to be treated as anexpenditure for the assessment year, even though thedispute had not attained finality? (iii)Whether the amount of Rs.1,25,12,348/- claimed as qualityloss paid by the assessee to M/s. Apollo Tyres Limited isliable to be deducted?loss paid by the assessee to M/s. Apollo Tyres Limited isliable to be deducted? 3. The assessee is a tyre manufacturing company, earlier known as Premier Tyres Ltd. and later renamed as M/s.PTL. It wasincorporated on 29.10.1959 with the object of carrying on thebusiness of manufacture of tyres. Over the years, the companyincurred business losses, and the company’s entire net wortheroded. Assessee was declared as a sick company under the SickIndustrial Companies (Special Provisions) Act, 1985 (SICA).Thereafter, a scheme for rehabilitation and revival was prepared,which obtained the approval of the Board for Industrial and FinancialReconstruction (BIFR) on 17.04.1995. The scheme provided for anarrangement between M/s.Apollo Tyres Ltd. and the assessee. Theapproved scheme contemplated M/s.Apollo Tyres Ltd. (for short‘ATL’) to operate the plant and machinery of the assessee under alease deed for eight years, i.e. 01.04.1995 till 31.03.2003, on a totalrent of Rs.45.5 crores for the entire period. As per the scheme, theentire production was taken over by ATL and the expenses incurred by the assessee, including the labour charges for operating the plantwere reimbursed by ATL. 4. By the assessment year 2001-02, the assessee's net worthhad turned positive. Thus, at the end of the eight years sanctioned byBIFR, the assessee could have revived and resumed its operationsby itself. Instead, assessee chose to continue the lease arrangementby renewing the lease with ATL for one more year from 01.04.2003 to31.03.2004. This arrangement was continued in the coming yearstoo. It was submitted across the Bar that the arrangement iscontinuing even now, on terms that are renewed yearly. 5. The assessing officer held that for the assessment year2004-05, the rental income received by the assessee from ATL couldnot be treated as income from business but is to be assessed as'income from other sources, as the assessee had not carried out anymanufacturing activity. It was also found that the deduction of Rs.52lakhs claimed under the head “Sales Tax Written Off” cannot betreated as an expenditure for the year 2004-05 since the dispute hadnot attained finality. The assessing officer also disallowed the claimfor Rs.1,25,12,348/- towards quality loss, stating that the assesseehad no role in the manufacture of tyres or its sale and that if any -:12:- quality loss had occurred, the same was the responsibility of ATL and not that of the assessee. 6. On appeal, the First Appellate Authority held that the leaserent received is to be treated as business income as in the precedingyear. It also held that the penalty of Rs.52 lakhs was actuallycompensatory and hence was liable to be allowed as businessexpenditure. The claim of quality loss was rejected after finding thatthe loss was attributable to ATL and not to the assessee. -:12:- quality loss had occurred, the same was the responsibility of ATL and not that of the assessee. 6. On appeal, the First Appellate Authority held that the leaserent received is to be treated as business income as in the precedingyear. It also held that the penalty of Rs.52 lakhs was actuallycompensatory and hence was liable to be allowed as businessexpenditure. The claim of quality loss was rejected after finding thatthe loss was attributable to ATL and not to the assessee. 7. Both assessee, as well as the department, appealed to theTribunal. By the order impugned, the Tribunal allowed the appeals ofthe revenue and dismissed the cross-appeal filed by the assessee.The Tribunal held that the rental income has to be assessed underthe head “income from other sources” since the assessee had nointention to revive its business activity. The Tribunal also found thatthe disallowance of Rs.52 lakhs was justified as the expenditure didnot pertain to the year under consideration. Regarding the qualityloss, it was held that assessee could not claim deduction as anexpenditure since it did not carry on any manufacturing activity. Inthe above background, the assessee preferred this appeal undersection 260A of the Income Tax Act, 1961 ('the Act' for brevity). I.T.A. No.193/12 & Conn. Cases -:13:- 8. We heard Senior Advocate JosephMarkose instructed by Adv. Abraham Markos for the assessee and Adv.Jose Joseph, thelearned Senior Standing Counsel for the Income Tax Department. 9. It is relevant to mention that for the assessment years 1995-96 till 2003-04, we had by a separate judgment in ITA.No.757 of2009 and connected cases, allowed the assessee’s claim that therental income received by it from ATL was liable to be treated asincome from business. In those 8 years, i.e., from 1995-96 till 2003-04, one of the salient features was the scheme approved by the BIFRto revive the assessee. 10. However, it is seen from the records produced for ourconsideration that, instead of reviving the business, assesseecontinued the rental arrangement with ATL. Fresh lease deeds wereexecuted for different periods of one year each, for all theassessment years involved in these appeals. The assessee neverapproached the BIFR to continue the arrangement nor soughtsanction/approval for the new arrangement it had entered into. In theabsence of approval from BIFR for the fresh arrangement, thecontinuance of the lease for the assessment year 2004-05 was apurely private arrangement. We thus distinguish the assessment -:14:- years from 1995-96 till 2003-04 with the current assessment year2004-05. 11. Time and again, courts have been confronted with whetherthe lease of plant and machinery of a business would amount to‘business income’ or whether it would fall under the head ‘incomefrom other sources’. One of the earliest cases that dealt with theissue under consideration was TheCommissioner of ExcessProfits Tax, Bombay City v. Shri Lakshmi Silk Mills Ltd. (AIR1951 SC 454). In the said decision, it was held that each case hadto be decided on the circumstances arising in that case and that itwas part of the normal activities of an assessee’s business to earnmoney by making use of its machinery either by employing it in itsown manufacturing concern or temporarily letting it to others formaking a profit for that business, when for the time being it could notrun by itself. 12. Much later, in another case, after referring to severaldecisions on the question, the Supreme Court in Universal PlastLtd. v. Commissioner of Income Tax, Calcutta [(1999) 5 SCC189], laid down four propositions to identify whether the rentalincome received by an assessee could be treated as business I.T.A. No.193/12 & Conn. Cases income or not. The prepositions are relevant for the present case and are as follows: 12. Much later, in another case, after referring to severaldecisions on the question, the Supreme Court in Universal PlastLtd. v. Commissioner of Income Tax, Calcutta [(1999) 5 SCC189], laid down four propositions to identify whether the rentalincome received by an assessee could be treated as business I.T.A. No.193/12 & Conn. Cases income or not. The prepositions are relevant for the present case and are as follows: “1. no precise test can be laid down to ascertainwhether income (referred to by whatever nomenclature,lease amount, rents, licence fee) received by an assesseefrom leasing or letting out of assets would fall under thehead “profits and gains of business or profession”; 2. it is a mixed question of law and fact and has to bedetermined from the point of view of a businessman in thatbusiness on the facts and circumstances of each caseincluding true interpretation of the agreement under whichthe assets are let out; 3. where all the assets of the business are let out, theperiod for which the assets are let out is a relevant factor tofind out whether the intention of the assessee is to go out ofbusiness altogether or to come back and restart the same. 4. if only a few of the business assets are let outtemporarily while the assessee is carrying out his otherbusiness activities then it is a case of exploiting the businessassets otherwise than employing them for his own use formaking profit for that business; but if the business neverstarted or has started but ceased with no intention to beresumed, the assets also will cease to be business assetsand the transaction will only be exploitation of property by anowner thereof, but not exploitation of business assets.” 13. We have to appreciate this case with the above propositions in mind. It is admitted that the net worth position of theassessee had become positive by 31-03-2000. The assessee had afurther period of three financial years for stabilising its activities untilthe period sanctioned by BIFR came to an end. Despite the net worthturning positive, the assessee preferred to continue the leasearrangement with ATL on a year-to-year basis. Other than being a -:16:- passive observer, no active business of any nature which involved time and energy was conducted by the assessee during the year inquestion. ATL reimbursed to the assessee the entire expenses itincurred towards labour. Though the period of lease in thisassessment year was only for 12 months, the said period cannot beviewed in isolation or be treated as a temporary one. From 1995onwards, the lease was continuing, and throughout the period of allthese appeals, the lease agreement continued based on annualrenewals. Further, the assessee had retrenched its entire office staffand its machinery were wholly leased to ATL. Thus the assessee hadnot exhibited any intention to revive its business even though it hadthe opportunity to do so. A prudent business person placed in similarcircumstances would have attempted to revive own business ratherthan continuing the lease. In these circumstances, we are at a loss togather instances that can reflect an attempt on the part of theassessee to revive the business during the assessment year inquestion. 14. Further, the claim of the assessee that it was all along ajoint participant in the manufacturing activity of ATL is not borne outby any of the factual situations available on hand. The assessee had -:17:- never taken any element of risk in the alleged business activity except for labour supply. Therefore, the Tribunal’s finding that theassessee had no intention to revive its business activity cannot befaulted. We concur with the said findings and affirm that there wasno intention for the assessee to carry out any manufacturing activityfor the year in question. 15. Yet another material circumstance is that ATL had infused 14. Further, the claim of the assessee that it was all along ajoint participant in the manufacturing activity of ATL is not borne outby any of the factual situations available on hand. The assessee had -:17:- never taken any element of risk in the alleged business activity except for labour supply. Therefore, the Tribunal’s finding that theassessee had no intention to revive its business activity cannot befaulted. We concur with the said findings and affirm that there wasno intention for the assessee to carry out any manufacturing activityfor the year in question. 15. Yet another material circumstance is that ATL had infused substantial amounts for the plant and machinery to the tune ofaround Rs.80 Crores. In spite of infusion of such a large amount byATL, they continued to pay rental income to the assessee. 16. In the above situation, the intention has to be gathered as to whether the assessee had commercially exploited the asset orwhether it was intended to be used by merely letting it out. If theintention was only to merely let out the property or any part of it, theresultant income could be assessed only as an income from othersources. On the other hand, if the intention was to exploit theproperty by a commercial activity, then the rental income could betreated as a business income. The intention could be manifested bythe assessee initiating or undertaking an element of risk in theactivity of manufacture. The decision in Commissioner of Income I.T.A. No.193/12 & Conn. Cases -:18:- Tax, Lucknow v. Vikram Cotton Mills Limited [(1988) 169 ITR 597 (SC)] is also apposite in this context. 17. We had observed in I.T.A. No.757 of 2009 and connectedcases that the word Business in section 2(14) is not a word of art buta word of commercial implication. The bottom line is the availabilityof assets, activities carried out for exploiting the assets and that theassessee is not a mere onlooker in the activities of the company or apassive recipient of rent for utilization of facilities. 18. Applying the above ratio to the facts of the present case,we find that the assessee had never been an active participant of ATL. Though the revival was contemplated within a limited span oftime, that did not happen, even though the net worth turned positive.There was no attempt to exploit the commercial assets of thecompany and instead the assessee merely renewed rentalarrangement and received rent as a passive receipt. Therefore, weanswer the first question in favour of the revenue and hold that forthe assessment year 2004-05, the rental income received by theassessee from ATL ought to be treated as income under the head“income from other sources”. 19. The next issue that arises is regarding the disallowance of -:19:- Rs.52 lakhs claimed under the head “sales tax written off”. A penalty of Rs.75,80,772/- for the years 1987-88 to 1993-94 was imposed inthe year 1996-97 section 45A of the KGST Act, 1963. This Court, byan order on a stay petition filed by the assessee, directed payment ofRs.52 lakhs towards the penalty so imposed. The assessing officerdisallowed the claim for deduction of the amount paid towardspenalty, while the first appellate authority deleted the addition on theground that the said payment pertained to the actual rate of sales taxand concessional rate of sales tax, though it was termed as apenalty. The Tribunal, on an appreciation of the facts arising,observed that the payment of Rs.52 lakhs cannot be termed as anexpenditure and affirmed the order of the assessing officerdisallowing the said payment from being deducted as an expenditure. 20. It is not in dispute, as held in the decision inCommissioner of Income Tax v. Chemical Constructions [(2000)243 ITR 858 (Mad.)] and in Malwa Vanaspati & Chemical Co. v.Commissioner of Income Tax [(1997) 225 ITR 383 (SC)] that whenpenalty is paid, comprising of elements of compensation and penalty,only that part of the penalty which is compensatory, is allowable asan expenditure under section 37(1) of the Act. -:20:- 21. There is nothing on record to indicate that there is anyelement of compensation involved. Even after granting opportunitiesto the assessee to show the existence of any compensatory elementin the penalty, the assessee could not show the existence of such anelement in the penalty. In fact, the Tribunal had also observed thatthe working sheets showing payments were not filed before it. In theabsence of any material to show that any element of compensation isinvolved in the penalty imposed under section 45A, we are of theview that the disallowance of the amount of Rs.52 lakhs cannot betermed as an expenditure for the year 2004-05. The second questionis answered in favour of the revenue. 22. The third question raised for consideration in theseappeals relates to the claim of Rs.1.25 Crores under the head ‘qualityloss’. The assessing officer, First Appellate Authority as well as theTribunal, rejected the claim. It is the admitted case of the assesseethat the plant and machineries have been leased out to ATL. Dehorsthe finding on the absence of any business carried out by theassessee for the year 2004-05; we are of the view that in the verynature of relationship put forth between ATL and assessee, the claimfor quality loss cannot be entertained. The quality loss can only arise I.T.A. No.193/12 & Conn. Cases -:21:- during the manufacturing activity carried out by ATL. Therefore thequality loss, if any, can be attributable only to ATL and not to theassessee. In the above circumstances, we answer the third questionframed by us in favour of the assessee. 23. In the above circumstances, the questions of law raised in this appeal are answered in favour of the revenue. The appeal ishence dismissed. I.T.A. No.227 of 2013(AY 2004-05) 24. This appeal arises from an order of rectification underS.154 of the Act issued for the assessment year 2004-05. Theassessment order was subjected to consideration by this Court asper the judgment in I.T.A. No.185 of 2013. After the assessmentorder, proceedings under section 154 of the Act were initiated sincethe assessing officer noticed an omission to add back thedisallowance of Rs.60,07,162/- while computing the total income.The aforestated amount was claimed as expenditure for stores andspares, terming it as part of the manufacturing activity of theassessee. After the assessing officer found that the assessee wasnot carrying out any manufacturing activity, the claim of expenditurefor stores and spares was disallowed. However, in the computation, I.T.A. No.193/12 & Conn. Cases -:22:- the same was omitted to be added back. It was in suchcircumstances that the order of rectification was issued. On appealby the assessee, the First Appellate Authority reversed the decisionand directed deletion of the addition made by the assessing officer.However, the department’s appeal to the Tribunal was allowed afterfinding that the assessing authority was correct in issuing therectification order. It is thus, this appeal, at the instance of theassessee. 25. This appeal was admitted on the following substantial questions of law. (i) Whether on the facts and in the circumstances of the casethe Appellate Tribunal was right in law in sustaining the actionof the Assessing Officer in making an addition ofRs.60,07,162/- on account of stores and spares by invokingsection 154?the Appellate Tribunal was right in law in sustaining the actionof the Assessing Officer in making an addition ofRs.60,07,162/- on account of stores and spares by invokingsection 154? 25. This appeal was admitted on the following substantial questions of law. (i) Whether on the facts and in the circumstances of the casethe Appellate Tribunal was right in law in sustaining the actionof the Assessing Officer in making an addition ofRs.60,07,162/- on account of stores and spares by invokingsection 154?the Appellate Tribunal was right in law in sustaining the actionof the Assessing Officer in making an addition ofRs.60,07,162/- on account of stores and spares by invokingsection 154? (ii) Whether on the facts and in the circumstances of the case theAppellate Tribunal was right in law in sustaining the order ofrectification passed by the Assessing Officer on 16.10.2008when the CIT(A) had already recorded a fining that theappellant had continued its business during the year and nomistake was apparent from record on the date of therectification order?Appellate Tribunal was right in law in sustaining the order ofrectification passed by the Assessing Officer on 16.10.2008when the CIT(A) had already recorded a fining that theappellant had continued its business during the year and nomistake was apparent from record on the date of therectification order? 26. We have already held in this judgment (in I.T.A. No.185 of 2013) that the assessee had not been carrying on any manufacturing activity for the assessment year 2004-05, and the rental incomereceived by the assessee for the said year cannot be treated as I.T.A. No.193/12 & Conn. Cases -:23:- business income. In view of the said finding, the disallowance of the expenditure on stores and spares by the assessing officer wascorrect. The omission of the assessing officer to make the saidaddition while computing the total income was liable to be rectified.We find no reason to interfere with the order of the Tribunal. Thequestions of law are found against the assessee and in thecircumstances of the case, this appeal is dismissed. ITA No.206 of 2013(AY 2005-06) 27. The four questions of law raised in the memorandum of appeal were reframed into a single one as follows: (i) Whether the lease rent received by the assessee for the year2005-06 from Apollo Tyres Ltd. is liable to be treated asbusiness income or income from other sources?2005-06 from Apollo Tyres Ltd. is liable to be treated asbusiness income or income from other sources? 28. For the assessment year 2005-06 also, the assesseecontinued the rental arrangement with ATL on the basis of a freshagreement entered into from 1.4.2005 to 31.3.2006. The terms of theagreement are substantially the same as that in the year 2004-05.We have already found in I.T.A. No.185 of 2013 that the rentalincome received by the assessee from ATL for the year 2004-05 is tobe treated as income from other sources since the assessee had notcarried out any manufacturing activity. No change of circumstances I.T.A. No.193/12 & Conn. Cases have been pointed out for the assessment year 2005-06 and hence the rent received by the assessee for the year 2005-06 from ATL is tobe treated as income from other sources and not as businessincome. Therefore, we answer the question against the assesseeand dismiss this appeal. ITA No.207 of 2013(AY 2005-06) 29. This appeal relates to the assessment year 2005-06. This appeal was admitted on the following substantial questions of law. (i) Whether the impugned order of the Tribunal is vitiated on factsand law and hence liable to be set aside?and law and hence liable to be set aside? I.T.A. No.193/12 & Conn. Cases have been pointed out for the assessment year 2005-06 and hence the rent received by the assessee for the year 2005-06 from ATL is tobe treated as income from other sources and not as businessincome. Therefore, we answer the question against the assesseeand dismiss this appeal. ITA No.207 of 2013(AY 2005-06) 29. This appeal relates to the assessment year 2005-06. This appeal was admitted on the following substantial questions of law. (i) Whether the impugned order of the Tribunal is vitiated on factsand law and hence liable to be set aside?and law and hence liable to be set aside? (ii) Whether on the facts and circumstances of the case theIncome Tax Appellate Tribunal was right in law in sustaining thedisallowance of Rs.49,00,000/- being quality loss incurred bythe appellant in respect of products manufactured atappellant's plant for Apollo Tyres Ltd. which were exported byApollo Tyres Ltd. to Apollo International Ltd. and on whichApollo Tyres Ltd. incurred a loss of Rs.49,00,000/-?Income Tax Appellate Tribunal was right in law in sustaining thedisallowance of Rs.49,00,000/- being quality loss incurred bythe appellant in respect of products manufactured atappellant's plant for Apollo Tyres Ltd. which were exported byApollo Tyres Ltd. to Apollo International Ltd. and on whichApollo Tyres Ltd. incurred a loss of Rs.49,00,000/-? 30. The quality loss disallowed by the assessing officer and confirmed by the Tribunal amounted to Rs.49 lakhs. Since we havealready found in ITA 185 of 2013 that the assessee had not carriedout any manufacturing activity in respect of the assessment year2004-05, the finding of the Tribunal disallowing the quality lossclaimed for that year was confirmed by us. 31. For the assessment year 2005-06 also, we had noticed I.T.A. No.193/12 & Conn. Cases -:25:- that there was no change of circumstances. The assessee did not carry out any manufacturing activity for the year 2005-06 also. Nochange of circumstances have been brought to our notice to vary thefindings on the manufacturing activity. The rental income received bythe assessee for the assessment year 2005-06 was also held to betreated as income from other sources . 32. In the aforesaid circumstances, the finding of the Tribunal regarding the disallowance of the expenditure claimed as quality lossis only to be confirmed. The question of law raised in this appeal isfound against the assessee. The appeal is therefore dismissed. ITA 200 of 2013(AY 2006-07) 33. This appeal arises from the assessment year 2006-07. The questions of law raised in this appeal were similar to thoseraised in I.T.A. No.185 of 2013. Hence, we reframed the questionsinto a solitary one as follows: (i) Whether the rent received by the assessee for the year 2006-07 from Apollo Tyres Ltd is to be treated as business incomeor as income from other sources?07 from Apollo Tyres Ltd is to be treated as business incomeor as income from other sources? 34. For the assessment year 2006-07 also the assessee renewed the lease agreement with ATL for a further period of 12months. The terms of the lease are almost identical as in the earlier -:26:- years. No change of circumstances has been brought to our notice to vary the finding on the absence of any manufacturing activityconducted by the assessee. In the above perspective and in view ofour conclusions in ITA 185 of 2013, the question of law raised in thisappeal is answered against the assessee. Accordingly, the order ofthe Tribunal shall stand confirmed, and this appeal is dismissed.ITA No.193 of 2013 (AY 2007-08) 35. This appeal arises from the assessment year 2007-08. The question of law raised in this appeal is similar to question No.(i) in I.T.A. No.185 of 2013 and is as follows: 34. For the assessment year 2006-07 also the assessee renewed the lease agreement with ATL for a further period of 12months. The terms of the lease are almost identical as in the earlier -:26:- years. No change of circumstances has been brought to our notice to vary the finding on the absence of any manufacturing activityconducted by the assessee. In the above perspective and in view ofour conclusions in ITA 185 of 2013, the question of law raised in thisappeal is answered against the assessee. Accordingly, the order ofthe Tribunal shall stand confirmed, and this appeal is dismissed.ITA No.193 of 2013 (AY 2007-08) 35. This appeal arises from the assessment year 2007-08. The question of law raised in this appeal is similar to question No.(i) in I.T.A. No.185 of 2013 and is as follows: (i) Whether the rent received by the assessee for the year 2007-08 from Apollo Tyres Ltd is to be treated as business incomeor as income from other sources?08 from Apollo Tyres Ltd is to be treated as business incomeor as income from other sources? 36. For the assessment year 2007-08 also the assesseerenewed the lease agreement with ATL for a further period of 12months. The terms of the lease are almost identical as in the earlieryears. No change of circumstances has been brought to our noticeto vary the finding on the absence of any manufacturing activityconducted by the assessee. In the above perspective and in view ofour conclusions in ITA 185 of 2013, the question of law raised in thisappeal is answered against the assessee. Accordingly, the order of I.T.A. No.193/12 & Conn. Cases the Tribunal shall stand confirmed, and this appeal is dismissed. ITA No.92 of 2013(AY 2008-09) 37. This appeal arises from the assessment year 2008-09. The question of law raised in this appeal is similar to question No.(i) in I.T.A. No.185 of 2013 and is as follows: (i) Whether the rent received by the assessee for the year 2008- 09 from Apollo Tyres Ltd. is to be treated as business incomeor as income from other sources? 38. For the assessment year 2008-09 also the assessee renewed the lease agreement with ATL for a further period of 12months. The terms of the lease are almost identical as in the earlieryears. No change of circumstances has been brought to our noticeto vary the finding on the absence of any manufacturing activityconducted by the assessee. In the above perspective and in view ofour conclusions in ITA 185 of 2013, the question of law raised in thisappeal is answered against the assessee. Accordingly, the order ofthe Tribunal shall stand confirmed, and this appeal is dismissed. ITA No.93 of 2013(AY 2009-10) 39. This appeal arises from the assessment year 2009-10.The question of law raised in this appeal is similar to question No.(i)in I.T.A. No.185 of 2013 and is as follows: I.T.A. No.193/12 & Conn. Cases (i) Whether the rent received by the assessee for the year 2009-10 from Apollo Tyres Ltd. is to be treated as business incomeor as income from other sources?10 from Apollo Tyres Ltd. is to be treated as business incomeor as income from other sources? 40. For the assessment year 2009-10 also the assessee renewed the lease agreement with ATL for a further period of 12months. The terms of the lease are almost identical as in the earlieryears. No change of circumstances has been brought to our notice tovary the finding on the absence of any manufacturing activityconducted by the assessee. In the above perspective and in view ofour conclusions in ITA 185 of 2013, the questions of law raised in thisappeal are answered against the assessee. Accordingly, the order ofthe Tribunal shall stand confirmed and this appeal is dismissed.Conclusion 41. In view of the above discussions, the questions of lawraised in these appeals are answered against the assessee andhence these appeals shall stand dismissed. Sd/- S.V.BHATTI JUDGE Sd/- vps BECHU KURIAN THOMAS JUDGE renewed the lease agreement with ATL for a further period of 12months. The terms of the lease are almost identical as in the earlieryears. No change of circumstances has been brought to our notice tovary the finding on the absence of any manufacturing activityconducted by the assessee. In the above perspective and in view ofour conclusions in ITA 185 of 2013, the questions of law raised in thisappeal are answered against the assessee. Accordingly, the order ofthe Tribunal shall stand confirmed and this appeal is dismissed.Conclusion 41. In view of the above discussions, the questions of lawraised in these appeals are answered against the assessee andhence these appeals shall stand dismissed. Sd/- S.V.BHATTI JUDGE Sd/- vps BECHU KURIAN THOMAS JUDGE The last two sentences of paragraph 22 of the judgment dated22/07/2021 in ITA No.185/2013 is corrected as “Therefore the qualityloss, if any, can be attributable only to ATL and not to the assessee.In the above circumstances, we answer the third question framed byus in favour of the Revenue” vide order dated 31/03/2022 in I.A. No.1of 2022 in ITA No.185 of 2013. Sd/- Joint Registrar APPENDIX OF ITA NO.193/2012 APPENDIX OF ITA NO.185/2013 PETITIONER'S/S' ANNEXURES: ANNEXURE ATRUE COPY OF AGREEMENT DATED 20/06/2003EXECUTED BETWEEN THE APPELLANT AND M/S.APOLLO TYRES LIMITED.EXECUTED BETWEEN THE APPELLANT AND M/S.APOLLO TYRES LIMITED. ANNEXURE BTRUE COPY OF ASSESSMENT ORDER DATED22/12/2006 OF THE RESPONDENT.22/12/2006 OF THE RESPONDENT. ANNEXURE-CTRUE COPY OF APPELLATE ORDER DATED27.3.2007 OF THE COMMISSIONER OF INCOMETAX (APPEALS) II, KOCHI27.3.2007 OF THE COMMISSIONER OF INCOMETAX (APPEALS) II, KOCHI ANNEXURE-DTRUE COPY OF APPEAL DATED 6.6.2007FILED BY THE RESPONDENT BEFORE THEINCOME TAX APPELLATE TRIBUNAL, KOCHIBENCHFILED BY THE RESPONDENT BEFORE THEINCOME TAX APPELLATE TRIBUNAL, KOCHIBENCH ANNEXURE-ETRUE COPY OF THE CROSS-OBJECTIONS DATED10.7.2007 FILED BY THE APPELLANT BEFORETHE INCOME TAX APPELLATE TRIBUNAL,KOCHI BENCH10.7.2007 FILED BY THE APPELLANT BEFORETHE INCOME TAX APPELLATE TRIBUNAL,KOCHI BENCH ANNEXURE-FCERTIFIEDCOPYOFORDERDATED21.12.2012 OF INCOME TAX APPELLATETRIBUNAL, KOCHI BENCH IN I.T.A.NO.520/Coch/200721.12.2012 OF INCOME TAX APPELLATETRIBUNAL, KOCHI BENCH IN I.T.A.NO.520/Coch/2007 ANNEXURE-GTRUE COPY OF DETAILS OF FIXED ASSETS ASPER SCHEDULE 4 OF THE BALANCE SHEET OFTHE APPELLANTPER SCHEDULE 4 OF THE BALANCE SHEET OFTHE APPELLANT ANNEXURE-HTRUE COPY OF ANNEXURE IV OF THE TAXAUDIT REPORT OF THE APPELLANTAUDIT REPORT OF THE APPELLANT APPENDIX OF ITA NO.200/2013 PETITIONER'S/S' ANNEXURES: ANNEXURE-A TRUE COPY OF LEASE AGREEMENT DATED 1.5.2005 BETWEEN THE APPELLANT AND APOLLO TYRES LTD.BETWEEN THE APPELLANT AND APOLLO TYRES LTD. ANNEXURE-B TRUE COPY OF ASSESSMENT ORDER DATED 12.12.2008 OF THE RESPONDENT12.12.2008 OF THE RESPONDENT ANNEXURE-C TRUE COPY OF APPELLATE ORDER DATED 26.3.2009OF THE COMMISSIONER OF INCOME TAX (APPEALS) II, KOCHIOF THE COMMISSIONER OF INCOME TAX (APPEALS) II, KOCHI ANNEXURE-D TRUE COPY OF GROUNDS OF APPEAL DATED 16.9.2009 FILED BY THE RESPONDENT BEFORE THEINCOME TAX APPELLATE TRIBUNAL, KOCHI 16.9.2009 FILED BY THE RESPONDENT BEFORE THEINCOME TAX APPELLATE TRIBUNAL, KOCHI ANNEXURE-E CERTIFIED COPY OF ORDER DATED 31.1.2013 OF THE INCOME TAX APPELLATE TRIBUNAL, KOCHI BENCH IN I.T.A. NO.410/Coch/2009THE INCOME TAX APPELLATE TRIBUNAL, KOCHI BENCH IN I.T.A. NO.410/Coch/2009 ANNEXURE-F TRUE COPY OF DETAILS OF FIXED ASSETS AS PER SCHEDULE 4 OF THE BALANCE SHEET OF THE APPELLANTSCHEDULE 4 OF THE BALANCE SHEET OF THE APPELLANT ANNEXURE-G TRUE COPY OF DETAILS OF FIXED ASSETS AS PER ANNEXURE IV OF THE TAX AUDIT REPORT GIVING THE COMPUTATION OF DEPRECIATION OF THE APPELLANTANNEXURE IV OF THE TAX AUDIT REPORT GIVING THE COMPUT