Facts Of The Case:

• This appeal, filed under Section 260A of the Income Tax Act, 1961, challenges the concurrent decisions of the Commissioner of Income Tax (Appeals) [CIT(A)] and the Income Tax Appellate Tribunal (ITAT).
• Both authorities concluded that the rental income received by the Assessee from J&K Bank Limited for its property in Lajpat Nagar, New Delhi, and the income from Total Care (India) Pvt. Ltd. and Shivalik Tyres Ltd. for the building in South Extension, New Delhi, should be classified as business income.
• The property in Lajpat Nagar is directly owned by the Assessee, while the South Extension property is leased out to the Assessee.
• According to Section 22 of the Income Tax Act, the annual value of property owned by the Assessee, excluding portions used for business purposes, is chargeable under the head "Income from house property."
• If the property is utilized for business, the profits and gains from that business are taxable under the head "Profit and Gains of business or profession" as per Section 28 of the Act.
• Incomes not falling under specific heads, such as Salaries, Income from House Property, Profits and gains of business or profession, or Capital gains, are taxed under the head "Income from any other sources."
• The Revenue's contention, as presented to the CIT(A) and the ITAT, and reiterated in this appeal, is that the income derived by the Assessee from the two properties should be taxed as "Income from other sources."
• The Revenue argues that the deductions available to the Assessee under the head "Profits and gains of business" are broader and more advantageous compared to those available under the head "Income from other sources."
• The essence of the Revenue's argument lies in the proposition that categorizing the income from the two properties as "Income from other sources" is more beneficial for the Assessee in terms of available deductions.
• Under the head "Profits and gains of business or profession," the Assessee may access a wider range of deductions, potentially resulting in a reduced taxable income.
• It is crucial to note that the CIT(A) and the ITAT have previously ruled in favor of treating the rental income from the mentioned properties as business income.
• This classification implies that the profits and gains derived from the commercial use of these properties are subject to taxation under the specific provisions related to business income, as outlined in Section 28 of the Income Tax Act.
• The crux of the matter revolves around the characterization of the Assessee's activities concerning the Lajpat Nagar and South Extension properties.
• If the primary purpose is deemed as a business, the tax implications differ from those associated with income from other sources.
• The Revenue contends that the more favorable deductions under the business income category should not be applicable in this case.
• The success of the Revenue's argument hinges on establishing that the Assessee's activities related to these properties do not meet the criteria for business income under the Income Tax Act.
• Conversely, the Assessee's position likely involves demonstrating that the nature of the activities qualifies them as a business, justifying the application of the provisions governing business income.
• The outcome of this appeal will not only determine the taxability of the income from the Lajpat Nagar and South Extension properties but also have broader implications for the Assessee's eligibility for specific deductions.
• The interpretation of whether these properties are utilized for business purposes or fall under the category of other sources will play a pivotal role in shaping the final decision.

Issues Of The Case:

1. Whether ITAT was correct in law in treating the amount of Rs.15,07,644/- received by the assesse from J&K Bank Ltd. as "Business Income" and not "Income from Other Sources"?
2. Whether ITAT was correct in law in treating the amount of Rs.52,80,000/- received by the assesse from Total Care(India) Pvt. Ltd. as "Business Income" and not "Income from Other Sources"?
3. Whether ITAT was justified in law in treating the receipt of Rs.51,00,000/- from Shivalik Tyres Limited as "Business Income" and not "Income from Other Sources"?

Judgment:
This distillation of precedents must now be applied by us to the facts of the case. As has already been noted, the assessee was the owner of the property in Lajpat Nagar.

• Especially noted was the fact that the prominent object of the assessee is "to purchase develop, take in exchange or on lease or otherwise acquire lands, houses, farmhouse, buildings, sheds industrial or otherwise and other fixtures on land and buildings and to let them out on lease, rent, contract or any other agreements as may be deemed fit to or, but construct improve, sell, exchange mortgage lands, houses, flats, sheds, factories sheds and buildings apartments to any person on terms and conditions as may be deemed fit or to hold, maintain sell, allot, houses apartments, sheds or buildings thereof to the shareholders or to any other person".
• Even after scrutiny carried out for Assessment Year 1997-1998 to 2000-2001 the receipts were accepted as business income, which was indubitably a plausible view. Since no fresh facts had been brought to light, the consistency rules had been applied. The court finds no error in this conclusion. Question (a) is answered in the affirmative and in favour of the assessee.
• On the second question, the Assessing Officer had arrived at the conclusion that the transaction between the assessee and Total Care (India) Pvt. Ltd. was not a business arrangement and on the understanding of the various clauses of the franchise agreement dated 1.5.2000 concluded that it was essentially a letting of property.
• However, since the assessee was not an owner thereof, it could obviously not have been taxed under the head of "Income from house property" and, therefore, would have to be assessed under the head "Income from other sources".
• The CIT(A) has also discussed the various clauses in the Franchise Agreement in great depth and detail, but has held that the income/commission received by the Assessee from Total Care(India) Pvt. Ltd. was business income.
• The court observed that the premises were chosen by Total Care(India) Pvt. Ltd. firstly because of the location and secondly because of the large number of walk-ins since a restaurant, as well as a Bar, was being run within the same building; the businesses were complimentary to each other; the appellant had covenanted not to open a competing business; Total Care(India) Pvt. Ltd. relied on the expertise of the Assessee with respect to display of goods; the appellant exercised control over the opening and closing of the showroom by Total Care(India) Pvt. Ltd.; since Total Care(India) Pvt. Ltd. could not achieve desirable levels of sales, the Agreement had been terminated. In its place a restaurant by the name of Gourmet Gallery had been opened.
• The Tribunal had also made an in-depth study of the agreements as the user to which the entire building in South Extension had been put.
• It was noted that the business of the assessee, apart from dealing in properties, was also the running of restaurants; that the assessee's purpose was to commercially exploit the business asset, that is, building in South Extension in respect of which it had invested a sum of approximately Rupees 1.3 crores for renovations; that the premises have been earlier utilized to run a store selling garments under the trade name Golden Arch.
• The thinking of the Tribunal was largely influenced by the manner in which the entire building had been utilised. The court finds no reason to dislodge the concurrent findings of fact, as there is no perversity in the conclusion arrived at. Question (b) is accordingly answered in the affirmative and in favour of the assessee.
• So far as the third question is concerned, the CIT(A), as well as the ITAT, had taken note of the fact that the Assessee had also been in the restaurant business.
• All throughout the Assessee was also running its own Bar and had even offered the use of its Bar Licence to Shivalik Tyres Ltd., in the event that the latter had failed to obtain its own. Shivalik Tyres Ltd. was already engaged in the business of restaurant in the name of Orlando at Noida, whilst the Assessee was running Gourmet Gallery.
• The Assessee had taken a decision to exploit its business assets by entering into an arrangement with Shivalik Tyres Ltd. related to the restaurant business.
• The fact that the minimum guarantee amount was stipulated in the agreement to ensure the minimum returns of the investment made by the Assessee could as well be a business decision as it could be a lease agreement.
• Nothing turns on it. Since these concurrent findings of fact are not perverse and to the contrary are relevant, Question (c) is answered in the affirmative and in favour of the assessee.
• The Appeal is dismissed but with no orders as to costs.