By C. N. Vaze
Shailesh Kamdar
Jagdish T. Punjabi
Bhadresh Doshi
Chartered Accountants
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S. 22 r.w.s.
27(iiib) – The provisions of section 22
read with section 27(iiib) are not attracted in the case of an assessee who is
a licensee and not a lessee.
FACTS:
The assessee company, formed with the
main object of acquiring on license or by purchase, etc premises in India and
also to license or sub-license or lease or sub-lease such lands, or property or
premises, had entered into an agreement
dated 16.4.1991 with East India Hotels Ltd. under which it got on leave
and license basis 9000 sq. feet in Hotel Oberoi Towers, Bombay for the purpose
of using it as a shopping centre. The
tenure of the leave and license was for a period of 50 years at a fixed monthly
license fee agreed between the parties.
After acquiring the said shopping space the assessee utilized it in
granting different portions of the shopping space to various parties who were
interested in setting up shops there with the condition that shopkeepers had to
subscribe to a specific number of shares of the assessee apart from payment of
monthly charges. The assessee also
provided various services to the licensees like air-conditioning, telephone
services, maintenance, electricity, water, sanitary, security, etc. The assessee was basically involved in the
business of providing the said shopping space on license along with various
services. The consideration from this
activity was shown as business income.
The assessee claimed license fee paid to East India Hotels as a
deduction.
While assessing the total income of the
assessee under section 143(3) of the Act, the Assessing Officer (AO), in view
of the provisions of section 22 r.w.s. 27(iiib) of the Act, charged the said
income under the head `Income from House Property’.
Aggrieved, the assessee preferred an
appeal to the CIT(A) who confirmed the action of the AO.
Aggrieved, the assessee preferred an
appeal to the Tribunal.
HELD:
The Tribunal noted that the license was
not only for use of the shop area but also for the use of facilities like
air-conditioners, use of elevators, etc.
It noted various clauses of the leave and license agreement with a view
to ascertain whether the subject matter of agreement was a lease or a
license. It noted the definition of
`lease’ under Transfer of Property Act and the definition of `license’ under
the Indian Easements Act and keeping in mind these definitions it laid down the
distinction between the lease and the license.
Applying the tests so laid down it came to the conclusion that the
parties intended it to be a license and the agreement did not create any
interest in the property owned by the licensor and that the licensee did not
have exclusive possession of the property.
The assessee, as a licensee, had granted sub-license to various parties
and derived income therefrom. It held
that once it is concluded that the assessee is only a licensee, then it can
safely be said that the provisions of section 22 read with section 27(iiib) of
the Act are not attracted. Accordingly,
it held that the income in question cannot be assessed under the head `Income
from House Property’.
The Tribunal also observed that keeping
in mind the objects of the assessee and the facts and circumstances of the
assessee’s case, it can be safely concluded that the assessee carried on a
systematic and regular activity in the nature of business and therefore the
income from granting the premises on sub-license was to be assessed under the
head `Income from Business’. It observed
that the latest decision of the Apex Court in the case of Chennai Properties
and Investments Ltd. (373 ITR 673)(SC) was not available to the Tribunal when
it passed the order in case of another group company based on which decision of
the Tribunal the CIT(A) confirmed the action of the AO.
The Tribunal held that in view of the
decision of the Apex Court in the case of Chennai Properties and Investments
Ltd. (supra) the question whether the assessee is a deemed owner under section
22 r.w.s. 27(iiib) of the Act, no longer assumes importance.
The Tribunal allowed the appeal filed by
the assessee.
