Income Tax Appellate Tribunal - Cochin
Premier Tyres Ltd. vs Asstt. Cit on 14 December, 2004
Equivalent citations: [2005]3SOT556(COCH)
ORDER
K.P.T. Thangal, J.M.
1. These appeals and Stay Petitions are by the assessee and pertain to the assessment years 1996-97 and 1997-98.
2. The first ground of appeal by the assessee is of general nature for both the years and as such it does not call for any specific dealing.
3. The first effective ground (ground No. 2) for both the years is against the order of the CIT(A) in upholding the reopening of the assessment under section 147 of the Income Tax Act, 1961. The case of the assessee is that Income Tax (Appeals) ought to have held that mere change of opinion on the same set of facts does not empower the assessing officer to reopen the assessment under section 147 of the Income Tax Act, 1961.
4. The facts leading to the dispute briefly are that the assessee, M/s. Premier Tyres Ltd. is engaged in the business of manufacture and sale of tyres. The assessee filed the return for the assessment year 1996-97 on 29-11-1996 and for the assessment year 1997-98 on 1-2-1997 declaring nil income. For both the years, the assessee leased its plant and machinery to M/s. Apollo Tyres and derived income from lease amounting to Rs. 16.25 crores, out of total receipt of Rs. 18.10 crores for the assessment year 1996-97. The assessment was completed accepting the position claimed by the assessee, i.e., the nature of business, as leasing of plant and machinery.
5. According to the assessing officer since the business was carried on by Apollo Tyres Ltd. using the assessees plant and machinery and workers, the assessee was only getting lease rent and as such the income of the assessee was to be assessed under the head other sources. Hence setting off of carry forward was not allowable. The same is enumerated in the assessment order for assessment year 1996-97, which reads as under :
(a) The assessee had no intention to close down its business operations or sell its assets. On the contrary the company wanted to receive and bring net worth to positive at the earliest.
(b) BIFR after making detailed study came to the conclusion that the company can be revived if adequate funds are brought in, if new management takes over and if Apollo Tyres Ltd. takes the plant on lease.
(c) PTL had lost credibility with banks and financial institutions and hence it was not possible to carry on its operations.
(d) The lease is only for 8 years after which the management of PTL has the authority of carrying on the activities of the factory with an option of either for manufacturing tyres on job work basis or manufacturing its own tyres. In any case PTL intends to exploits the assets as commercial assets.
(e) Premier Tyres Ltd. has authority to carry on by the business of leasing of its assets as per clause 29 of its Memorandum of Association.
(f) Lease arrangement is as per BIFR order, the terms and conditions of which are binding on all parties concerned.
The assessee relied on the following decisions to conclude that the lease rent received by them is business income
(i) CEPT v. Sree Lakshmi Silk Mills Ltd. (1951) 20 ITR 451 (SC);
(ii) CIT v. Vikram Cotton Mills Ltd. (1988) 169 ITR 597 (SC);
(iii) CIT v. Allahabad Milling Co. (P.) Ltd. (1992) 195 ITR 325 (All);
(iv) CIT v. Aryan Industries (P.) Ltd (1982) 138 ITR 718 (AP); and
(v) CIT v. Katihar Jute Mills (P.) Ltd. (1979) 116 ITR 781 (Cal).
However, the claim of the assessee was not accepted by the assessing officer. She noted that as per the report of the Board of Directors of the company for the financial year 1994-95, the assessee had suspended production with effect from 11-3-1994 due to acute cash crunch. Subsequently, as decided by the Government of Kerala, Apollo Tyres Ltd. commenced production at Premier Tyres Ltd. under an agreement for conversion job work. This agreement was commenced on 6-1-1995 and continued till the end of April, 1995. This was an ad hoc arrangement pending the BIFR decision on comprehensive long-term rehabilitation scheme for Premier Tyres Ltd. with effect from 1-5-1995. This rehabilitation scheme was approved by the BIFR vide its order dated 17-4-1995 envisaging take over of Premier Tyres Ltd. by Apollo Tyres Ltd. An additional equity shares of Rs. 10 crores was subscribed by Apollo Tyres Ltd. at par. The rehabilitation scheme provided reconstitution of Board of Directors of Premier Tyres Ltd. (for short PTL) and introduced representative of Apollo Tyres Ltd. (for short ATL) besides the nominee of Government of Kerala, bank of India, Financial Institutions and BIFR. The authorised capital of the company was increased from Rs. 4 crores to Rs. 14 crores. As per the scheme ATL was to operate PTLs plant on an irrevocable lease of 8 years and pay total lease rent amounting to Rs. 45.5 crores to PTL over the period of 8 years. in addition to this ATL was to lift the entire production and sell the same under Apollos brand name ATL was to modernise and expend PTLs plant to achieve a 100 tonnes capacity per day in a phased manner during the period 1998 to 2003. This expansion-cum-modernisation drive involve, an estimated expenditure of Rs. 70 crores to be entirely met by ATL. The revival plan envisages a one-time settlement of dues to Bank and Financial institutions for reducing the term liability which in turn will substantially reduce the interest burden, making operations viable. The rehabilitation scheme also contemplated a voluntary retirement scheme vide agreement dated 28-3-1995 which the employees have arrived at with ATL. It has further noted that the labourers had agreed to abide by the agreements dated 23-11-1994 and 12-12-1994 and on expiry of the said agreements on 27-10-1996, they would enter into afresh agreement with ATL envisaging inter alia the following :
(i) to wage reduction and manpower redeployment for increased production and freezing of wages for a period of three years, if necessary;
(ii) to guarantee a minimum production of 45 tpd;
(iii) to agree to run the plant on seven day working week.
And as per this scheme the Apollo Tyres Ltd. have agreed to-
(1) accept the outstanding liabilities in the books of account of the institutions and banks as on 31-7-1994 as the outstanding liability of PTL;
(2) discharge the liabilities on account of PTL as per the Scheme;
(3) undertake to meet :
(a) any shortfall in projections;
(b) any shortfall in project costs;
(c) any shortfall in the provision for Voluntary Retirement Scheme;
(d) any contingent or other liability not known or not disclosed at the time of the scheme by bringing in interest-free funds of their own and not by diverting working capital or funds earmarked for long-term investment.
(4) The amount of Rs. 1,000 lakhs already brought in by ATL shall stand converted into equity share capital of M/s. PTL at par on the date of sanction of the Scheme;
(5) Bring in additional funds of Rs. 400 lakhs in the form of subordinate, interest-free, unsecured loans as per cash flow statement for meeting the cost of scheme. These loans would be repayable after the dues of institutions /banks are cleared;
(6) ATL has already arrived at an agreement with employees/staff regarding VRS (Annexure-V) and on the expiry of existing agreement on 27-10-1996 with labour (Annexure-VI) PTL, under the new management, shall enter into afresh agreement as per para 3C above; and (7) Undertake to meet the expenditure of Rs. 70 crores on proposed modernisation-cum-expansion scheme from their own sources/internal accruals.
According to the assessing officer at the end of the arrangement of this lease agreement as on 31-3-2003, the liability of PTL will contain share capital of Rs. 3.24 lakhs together with the capital introduced by ATL of Rs. 1,000 lakhs, reserves and surplus of Rs. 50 lakhs and profit and loss account of Rs. 40 lakhs, thus, making the total liability at Rs. 1,414 lakhs. The asset side will consist of net block of fixed assets at Rs. 31 lakhs and cash and bank balances of Rs. 1,383 lakhs. In other words PTL will be having fixed assets of Rs. 31 lakhs on which ATL would spent Rs. 70 crores. Rs. 70 crores was additional investment as noted above by ATL and not to be reflected in the account of PTL. It will not enhance the value of assets of PTL.
6. Thus the assessing officer came to the conclusion that at the end of the lease period PTL has zero current assets, zero stores and spares and a net block of assets of with draw value of Rs. 31 lakhs of which Rs. 16 lakhs is the cost of land (which is neither plant nor machinery). ATL spent Rs. 70 crores for modernisation, which is not an asset of PTL will not be reflected in the accounts of the assessee. As per the scheme employees and staff of Head Office as well sales office were to retire voluntarily and the agreementwas entered between ATL and workers, not PTL. ATL was to supply raw materials to manufacture tyres as to their own specification and sell it under their brand name, for a price fixed by them. According to the assessing officer the net result would be PTL will not have head office, sales office and will have the same workers, who work for ATL. For the above reasons, the assessees claim that its lease rent should be treated as income from business was negatived by the assessing officer. The decisions relied by the assessee was also rejected distinguishing that in all that cases the business was carried on by the assessee and due to certain crises there was temporary stoppage of the business activity and leased the assets for utilisation of it. It was just allowing to use the assets without altering the assets. The assessing officer particularly placed reliance on the decision of the Supreme Court in the case of Universal Plast Ltd. v. CIT (1999) 237 ITR 454 (SC).
7. While deciding the issue against the assessee, the assessing officer further noted that there was clear clause as to what will happen after the lease period. He held so the probable culmination of the events will have to be deduced from the facts already existing at the end of the lease period what the PTL will have is only fixed assets having written down value and ATL will have modernisation expenditure incurred to the tune of Rs. 70 crores. In addition to this, he noted that the employees/workers are of ATL and not PTL, i.e., ultimately only ATL will survive and PTL will be forgotten species. There is no scope of PTL reviving of its old business of manufacture and sale of tyres. The assessee advanced another plea before the assessing officer that the object clause of Memorandum of Association, particularly clause 29 includes leasing of assets. Thus, leasing of assets by virtue of Memorandum of Association itself should be treated as business. The assessing officer held that it is not the business of the assessee company. This is only an authorisation to do so to the company.
8. The assessing officer also rejected the claim of carry forward and set off particularly placing the reliance upon the decision of the Honble Supreme court in the case of B.R. Ltd. v. V.B. Gupta, CIT (1978) 113 ITR 647 (SC), wherein their Lordships held, "interconnection, inter-lacing, inter dependence and unity must be established by the existence of common management, common business organisation, common administration, common fund and common place of business." In this case, the business organisation and administration had undergone a vast change. It is now virtually controlled by ATL. Thus, he rejected the benefit of carry forward of loss as well. The assessees plea that PTL and ATL running the business jointly also rejected by the assessing officer because she held that the fact remains that in the absence of head office/sale office, employees/staff, the involvement of PTL become passive. The assessees plea that PTL was incurring all the manufacturing expenses including labour, power, fuel, etc. were also rejected by the assessing officer as it is entirely reimbursed by ATL. She held that there is no joint venture of PTL and ATL. Thus, the assessing officer treated the entire income from other sources. Aggrieved, the assessee approached the first appellate authority.
9. The first objection of the assessee was with regard to the reopening of the assessment itself. It was the case of the assessee that the assessee received lease rent from ATL during the relevant assessment year was very much evident from the Directors report itself and from the profit and loss account and hence there was no new material came to the possession of the assessing officer to reopen the assessment after the completion of the same. It is only a change of opinion. There was no reason to believe to the assessing officer that the income chargeable to tax has escaped. No material came to her notice or possession. The authorised representative relied on the decisions in CIT v. Kelvinator of India Ltd. (2002) 256 ITR 1 (Del) and Pala Marketing Co-operative Society Ltd v. State of Kerala (1999) 236 ITR 604 (Ker), in support of his plea.
10. The learned Commissioner of Income-tax did not accept the view canvassed by the assessee. He held that the assessing officer noticed the complete stoppage of tyre manufacturing business by the assessee and it leased out its assets to ATL. He further held that since the assessee stopped the business, the assessee was not entitled to set off of the unabsorbed business loss against the income from other sources since "such set off was prohibited by the proviso to section 72(1)(i) of the Income Tax Act". He further held that "as per the proviso to section 147, action under section 147 can be taken after the expiry of a period of four years from the end of the relevant assessment year only if the assessee has not filed the return of income or disclosed all the material facts for that assessment year. In the instant case the assessing officer has reopened the assessment on 23-3-2001 within the four year period. Hence, the notice under section 148 is within time and is valid. Therefore, the additional ground of the appellant regarding the reopening of the assessment under section 148 is rejected."
11. It was contended by the assessee that the assessee, a sick industrial undertaking approached the Board for Industrial Finance Reconstruction (BIFR) for rehabilitation. The claim was accepted. As per the scheme it was the responsibility of ATL to rehabilitate PTL, the sick undertaking by extending technical, financial and management support. There is no intention to stop or discontinue the business for ever. ATL took over the plant and machinery of PTL on an 8 year irrevocable lease. The raw materials were to be provided by ATL at their cost. PTL will incur the manufacturing expenses including labour, power, fuel, storage and spares, consumables, insurance and other factory running and administration expenses but will be reimbursed by ATL. As per BIFR scheme, the entire production was to be lifted by ATL, which indicates the involvement and the limit of ALTs role, i.e., procuring raw materials and marketing. PTL had no intention to stop the business at any stage. The assessee also relied on the Governments order, which states that the power will be supplied at concessional rate to M/s. PTL for three years. PTL was allowed to request extension of the concessional rate of supply of electricity. It was further submitted that it was part of over all BIFR scheme that the compensation payable by ATL was fixed as leased rent for the plant and machinery and reimbursement of manufacturing and other expenses. It was a part of the scheme of the reorganisation of the business and nothing else. Thus, it was an income from business and the assessee declared it as such rightly. The assessee was utilising its own workmen directly in the plant and operates and incurring manufacturing expenses, of course reimbursed as per the scheme, out of the lease rent.
12. It was the case of revenue before the CIT(A) that due to acute cash crunch production was stopped by PTL permanently and as per BIFR scheme the production was entrusted to ATL. They had taken over the entire business activity. The assessee had no capacity and no intention to manufacture tyre in its factory. ATL introduced Rs. 10 crores (1,000 lakhs) by additional equity shares at par. They had also undertaken modernisation. of plant and machinery expending Rs. 7,000 lakhs. Against this, the assessees total assets consists plant and machinery, written down value of which worth Rs. 15 lakhs and other assets of Rs, 1,383 lakhs which itself shows that the assessee had no capacity, and no intention to return to the manufacturing business activity. The staff at head office and sale offices throughout the country had been retired by VRS. As against this, the assessee stated that it had no intention to stop the business permanently. ATL only introduced funds, modernised the plant and machinery just to carry on the business and make it a viable one. The workers of the assessee continues as the workers of the PTL. The assessee was incurring manufacturing expenses though it was reimbursed by ATL out of the lease rent. The factory managers, technicals, supervisory staff and managerial staff were directly engaged and continued in the pay roll of PTL. Remuneration is paid under its own vouchers. All the other beneficiary schemes were undertaken by PTL, as its own. However, the CIT(A) rejected the claim of the assessee. Aggrieved by the above order, the assessee is in appeal before the Tribunal.
13. Shri Satyanarayana, the authorised representative of the assessee took us through the written submissions made before the CIT(A) and submitted firstly that the reopening is invalid because it is a mere change of opinion and all the facts were before the assessing officer at the time of original assessment. The assessing officer accepted the assessees view, after calling for the details and after scrutiny of the same. No fresh material came to the possession of the revenue. The learned authorised representative reiterated the submissions made before the revenue authorities and further brought our attention to the ESIC payments which were made by the assessee, power supply invoices of KSEB till today is in the name of the assessee, which is evidenced at pages 238 to 246, so also the machinery maintenance, work orders and invoices in 1996-97 as evidenced at pages 247 to 251 of the paper book, to show that the assessee was in fact continuing its existence. Further, insurance policy for the period 1-4-1995 to 30-6-1995 is also in the name of the assessee. Sales-tax assessment notice even for the current period is issued in the name of the assessee. These all indicate that the assessee had no intention to stop the business permanently. Further, the learned authorised representative submitted that even the decision relied on by the assessing officer in Universal Plast Ltd v. CIT (1999) 237 ITR 454 (SC), is in assessees favour and against the revenue. Therefore, the learned authorised representative submitted that the reopening of the assessment itself was bad and also on merit, the revenue had no case.
14. Replying to the objections of the assessees representative with regard to the reopening of the assessment, the learned departmental representative, Shri Sreekumar, submitted that the assessing officer passed a very cryptic order without applying the mind. He discussed the entire issue with one sentence "the details called for were furnished and the same were scrutinised." There is no application of mind by allowing the claim of the assessee and treating the lease rent as business income and allowing carry forward. It caused loss to the revenue. The assessing officer, thus, has rightly reopened the assessment.
15. The learned DR., on merit submitted that for all practical purposes, the management of the company has been transferred permanently to ATL. The new directors have been brought to formulate the policies of the company. The learned DR further submitted that ATL had brought in Rs. 10 crores by way of its share. It had invested another sum of Rs. 70 crores for modernisation of plant and machinery. Against this, the PTLs assets is worth Rs. 31 lakhs. Rs. 16 lakhs as land cost and the remaining arc assets. He further submitted that even the assessees representative use the words it had taken over which itself indicates that PTL had ceased to exist for all practical purposes. In the circumstances, in further only ATL will survive. As per the VRS, the staff of head office and sale offices were retired voluntarily and subsequently the workers had entered into an agreement with ATL. So after the expiry of 8 years, there is no scope for survival or making PTL alive and it cannot return to its old manufacturing activities.
16. Replying to above, the assessees representative submitted that the change of management does not mean that the existence of the corporate body itself vanished. It is a corporate body. It does not cease to exist. Even now it is a listed company. Value of shares had gone up. It does not, therefore, mean that PTL had ceased to exist. Coming to the sum of Rs. 70 crores invested by ATL, the assessees representative submitted that it is reflected in the balance sheet of ATL and not in the balance sheet of PTL and as such leasing out of the premises was only a temporary phenomenon. He, further, submitted that the Board of Directors of ATL regularly viewed the plant operation of PTL and also reviewed the performance of PTL prepared by its officers, which is sufficient to prove that PTL has worked its plant. PTL has set hygiene building standards and technical specifications too be achieved by its labourers from week-to-week basis. PTL also availed working capital loan from the bank. This is only for business of PTL. As per BIFR scheme working strength of the employees had only gone up, not come down. PF and ESI contributions are made by PTL. The Government of Kerala has supplied the power to PTL. KSEB bills for the supply of electricity are paid by PTL itself. PTL is maintaining the plant and machinery. All these, indicates that the assessee had the intention of continuing the business and had no intention to stop the business activities. The premises had been rented out to over come the present financial difficulties and this is not a permanent arrangement. Over 80% of the business activities are done by PTL and only 20% of the work, i.e., procuring of raw material and marketing is done by ATL. Thus relying upon the following judgments, the assessees representative submitted that the order of the CIT(A) is liable to be set aside :
(a) CEPT v. Sree Lakshmi Silk Mills Ltd. (1951) 20 ITR 451 (SC);
(b) CIT v. Vikrarn Cotton Mills Ltd. (1988) 169 ITR 597 (SC);
(c) CIT v. Allahabad Milling Co. (P.) Ltd. (1992) 195 ITR 325 (All);
(d) CIT v. Aryan Industries (P.) Ltd. (1982) 138 ITR 718 (AP);
(e) CIT v. Katihar Jute Mills (P.) Ltd. (1979) 116 ITR 781 (Cal);
(f) Sree Hanuman Sugar & Industries Ltd. v. CIT (2004) 266 ITR 106 (Cal);
(g) Prem Trading Co. v. CIT (1987) 166 ITR 211 (MP);
(h) CIT v. Northern India Iron & Steel Co. Ltd. (1995) 211 ITR 370 (Del);
(i) CIT v. Premchand Jute Mills Ltd. (1987) 164 ITR 288 (Cal); and
(j) Universal Plast Ltd. v. CIT (1999) 237 ITR 454 (SC).
He further placed the following facts to the consideration of the Tribunal :
On the facts before the Honble Supreme Court Facts of the appellant
(a) At the time licence agreement was entered into, the intention of ultimate outright sale deed was already there. Assessee for such a sale deed at the licensees pleasure and there is no means of the assessee falling back from that commitment. The agreement was lease-cum-sale.
The agreement for lease was for a period of 8 years at the instance of BIFR, in order to make the net worth of the company positive. There was no agreement for lease-cum-sale
(b) Business of ginning cotton stopped in 1964 and did not start even in 1977.
Assessee continued the business of manufacture of tyres and it was never stopped its business even for a day.
(c) Godown of the assessee let out to a tobacco merchant and hence the assessee cannot be said to be carrying on business of cotton When godown so let out Godown, factory, plant etc. given on lease to Apollo Tyres Ltd. to facilitate carrying on of the business of manufacture of tyres by the assessee.
(d) Machinery remained idle for a very long period and assessee had separated machinery from godown and let out the pressing factory to a Metal Pressing factory.
It was never remained idle and the asset were not given to a person who is not in the business of manufacture of tyres.
17. Hearing rival submissions and going through the orders of the revenue authorities, we are of the view that the first effective ground of the assessee, i.e., with regard to the reopening of the assessment has to go against the revenue in the light of the decision of the Delhi High Court in the case of CIT v. Kelvinator of India Ltd. (2002) 256 ITR 1 (Del). In this case, their lordships of the Honble High Court held as under :
"In the event it is held that by reason of section 147 if the Income Tax Officer exercises his jurisdiction for initiating a proceeding for reassessment only upon a mere change of opinion, the same may be held to be unconstitutional. We are therefore of the opinion that section 147 of the Act does not postulate conferment of power upon the assessing officer to initiate reassessment proceeding upon his mere change of opinion.
We, however, may hasten to add that if reason to believe of the assessing officer is founded on an information which might have been received by the assessing officer after the completion of assessment, it may be a sound foundation for exercising the power under section 147 read with section 148 of the Act.
We are unable to agree with the submission of Mr. Jolly to the effect that the impugned order of reassessment cannot be faulted as the same was based on information derived from the tax audit report. The tax audit report had already been submitted by the assessee. It is one thing to say that the assessing officer had received information from an audit report which was not before the Income Tax Officer, but it is another thing to say that such information can be derived by the material which had been supplied by the assessee himself.
We also cannot accept the submission of Mr. Jolly to the effect that only because in the assessment order, detailed reasons have not been recorded an analysis of the materials on the record by itself may justify the assessing officer to initiate a proceeding under section 147 of the Act. The said submission is fallacious. An order of assessment can be passed either in terms of sub-section (1) of section 143 or sub-section (3) of section 143. When a regular ordec of assessment is passed in terms of the said sub-section (3) of section 143 a presumption can be raised that such an order has been passed on application of mind. It is well known that a presumption can also be raised to the effect that in terms of clause (e) of section 114 of .the Indian Evidence Act judicial and official acts have been regularly performed. If it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the assessing officer to reopen the proceeding without any further, the same would amount to giving a premium to an authority exercising quasi judicial function to take benefit of its own wrong.
For the reasons aforementioned, we are of the opinion that the answer to the question, raised before this bench must be rendered in the affirmative, i.e. in favour of the assessee and against the revenue. No order as to costs."
There is no case for the revenue that any new material has come into the possession of the revenue so as to hold that the order of the assessing officer was passed without application of mind. A reading of the above quoted portion also makes it clear that it is not necessary for the assessing officer to give a detailed reason as to why he comes to the above conclusion in the order itself.
18. In the case of Pala Marketing Co-operative Society Ltd v. State of Kerala (1999) 236 ITR 604 (Ker), their lordships of the jurisdictional High Court held as under :
"...That the primary facts regarding the claim of written down value had been furnished. However, while working the depreciation rate, instead of 33-1/3% for all items the assessee made a claim of 50 per cent, with reference to 12 items. This claim on the rate of depreciation could not be held to be failure to disclose fully and truly material facts necessary for assessment. It could not be stated that it was the duty of the assessee to point out that he had made a wrong claim in the rate of depreciation. The material facts having been placed before the assessing officer it was the duty of the officer to draw the inference from those material facts disclosed. Section 147 is of special or extraordinary nature since it empowers reopening of an assessment after the period of limitation of four years and hence must satisfy the test strictly. Therefore, the notice issued for reassessment was not valid,"
This decision cannot be applicable in the instant case of the assessee because there the reopening was done after four years and their Lordships held that the conditions must satisfy strictly.
19. Now coming to the merit on the basis of the facts brought hereinabove, we are of the view that the issue has to go in assessees favour. It is to be seen that the agreement is irrevocable for a period of 8 years. As rightly contended by the learned authorised representative of the assessee, the assessee as an corporate entity, it continues to exist. The share value of the assessee has gone up. Merely additional amount of Rs. 110 crores has been invested by way of share by ATL does not mean that the existence of the PTL has been diluted. The ATL has acquired share in PTL. Coming to the investment of Rs. 70 crores in the plant and machinery, the assessees representative submitted that the investments are reflected in the books of account of the ATL. Mere change of administrative level officers/ directors, as rightly contended by the representative of the assessee, does not mean that the corporate existence itself is disappeared. The stand of the revenue that the word used "take over" does not support the revenues case. It is for a limited period of 8 year. The direction of BIFR is to the effect that the production is by PTL and the entire production shall be lifted by ATL for sale in the brand name of ATL and ATL has to make available the raw materials. These are the two functions that have been entrusted to ATL. The payment to the staff is made by PTL. The welfare schemes are also continuing and operated by PTL. All these indicate that PTL is existing. The Kerala Government has supplied the electricity to PTL as per order dated 29-8-1995. The agreement by KSEB is with PTL. All these, indicates that the existence of PTL as contended by the revenue does not ceased to exist.
20. If there is no intention to continue the business and it is let out, then of-course it cannot be treated as income from business. If the assessee because of certain difficulties i.e., either by financially or for some other reasons is let out the land, plant and machinery to a third party for a limited period and receiving rent such rent is to be treated as income from business. The cases relied upon by the assessee such as CEPT v. Sree Lakshmi Silk Mills Ltd. (1951) 20 ITR 451 (SC), CIT v. Vikrarn Cotton Mills Ltd. (1988) 169 ITR 597 (SC), CIT v. Allahabad Milling Co. (P.) Ltd. (1992) 195 ITR 325 (All), CIT v. Aryan Industries (P.) Ltd (1982) 138 ITR 718 (AP), CIT v. Katihar Jute Mills (P.) Ltd. (1979) 116 ITR 781 (Cal), Sree Hanuman Sugar & Industries Ltd. v. CIT (2004) 266 ITR 106 (Cal), Prem Trading Co. v. CIT (1987) 166 ITR 211 (MP), CIT v. Northern India Iron & Steel Co. Ltd. (1995) 211 ITR 370 (Del), CIT v. Premchand Jute Mills Ltd. (1987) 164 ITR 288 (Cal) and Universal Plast Ltd. v. CIT (1999) 237 ITR 454 (SC), (mentioned in para 16 of this order) support the case of the assessee. In all these cases, the Honble Supreme Court and various High Courts held that rental income received for a limited period by way of letting out plant and machinery because the assessee was unable to operate on account of some difficulties either obtaining the raw materials or financial difficulties, etc., then that income has to be treated as income from business. The only limitation is that the assessee should have the present intention to revive the industry/ activity in a future date when the difficulties ceased to exist or the assessee is in a position to over come the difficulties.
21. From the facts stated as above, there is nothing on record to show that the assessee had no present intention to revive its business at an appropriate time. Therefore, this issue is decided against the revenue and in favour, of the assessee.
22. The fourth ground (effective third ground) for both the years under consideration is against the order of the CIT(A) in confirming the disallowance of certain business expenditure claimed. The assessing officer disallowed and the CIT(A) confirmed the disallowance of expenditure incurred by the assessee towards the payment of VRS for head office and sales office staff and gratuity paid to the retired employees as part of the BIFR scheme. We have already held hereinabove that the rental income received by the assessee is to be treated as income from business and as such this ground becomes academic interest. The assessing officer is directed to give consequential relief to the assessee.
23. The Stay petitions moved by the assessee become infructuous and as such they are dismissed.
24. In the result, the appeals are allowed whereas the stay petitions are dismissed as infructuous.