M/s Orient Hospital Ltd. v. The Deputy Commissioner of Income TaxCompany Circle-IMadurai

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED:29.06.2009CORAM:THE HONOURABLE MR.JUSTICE F.M.IBRAHIM KALIFULLAANDTHE HONOURABLE MR.JUSTICE B.RAJENDRANT.C.(Appeal).NO.321 of 2009and M.P.No.1 of 2009M/s Orient Hospital Ltd.,No.13,Kamraj Nagar IV StreetChinna ChokkikulamMadurai..AppellantvsThe Deputy Commissioner of Income TaxCompany Circle-IMadurai..Respondent T.C.(Appeal)No.321 of 2009 is filed U/s 260 A of the Income TaxAct against the order of the Income Tax Appellate Tribunal, "C"Bench, Chennai dated 15th September, 2006 in ITANo.2323/Mds/2004.against the order of the Commissioner of Income-Tax(Appeals)-1, Madurai dated 14.6.2004 in PAN No.AAA Co1757D for theassessment year 2001-02 against the order of the Deputy Commissionerof Income Tax Company Circle, Madurai dated 6.2.04 in P.A.No.AAA CO1757D for the assessment year 2001-02.For appellant: Mr.K.Venkatanarayanan for Subbaraya Aiyar PadmanabhanFor respondent : Mr.Haja Nazirudeen, Special Govt.Pleader(Tax)..... https://hcservices.ecourts.gov.in/hcservices/ JUDGMENT(Judgment of the Court was made by B.RAJENDRAN,J.)The assessee has preferred the appeal against the order passedby the Income Tax Appellate Tribunal, in ITA.No.2323/Mds/2004 dated15.9.2006.2.(i)The assessee company has constructed an hospitalbuilding and it was running the hospital from the assessment year1991-92 to 1997-98. As the assessee company suffered loss in runningthe business, the hospital building along with various equipments andmachineries was leased out to Apollo Hospitals Enterprises Ltd., on amonthly lease of Rs.3,00,000/-per month and the same was claimed asbusiness income against which earlier business losses were set off.(ii)The Assessing Officer treated the income from lease ofthe hospital as 'income from other sources' and therefore disallowedsetting off the earlier years business losses and assessed the leaseincome from the hospital as 'income from other sources'.(iii)Aggrieved against the order of the Assessing Officer,the appellant preferred appeal before the C.I.T.(Appeals)whichreversed the decision of the Assessing Officer. According to theC.I.T.(Appeals) if a commercial asset was exploited for profit, eventhrough some third party the income would remain as a 'businessincome' only and allowed the appeal. (iv)Aggrieved against the said decision of the C.I.T.(Appeals), the Revenue took the matter before the Income-TaxAppellate Tribunal. The contention of the Revenue was that the leaseincome was neither 'business income' nor the income could be used fordeducting the previous years losses. (v)The Income Tax Appellate Tribunal after elaboratelydiscussing the matter came to the conclusion relying upon thejudgment of this Court reported in 266 ITR 685 (COMMISSIONER OFINCOME TAX V. CHENNAI PROPERTIES AND INVESTMENTS LTD.,)following theApex Court judgment reported in 237 ITR 454 (UNIVERSAL PLAST LTD V.CIT)came to the conclusion that the income from leasing of thehospital can be assessed only as "income from other sources" and setaside the order of the C.I.T.(Appeals) and restored the order of theAssessing Officer in this regard.At the same time, the Tribunalalso gave a finding in favour of the assessee that even though thelease income could be treated as income from other sources, asregards the deductions in respect of the losses from out of the leaseincome was still permissible under law as per the decision reportedin 259 ITR 26 (CIT V. RAMNATH GOENKA) and partly allowed the appeal. https://hcservices.ecourts.gov.in/hcservices/ The Tribunal has only partly allowed the appeal filed by the Revenuethat the income from the lease income has to be treated as "incomefrom other sources"; but at the same time the lease income may beallowed to set off the previous years losses. Aggrieved againstthis, the present appeal has been preferred by the assessee.3.Heard both.4.The only question of law, which is sought to be pressedinto service by the assessee, is as follows:"Whether on the facts and in thecircumstances of the case the Tribunal was rightin law in holding that the income from lease ofHospital, after giving a finding that the Hospitalbasically remains a business asset, should beassessed as "Income from Other Sources" and not as'Business Income?"The Tribunal following the decision of the Madras High Courtreported in 266 I.T.R. 685 (COMMISSIONER OF INCOME TAX V. CHENNAIPROPERTIES AND INVESTMENTS LTD.,) which followed the decision of theSupreme Court reported in 237 I.T.R. 654 (UNIVERSAL PLAST LTD., Vs.C.I.T.) has come to a clear conclusion that the income from the leaseto third party would be only treated as income from other sources.For arriving out a conclusion the Tribunal has clearly given afinding as follows:"When the premises is given on lease for aperiod of five years and notice period required forgetting the same vacated is 365 days and that tooonly when the lessee fails to fulfil all theconditions of the agreement, it clearly shows thatthe assessee company had no intention to take backthe leased premises and run the hospital on itsown. Thus, respectfully following the decision ofthe Hon'ble Apex Court in the case of (UNIVERSALPLAST LTD., Vs. CIT) (supra), we hold that incomefrom leasing of the hospital can be assessed onlyas income from other sources and thus we set asidethe order of the Id. CIT (Appeals) and restore thatof the Assessing Officer."Further, the Tribunal has also given a clear finding that even if theHospital basically remains a business asset, as per the ruling ofthis Court reported in 259 ITR 26 (supra), the business loss carriedforward can be set off against dividend income from the shares heldas stock-in-trade. This finding of the Tribunal is as follows: https://hcservices.ecourts.gov.in/hcservices/

9. However, we find force in the alternative contentionof the Id. counsel of the assessee that carry forward ofloss is to be allowed to set off even against the incomefrom other sources, if the assets were business assets. Wefind that the Hon'ble Madras High Court in the case of CITVs. RAMNATH GOENKA (supra) has held that business losscarried forward can be set off against dividend income fromshares held as stock-in-trade, even if such dividend wasassessable under head income from other sources. Therefore,we direct the AO to allow set off of carried forwardbusiness even against the head income from other sourcesbecause the assets under consideration i.e., hospitalbasically remains a business asset. 10. In the result, the appeals are partly allowed." 5.A reading of section 56(2)(iii) of the Income TaxAct, 1961which is extracted hereunder"Where an assessee lets on hire machinery, plant or furniturebelonging to him and also buildings, and the letting of thebuildings is inseparable from the letting of the saidmachinery, plant or furniture, the income from such letting, ifit is not chargeable to income-tax under the head "Profits andgains of business or profession;"would indicate that such an income derived out of the lease of theproperty and furniture as in this case cannot be treated as incomefrom profits and gains of business or profession. Therefore, theTribunal relying upon the judgment of the Supreme Court cited suprahas categorically held that the lease of the building can be adjustedwith the carry forward business losses even against the head incomefrom other sources. The finding given by the Tribunal "as incomefrom other sources" is consistent, correct and legal and we areconvinced by the finding of the Tribunal. We find no reason to setaside the order of the Tribunal insofar as the finding related tothe income being treated as "income from other sources." 6.Apart from this, the question of law which is sought to beraised by the appellant in this appeal does not deserve anyconsideration as the very question has been already decided by thisHon'ble Court in the decision reported in 266 I.T.R. 685 we answerthe question against the assessee.7.As the only question of law regarding the income beingtreated as 'Income from other sources is already decided by thisHon'ble Court in 266 I.T.R. 685 following the decision of the Hon'bleSupreme Court reported in 237 I.T.R. 454 we respectfully follow the https://hcservices.ecourts.gov.in/hcservices/ above decision and we find no reason to interfere with the order ofthe Tribunal.8.The appeal stands dismissed. No costs. Consequently,M.P.No.1 of 2009 is also dismissed.salSd/Asst. Registrar/true copy/Sub Asst.RegistrarTo1. The Assistant Registrar, Income Tax AppellantTRibunal, IIIrd Floor, Rajaji Bhavan, Bestant Nagar, Chennai-90.2. The Commissioner of Income-Tax (Appeals)-1,Maduari.3. The Deputy Commissioner of Income Tax Company Circle-I Madurai+ 1 cc to Mr. R. Venkatanarayanan, Advocate Sr.27267.T.C.(Appeal)NO.321 OF 2009Tc(CO)EU 31.7.2009.