Income From Sub-Letting Is 'Business Income' If Object Is Business Of Renting/Licensing Of Shops: Calcutta High Court

Finding that assessee's income from sub-letting/sub-licensing the space in question, has always been accepted by Respondent / Income Tax Department as, income from business, the Calcutta High Court held that assessee's income from sub-licensing/sub-letting is chargeable to tax as business income and not as income from house property.

The Division Bench comprising of Justice Surya Prakash Kesarwani and Justice Rajarshi Bharadwaj observed that “Since the object of the assesse company and its activity is the business of renting/licencing/sub-licencing shops etc. and it derived income mainly from the aforesaid business activity, therefore, the income from contribution/sub-licencing derived by the assesse is business income and not income from house property”. (Para 18)

As per the brief facts of the case, the assessee-Company 'Oberoi Building & Investment (P) Ltd', a subsidiary of EIH Limited, entered into a leave and licence agreement with EIH, to obtain an office space for a period of 50 years in Oberoi Sheraton Hotel at Bombay. Thereafter, the assessee sub-let/sub-licenced the said space to different persons along with certain services and for that received a consideration on monthly basis. The assessee therefore made disclosure as total contribution received from letting out shops and claimed expenses towards contribution for licence fee and other charges, under the head of business income. The AO treated the total receipts towards license fees as rental income. After allowing deduction under Section 24(a) of Income tax Act, 1961, computed income from house property.

When the matter reached ITAT, referring to Section 27(iiib) which defines the term 'deemed owner' and Section 269UA(f) which defines the word 'transfer', it was held that the income derived by assessee is 'Income from House Property'. Challenging the same, the assessee had approached the High Court.

The Bench observed that the ITAT, while holding the impugned receipts to be chargeable to tax under the head income from house property, committed a manifest error of law to ignore the object and business activity of the assessee and misunderstood the nature of transaction of sub-license.

The Bench further observed that both the memorandum of association and the assessment order mentions that the assessee is engaged in the business of licensing the space in question.

“When the respondent Income Tax Department has always accepted the income of the appellant assessee from sub-licensing/sub-letting of the space in question, to be income from business, then the respondent cannot take a contrary stand in the present appeal”, added the Bench.

The Bench further added that assessee's objective ancillary to the main object as mentioned in the memorandum of association is to acquire on licensed premises suitable for housing, accommodating shops, boutiques, stores, offices, showrooms for the purpose of making available the same based on lease or licence and sub-licence.

Noting that the assessee is engaged in business of sub-licensing/sub-letting the space in question since the year 1972, the Bench allowed the appeal of assessee and directed that any amount already deposited by assesse towards the demand made by Department shall be refunded to the assesse.

Counsel for Appellant: Akhilesh Kumar Gupta & Akshara Shukla

Counsel for Respondent: Smarajit Roychowdhury

Citation: 2023 LiveLaw (Cal) 19

Case Title: Oberoi Building & Investment (P) Limited verses CIT and Another

Case Number: ITA/168/2010

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