M/S Orient Hospital Ltd vs The Deputy Commissioner Of Income

Citation: 315 ITR 422 (Mad)

Submitted by

Abhilash G

BA0130001

Case review Submitted to

Ms. Ruchi Singh

Professor of Law

TAMIL NADU NATIONAL LAW SCHOOL

(A State University established by Act No. 9 of 2012)
NavalurKuttapattu, Srirangam (TK), Tiruchirappalli 620009.
Facts of the case:

The assessee company has constructed an hospital building and it was running the hospital
from the assessment year 1991-92 to 1997-98. As the assessee company suffered loss in
running the business, the hospital building along with various equipments and machineries
was leased out to Apollo Hospitals Enterprises Ltd., on a monthly lease of Rs.3,00,000/-per
month and the same was claimed as business income against which earlier business losses
were set off. The Assessing Officer treated the income from lease of the hospital as 'income
from other sources' and therefore disallowed setting off the earlier years business losses and
assessed the lease income from the hospital as 'income from other sources'. Aggrieved against
the order of the Assessing Officer, the appellant preferred appeal before the
C.I.T.(Appeals)which reversed the decision of the Assessing Officer. According to the
C.I.T.(Appeals) if a commercial asset was exploited for profit, even through some third party
the income would remain as a 'business income' only and allowed the appeal. Aggrieved
against the said decision of the C.I.T.(Appeals), the Revenue took the matter before the
Income-Tax Appellate Tribunal.

The contention of the Revenue was that the lease income was neither 'business income' nor
the income could be used for deducting the previous years losses. The Income Tax Appellate
Tribunal after elaborately discussing the matter came to the conclusion relying upon the
judgment of this Court reported in 266 ITR 685 (COMMISSIONER OF INCOME TAX V.
CHENNAI PROPERTIES AND INVESTMENTS LTD.,)following the Apex Court
judgment reported in 237 ITR 454 (UNIVERSAL PLAST LTD V. CIT)came to the
conclusion that the income from leasing of the hospital can be assessed only as "income from
other sources" and set aside the order of the C.I.T.(Appeals) and restored the order of the
Assessing Officer in this regard. At the same time, the Tribunal also gave a finding in
favour of the assessee that even though the lease income could be treated as income from
other sources, as regards the deductions in respect of the losses from out of the lease income
was still permissible under law as per the decision reported in 259 ITR 26 (CIT V.
RAMNATH GOENKA) and partly allowed the appeal. The Tribunal has only partly allowed
the appeal filed by the Revenue that the income from the lease income has to be treated as
"income from other sources"; but at the same time the lease income may be allowed to set off
the previous years losses. Aggrieved against this, the present appeal has been preferred by the
assessee.
Issue:

Whether on the facts and in the circumstances of the case the Tribunal was right in law in
holding that the income from lease of Hospital, after giving a finding that the Hospital
basically remains a business asset, should be assessed as "Income from Other Sources" and
not as 'Business Income?

Arguments:

When the premises is given on lease for a period of five years and notice period required for
getting the same vacated is 365 days and that too only when the lessee fails to fulfil all the
conditions of the agreement, it clearly shows that the assessee company had no intention to
take back the leased premises and run the hospital on its own. Thus, respectfully following
the decision of the Hon'ble Apex Court in the case of (UNIVERSAL PLAST LTD., Vs. CIT)
(supra), we hold that income from leasing of the hospital can be assessed only as income
from other sources and thus we set aside the order of the Id. CIT (Appeals) and restore that of
the Assessing Officer.

Further, the Tribunal has also given a clear finding that even if the Hospital basically remains
a business asset, as per the ruling of this Court reported in 259 ITR 26 (supra), the business
loss carried forward can be set off against dividend income from the shares held as stock-in-
trade. This finding of the Tribunal is as follows:

However, we find force in the alternative contention of the Id. counsel of the assessee that
carry forward of loss is to be allowed to set off even against the income from other sources, if
the assets were business assets. We find that the Hon'ble Madras High Court in the case of
CIT Vs. RAMNATH GOENKA (supra) has held that business loss carried forward can be set
off against dividend income from shares held as stock-in-trade, even if such dividend was
assessable under head income from other sources. Therefore, we direct the AO to allow set
off of carried forward business even against the head income from other sources because the
assets under consideration i.e., hospital basically remains a business asset.
Judgement:

A reading of section 56(2)(iii) of the Income TaxAct, 1961 which is extracted hereunder
"Where an assessee lets on hire machinery, plant or furniture belonging to him and also
buildings, and the letting of the buildings is inseparable from the letting of the said
machinery, plant or furniture, the income from such letting, if it is not chargeable to income-
tax under the head "Profits and gains of business or profession; would indicate that such an
income derived out of the lease of the property and furniture as in this case cannot be treated
as income from profits and gains of business or profession. Therefore, the Tribunal relying
upon the judgment of the Supreme Court cited supra has categorically held that the lease of
the building can be adjusted with the carry forward business losses even against the head
income from other sources. The finding given by the Tribunal "as income from other
sources" is consistent, correct and legal and we are convinced by the finding of the Tribunal.
We find no reason to set aside the order of the Tribunal insofar as the finding related to the
income being treated as "income from other sources."Apart from this, the question of law
which is sought to be raised by the appellant in this appeal does not deserve any consideration
as the very question has been already decided by this Hon'ble Court in the decision reported
in 266 I.T.R. 685 we answer the question against the assessee. As the only question of law
regarding the income being treated as 'Income from other sources is already decided by this
Hon'ble Court in 266 I.T.R. 685 following the decision of the Hon'ble Supreme Court
reported in 237 I.T.R. 454 we respectfully follow the above decision and we find no reason to
interfere with the order of the Tribunal.

The appeal stands dismissed. No costs.